Introducing UMA’s Long Short Pair (LSP) Financial Primitive.

UMA has built a new contract template called the Long Short Pair (LSP) contract. This is a simple but powerful contract that enables a suite of new products.

The LSP is simple in its design (around 300 lines of code! It allows for the creation of arbitrarily complex derivatives with fungible short and long positions and without the need for active position management.

How the LSP Works

As stated previously, the LSP is simple. There are only three main actions a user can perform.

Mint new pairs of long and short tokenized risk.

Redeem pairs of long & short tokens before the contract has settled.

Settle positions of long or short tokens after the contract has settled. They would be redeemable for an amount of collateral determined by the contract’s settlement price.

At any time, a minter can deposit an amount of collateral, collateralPerPair, to mint one short and one long token. At this time, the minter will be fully collateralized and will have a risk-neutral position. Regardless of how much the long and short tokens respectively settle to be worth, the summed value of the two will still be worth the total amount of collateral used to mint, which means that at any time, the minter can also close out his/her position by redeeming a pair of long and short tokens for one share of minting collateral.

⬇️DETAILS:

https://medium.com/uma-project/introducing-umas-long-short-pair-lsp-financial-primitive-84596803864f