PMM Credit

What is PMM credit?

Credit is required when private market makers facilitate credit-based swaps within the Native Swap Engine. For each token swap, a Private Market Maker (PMM) is effectively longing the input token that the user provides while simultaneously shorting the output token that is borrowed from Native Credit Pool and subsequently distributed to users.

Consequently, in this process, credit is required to bridge the gap between the long and short positions. For instance, if a PMM is longing 3,000 USDC while shorting 1 WETH, with the price of WETH at 3600 USD, the PMM must maintain an additional 600 USD in collateral to ensure that the credit remains positive.

How to calculate credit?

The available credits for the PMM will be computed using:

Credit = longPositionUsd - shortPositionUsd + collateralUsd

Note: longPositionUsd and collateralUsd are subject to collateral factors which varies between tokens. More details here.

Collaterals

PMMs contribute liquidity in the form of base tokens to the Native credit pools, such as USDC, USDT, WETH, and WBTC. Upon the locking the Liquidity Provider (LP) tokens, these liquid asset deposits are transformed into collateral which subsequently contributes to the total available credits.

For instance, a PMM may deposit and secure 1 USDT in the Credit Pools, with the collateral factor of 90% resulting in 0.9 USD being added to the pool of available credits.

Long Positions

Furthermore, assets held in long positions also contribute credits.

For example, should a PMM maintain a long position of 1 USDC, with the collateral factor being 80%, then 0.8 USD would similarly be added to the available credits.