# Market Design

## Market Mechanism <a href="#market-mechanism" id="market-mechanism"></a>

In V2 of Perennial, markets natively net long positions against short positions, and only utilize maker liquidity to cover the resulting imbalance. This yields markets that are up to an order of magnitude more efficient in terms of open interest to required maker liquidity.

V2 now nets longs & shorts instead of V1's design which had segregated markets for long & short payoffs.

<figure><img src="https://docs.perennial.finance/~gitbook/image?url=https%3A%2F%2F2608572446-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FesXIGSYvKcOjqMTCdsjo%252Fuploads%252FqOJYqINcVXDq5D9uC9kS%252FPerennial%2520V2%2520Mechanism%2520Overview.png%3Falt%3Dmedia%26token%3Dd3f92fba-8302-4afe-8715-f2299cf827aa&#x26;width=768&#x26;dpr=4&#x26;quality=100&#x26;sign=bb323e31&#x26;sv=1" alt=""><figcaption><p>V2 now nets longs &#x26; shorts instead of V1's design which had segregated markets for long &#x26; short payoffs.</p></figcaption></figure>

## Utilization of Maker Liquidity <a href="#utilization-of-maker-liquidity" id="utilization-of-maker-liquidity"></a>

The maker side of the market is only required to cover the net exposure of the taker side: longs & shorts. Long and short taker positions are first netted out against each other with the resulting exposure directed to the maker pool pro-rata.

With 10u long & 6u short, the maker pool (consisting of 5u total) is taking on 4u short exposure pro-rata or is 0.80x short.

<figure><img src="https://docs.perennial.finance/~gitbook/image?url=https%3A%2F%2F2608572446-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FesXIGSYvKcOjqMTCdsjo%252Fuploads%252FUkxOoPZcGYAf0cew9zyA%252FPerennial%2520V2%2520Mechanism%2520Overview%2520%281%29.png%3Falt%3Dmedia%26token%3D914fd2fc-34c1-4bdc-ac1b-f75d1e35b340&#x26;width=768&#x26;dpr=4&#x26;quality=100&#x26;sign=a4d94666&#x26;sv=1" alt=""><figcaption><p>With 10u long &#x26; 6u short, the maker pool (consisting of 5u total) is taking on 4u short exposure pro-rata or is 0.80x short.</p></figcaption></figure>

## Market Simulator <a href="#market-simulator" id="market-simulator"></a>

To help understand how different mixes of maker/long/short effect the market we've built a little simulator. Try it out for your self here: [Perennial Market Simulator](https://pnl-sim.vercel.app/)

<figure><img src="https://docs.perennial.finance/~gitbook/image?url=https%3A%2F%2F2608572446-files.gitbook.io%2F%7E%2Ffiles%2Fv0%2Fb%2Fgitbook-x-prod.appspot.com%2Fo%2Fspaces%252FesXIGSYvKcOjqMTCdsjo%252Fuploads%252FLYjeyHHaSvkboV1mWrSo%252FScreenshot%25202024-02-20%2520at%25203.29.27%25E2%2580%25AFpm.png%3Falt%3Dmedia%26token%3D6c86a1f0-768c-463a-87d6-4774d4fbb6ff&#x26;width=768&#x26;dpr=4&#x26;quality=100&#x26;sign=66f0871e&#x26;sv=1" alt=""><figcaption></figcaption></figure>


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