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Trader needs to pledge the altcoin as collateral to the collateral pool. The altcoin and BTC have a fixed ratio, which is specified when creating the pool. After pledging the altcoin to the collateral pool, it can be used as collateral to take a long or short position on BTC. During the closing and settlement, both profits and losses are settled using the altcoin. For example, if Alice pledges A Token 1000, and the ratio of A Token to BTC is specified as 1000:1 when creating the pool, it means Alice has pledged collateral worth 1 BTC. Suppose the price of BTC is $1000 at the time, and Alice takes a long position on 1000 contracts (each worth $1). When the price of BTC reaches $1250, the unrealized profit is: Profit = (1/1000 - 1/1250) * 1000 = 0.20 BTC = 200 A Token
LP also needs to pledge alt oin to the collateral pool. Unlike the trader, LP does not need to choose a direction but directly acts as the counterparty to the trader. Additionally, LP earns a portion of the trading fees as profit when the trader opens or closes positions.
Creating pools is permissionless, meaning anyone can create a pool. After creating a pool, anyone can provide the corresponding token as LP or become a trader.