This is a core benefit of Perennial. Unlike other derivatives platforms with many markets batched into one, creating convoluted risk that is difficult to properly manage, Perennial fundamentally segregates pools.
LPs opt into which assets they want to be exposed to and the level of risk they’re willing to take. Some pools will be more aggressive/risky, optimizing for maximum utilization, while others will be less risky, only scaling up exposure when its safe.
If there isn’t an existing pool that suits an LP, they are free to deply one themself by customizing parameters & pricing curves.
Just like takers, makers have the ability to get leverage exposure, allowing for capital efficient LP'ing.
Makers can think of their notional exposure as: (Collateral * Leverage) * (utilization %) The product of collateral & leverage is the total possible notional exposure a maker can offer, and the utilization % is some value between 0% & 100% (usually). As such, with decent utilization, it is feasible for makers to be utilizing 100%+ of their underlying collateral, making this model very efficient (see chart below).
As such, unlike other DeFi derivatives protocols, in Perennial, Maker liquidity has the potential to significantly exceed TVL.
Now that you’ve created a position, the capital deposited as collateral becomes a perpetual offer to take the other side of a taker’s trade at the current oracle price (+ some lag). In other words, the capital is always offered up to takers (similar to a limit order), but may not always be utilized (or taken). As such, a maker’s exposure to the price feed is some fraction of the notional maker possible (the max possible exposure).
Suppose there are 1000 USDC desosited into a maker position within a pool with no taker positions open. In its current state, utilization is 0 and thus the maker has no active exposure to that market. Then, a trader opens a taker position for 200 USDC worth of exposure. Now, 20% of the pool has been matched with a taker, meaning that 20% of the pool is exposed to the market, and 80% remains unexposed on the sidelines.
[Additionally, the maker pool of capital accrues fees every time a position is opened or closed (trading fees), in addition to earning the full value of the borrow fee (funding rate). The higher the trading volume & open interest, the higher the fees.]
Unlike a Compound LP position where LPs take on no directional/price risk or a Uniswap (V2) LP position where LPs take on minimal directional/price risk (impermanent loss), in Perennial, LPs take the other sides of trades, fully exposing them to the outcome of that trade. If traders win, Perennial LPs lose; if traders lose, Perennial LPs win.
Perennial is designed to make as few assumptions for LPs as possible — as such, hedging is not baked into the core protocol. We expect that LPs will choose to hedge outside of the protocol and/or by building vaults and higher-level protocols on top. In Perennial, risks/exposure is separated & requires LP opt-in, allowing LPs to specifically tailor the exposure they want and don’t want, making hedging (or offsetting risk) straightforward.
This is in contrast to other similar protocols that attempt to build this all in-protocol, batching many risks and a uniform-hedging model. Doing so fundamentally limits how LPs can interact with the system, especially more sophisticated LPs.