Debt

Wondering why you have accrued debt in your LP position?

Because Liquidity Providers provide collateral to back perps markets, LPs are exposed to trader performance, including wins, losses, fees paid, and trader liquidations.

Trader Performance

When traders place winning trades, LPs take on debt to pay for this positive performance. Conversely, when traders place losing trades, LPs will see their debt reduced or can claim positive PNL.

Trader Liquidations

In the event of trader liquidations, the debt that a trader had accrued at the time of liquidation is distributed to LPs.

In the current version, liquidated trader collateral is also distributed to LPs. This liquidated collateral is claimable in the "Rewards" section of the Liquidity App.

The value of the liquidated trader margin collateral distributed is always greater than the debt distributed at the time of liquidation.

If you have claimable rewards (apart from USDC or SNX, which are more likely incentives rewards), it is likely that these rewards come from a liquidated trader's margin collateral. In this case, you will also have received a portion of the trader's accrued debt.

In future versions already in development, liquidated trader margin collateral will be sold to automatically repay debt accrued at the time of liquidation.