Profit and Loss
Perennial is cash-settled and therefore all profit and loss is paid directly from the taker to the maker and vice versa.
P&L is settled every oracle version globally on a per-position basis. Account-level P&L is synced when a user makes any position-related updates to their account (i.e. opening or closing a position). All P&L is settled via collateral accounts.
The market ensures that the aggregate notional value of taker positions never exceeds the aggregate value of maker positions to cap the short exposure on the maker side. In all cases, makers are exposed utilization (%) times short from 0% to 100%.
Utilization = Taker Position / Maker Position
Taker Exposure = ( 1 x Payoff - Funding(Utilization) )
Maker Exposure = ( Funding(Utilization) - 1 x Payoff ) x Utilization
Perennial works the same way as Compound or Aave when utilization is high. Rates are increased dramatically to increase liquidity (and incentives demand to reduce exposure). However, it is possible that this could result in a liquidity crunch, where makers are unable to close positions because doing so would push utilization over 100%.
However, this type of event is unlikely to occur, and if it were to occur, would likely be very short-lived. Perennial's funding-rate mechanism is specifically designed to combat this situation. If taker utilization ever approaches (or exceeds) 100%, the funding rate aggressively increase toward it's max value (a parameter intentionally set extremely high) such that arbitrageurs provide additional liquidity to take advantage of the high yield (perhaps offsetting on a CEX to avoid risk) and/or takers close positions to avoid paying a high funding rate.
Even though Perennial caps takers open interest at maker open interest, in the event LPs are highly leveraged & taker utilization is high, it is possible that enough maker positions would be liquidated such that there are more taker positions outstanding than maker positions. If this were to occur, Perennial resolves via PnL socialization, meaning takers would have pro rata exposure to maker positions (Note: this would be exactly the opposite of how the system typically works, where makers get pro rata exposure to taker positions). During this time, takers are able to reduce open interest, but they would not be able to increase open interest.
Similar to the edge case above (taker OI approaches maker OI), the economics of the system are designed to quickly reverse this case.
For both cases, These should be viewed as very rare situations, and Perennial has internal & external mechanisms at play to prevent and/or quickly reverse the situation to return the protocol to normal operation.