This page explains the mechanics behind TACO price markets in more depth. For the trader-facing walkthrough, start with Overview and Open and close positions.

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Pricing: oracle, not a curve

TACO price markets are not a constant-product (x*y=k) AMM. There is no bonding curve, and the size of the pool does not move your fill price. Your entry price, mark price, close price, and liquidation price all come from the market’s oracle price at execution time. The only slippage protection is an optional price band — a minimum payout or oracle price bounds you attach when closing or reducing — which the contract checks against the execution-time oracle price, not the price your app last displayed.

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Position value and psi (ψ)

A trader position’s value is not shares * share price. It is computed from your collateral, direction, leverage, entry price, and the latest oracle price, and then scaled by a pool-level solvency multiplier called psi (ψ).
  • Raw value is the price move applied to your leveraged exposure, floored at zero. You can never owe more than your deposited collateral.
  • Adjusted value is the raw value scaled by psi: adjusted value = raw value × (psi at open ÷ current psi).
Psi keeps the shared pool solvent when many longs and shorts draw on one limited collateral base:
  • Psi never goes below 1. When the pool is empty, balanced, or under-claimed, psi is exactly 1 and adjusted value equals raw value.
  • When the aggregate claims of open positions would otherwise exceed the pool’s available collateral, psi rises above 1, which proportionally reduces positions’ adjusted value so the pool can still pay everyone.
  • On top of that, any single payout is capped by the pool’s available collateral (total active collateral).
Because psi moves with the whole pool’s state, your adjusted value — and your health — can change even when the oracle price has not moved and you have not submitted any transaction.

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Pool accounting

  • Total active collateral: the effective collateral base backing trader positions, LP value, and pending settlements.
  • Pool shares: an internal unit used to mint and redeem LP claims on the pool. Share price is total active collateral ÷ total pool shares. Pool shares are an LP bookkeeping device — they are not used to value trader positions. See Price market liquidity.

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Health and liquidation

Each active position has a health ratio = adjusted value ÷ collateral (1.0 = fully healthy). A position is liquidatable when its health ratio falls strictly below the market’s liquidation threshold.
  • Anyone can liquidate an eligible (non-cross-margin) position.
  • The liquidator receives an incentive (a configurable share of the position’s adjusted value, e.g. 5% by default), paid out directly.
  • The remaining adjusted value is escrowed for the owner to claim.
  • Liquidation does not charge the normal close fee.
The displayed liquidation price is an estimate from current parameters; it can change as the oracle price, psi, and pool state change, and for some low-leverage long positions there is no positive displayed liquidation price at all. That does not make those positions immune — they can still be liquidated if psi or funding pushes their health below the threshold. Cross-margin positions are handled differently: they are liquidated at the account level (your margin account’s equity vs. its maintenance requirement), not by closing a single pool position.

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Settlement: close, then claim

When you close a position (or it is liquidated), the collateral owed to you is not transferred to your wallet automatically. The pool credits it to a settlement escrow, and you (or the app) send a separate claimSettlement transaction to withdraw it. The exception is cross-margin positions: their proceeds are credited directly to your margin account, with no separate claim step.

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Funding (optional)

TACO price markets do not use the traditional long/short funding loop. Instead, a market can optionally enable a trader-to-LP funding charge (off by default, configured per market by a risk role):
  • Funding flows from traders into the LP pool, sized by how much trader exposure the pool carries relative to LP value.
  • The crowded (majority) side pays a skew premium; the minority side receives a discount.
  • Funding is taken from your margin and, if needed, from your position value — so it reduces your payout and health while the position is open.

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Fees

  • Fees apply on both open and close (liquidation uses a separate path and does not charge the normal close fee).
  • A dynamic imbalance adjustment can make trades that worsen pool imbalance more expensive and trades that improve it cheaper (down to zero), when the market enables it.
  • A vTACO staking score can discount a trader’s effective fee. See Fees and staking.