How to: Stack
Isolated lending markets are created on Kodiak V3 pairs, taking trust assumptions from the quality of the TWAP oracle.
To market-make on margin, open a Tackle Box and deposit margin made up of the assets in the pool.
The total value is what matters, not the specific composition. If you wish, you may only provide margin in one asset.
Open a leveraged Kodiak V3 concentrated liquidity position through a Stacking Salmon Tackle Box.
The Tackle Box supports a passthrough interface - see contract docs for how to format your call, or use Stacking Salmon's "Stack" web app.
When you want to close the position and repay the loan, the divergence loss (also known as IL, or the difference in value between the Kodiak V3 position and the outstanding liabilities) is deducted from the Tackle Box, along with the interest paid to lenders. You keep the earned trading fees and remaining margin.
If you fail to close your position in time, or the position accrues too much of a loss, you can get liquidated.
The liquidation threshold is determined by the amount of margin for a given position (aka leverage factor), the position bounds, and the volatility of the underlying assets.
If the IL suffered by your position gets too close to the value of your margin, anyone can liquidate your Tackle Box and close your borrows.
Much like a regular borrow, closing your position will deduct IL from your Tackle Box. Additionally, a small incentive will be paid to the liquidator responsible for repaying the borrows.
Desmos Simulation (single Kodiak position):
Why does Stacking matter?
Improved Capital Efficiency for Hedging
Sophisticated market makers often hedge their LP positions with instruments like perpetual contracts and options. When the LP positions are created through Stack, they can be of the same notional value with less upfront capital, while the hedging cost remains the same. This allows for the strategy to grow in total size, or for the capital to be productively deployed elsewhere.
Trustless and Public Borrowing
All of the trust mechanics for Stacking Salmon are encoded on-chain. The lending markets do not depend on any external entity for enforcement. Additionally, the composability of smart contracts will let the profits earned by market makers fit the interest rate mold that many existing decentralized lending users expect.
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