Premiums and Yields

Pamer premiums work differently to virtually all other financial products in both the traditional and crypto markets. They are designed to be provably fair, price-efficient and represent good value compared to other risk markets.

How Pamer calculates premiums

Pamer’s premiums are applied to Takers regardless of whether they close above the floor, or claim stablecoins in the event of finishing below the floor.

The premium is calculated dynamically based on a range of factors, including the measured volatility during the period the position is opened.

Premiums are charged incrementally, across the entire Asset Pool each time a state change occurs.

A state change is triggered by a number of possible factors, including new positions being opened and variances in the protected assets price — in other words, volatility.

Pamer calculates and deducts the accumulated premium payable by that individual user when the position is closed.

This means that although premiums of an individual protection position cannot be known in advance, the method of their calculation is known and based ultimately on volatility in the market.

Risk is relative

Rather than matching an individual Taker against an individual Maker in a combative, zero-sum position, all participant interactions take place between the individual and one of the protocol’s pools.

This means premiums and yields are distributed proportionally amongst all Takers and Makers based on their position size, chosen floor/risk tier, and term length.

Taker positions with higher floors have a higher risk of making a Claim, and so incur a higher premium. Conversely, Makers who select a higher Risk Tier have higher leverage relative to other Makers; they take more of the profits if things are going well, but also more of the losses if they leave when there is a sharp price decline in the underlying asset price.

On both sides, longer Terms are generally regarded as a net benefit to the protocol as they aid in stabilising liquidity over time. As a result, longer terms receive a discount on premiums for Takers and can mitigate against potential impermanent losses on the Maker side.

How Pamer measures risk

Pamer measures economic risk by monitoring the price of a protected asset (such as ETH) in the context of the liabilities assumed by the protocol.

The amount of liquidity each pool requires to fulfil potential claims or closes is determined by a target ratio. Should the amount of liquidity in a given pool fall outside the target, rebalancing then occurs across the protocol pools.