MLP Rebalancing

The fees to mint MLP, burn MLP or to perform swaps will vary based on whether the action improves the balance of assets within the MLP or reduces it. For example, if the pool has a large percentage of ETH and a small percentage of USDM, actions which further increase the amount of ETH will have a high fee while actions that reduce the amount of ETH will have a lower fee.

The token weights can be seen on the Dashboard. The weighting figures show the current utilisation alongside the target utilisation current/target.

Token weights are adjusted to help hedge MLP holders based on the open positions of traders. For example, if a lot of traders are long ETH, then ETH would have a higher token weight to encourage more ETH deposits, if a lot of traders are short, then a higher token weight will be given to stablecoins.

If token prices are increasing, then the price of MLP will increase as well, even if a lot of traders have a long position on the platform, this is because limits are in place for the maximum proportion of any given token that can be reserved at any given time. The portion reserved for long positions can be treated as stable in terms of its USD value since if prices increase the profits from that portion will be used to pay traders, and if prices decrease, the losses of traders will keep the USD value of the reserve portion the same.

If a lot of traders are short and larger weights are given to stablecoins, then MLP holders would have a synthetic exposure to the tokens being shorted, e.g. if ETH is being shorted then, if the price of ETH decreases then the price of MLP will decrease, conversely, if the price of ETH increases then the price of MLP will increase from the losses of the short positions.

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