Examples

In this section, we walk through some concrete scenarios of how short selling trades and earnings happen on the Particle protocol.

Setup

A supplier provides her BAYC #9307 to Particle, and she specifies a 30% APY and 32 ETH in collateral. Let's suppose the current floor price of BAYC is 30 ETH. A trader now provides 2 ETH as the margin to sell this supplier's BAYC to the floor.

Scenarios

Now let's consider the following four scenarios:

1. Profit. BAYC floor drops to 25 ETH, and 1 ETH interest has accrued over time. The trader decides to take the profit.

   • The trader can use Particle frontend to buy a floor BAYC #268 with 25 ETH (trader only pays gas, Particle contract makes the actual purchase). The supplier now gets BAYC #268 and the 1 ETH interest. The trader gets 30 - 25 (price difference) + 2 (margin) - 1 (interest) = 6 ETH, with 4 ETH as the realized profit.

   

2. Loss. BAYC floor increases to 31 ETH, and 0.5 ETH interest has accrued over time. The trader decides to stop the loss.

   • Through Particle frontend, the trader can buy a floor BAYC #268 with 31 ETH. The supplier now gets BAYC #268 + 0.5 ETH interest. The trader gets 30 - 31 (price difference) + 2 (margin) - 0.5 (interest) = 0.5 ETH, with -1.5 ETH as the realized loss.

   

3. Refinance. Another supplier provides BAYC #268 to Particle, with an offering of 20% APY and 33 ETH in collateral. In the original position, 0.2 ETH interest has accrued over time.

   • The trader can refinance through Particle frontend, adding 1 ETH to the margin. The original supplier gets BAYC #268 and 0.2 ETH interest. The interest accrual stops for the original supplier and begins for the new supplier.

   • By default, with the BAYC #268, the original supplier continues the 30% APY and 32 ETH desired price to new traders.

   • Suppose floor of BAYC then drops to 25 ETH and 0.1 ETH interest has accrued on the new position, the trader can buy BAYC #1077 at floor, receiving 30 - 25 (price difference) + 3 (total margin) - 0.3 (total interest) = 7.7 ETH, with 4.7 ETH as realized profit.

   

4. Auction. 1 ETH interest has accrued over time, and the supplier decides to start auction. The auction lasts 36 hours, with a buy price linearly increases from 0 ETH to 32 (position locked amount) - 1 (accrued interest) = 31 ETH. Let's consider two branches of possibilities: auction concludes with or without a buyer.

   • At around hour 30, someone accepts the offer of 25.8 ETH to provide BAYC #268. Then the supplier gets BAYC #268 + 1 ETH interest. The trader gets 30 - 25.8 (price difference) + 2 (margin) - 1 (interest) = 5.2 ETH back, with 3.2 ETH realized profit.

   • If the auction concludes and no NFT accepts the offer, the supplier can withdraw 32 ETH as collateral, and the trader loses the margin (-2 ETH loss).