Liquidity Debt

  • Liquidity pool insolvency

In order to address the possibility of liquidity pool insolvency during extreme market conditions where there is a high risk of liquidity pool of counterparty and a risk of traders unable to close profiting positions.

Qilin V2 mitigate the insolvency effects with a liquidity pool debt solution that allows debt issuance for liquidity pools to pay for profiting positions when the value of the pool goes beyond a certain Liquidity Provider Safety Factor (LPSF). This is analogous to the circuit breaker mechanism in the stock market. When the liquidity pool borrows debt to pay for profiting positions, a debt market issues Debt Token to traders through the pool as proof for future payments . The pool repays the debt to pay for traders’ profit with future liquidity pool tokens.


  • The debt market does not limit debt issuance

  • The debt market is permissionless for liquidity providers and positions holders

  • Debt token holders can redeem liquidity pool token when the pool is profiting.

  • Debt Token and the LP Token can be exchanged at a 1:1 ratio.

  • When adding liquidity and redeeming debt, the total amounts of LP, liquidity, and debt are equal.

  • Higher the LP loss, the more the pool pays for debt redemption.

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