Native Offset Shorts

An SV3 offset short is an on-chain position against a market token's above-floor premium. It is not a conventional perpetual future with an oracle mark, funding transfers, or an insurance pool.

A market must opt in and attach a separate OffsetPerpMarket. Each short is isolated, non-transferable, and margined in USDC. The trader supplies no price or mark: contract math derives every release, restore, health check, and liquidation from current on-chain curve state.

What opening a short does

Let:

• $T$ be actual ERC-20 token supply;
• $C$ be the virtual curve-supply coordinate;
• $O=T-C$ be the signed supply offset; and
• $q$ be the short size.

Opening keeps actual supply unchanged while moving the curve coordinate down:

$$T'=T,\qquad C'=C-q,\qquad O'=O+q$$

The market calculates the certified backing that is no longer required above the floor:

released premium = requiredBacking(T, C) − requiredBacking(T, C − q)

That USDC moves from FloorMarket into the position's released-premium escrow. The trader separately deposits USDC margin and pays the open fee. Escrow is position backing; it is not immediately paid to the trader.

How an offset short gains or loses

Closing reverses the virtual supply move:

$$T'=T,\qquad C'=C+r,\qquad O'=O-r$$

The position pays the current restore cost for the closed size. Released-premium escrow pays restore cost and the close fee first; margin pays any remainder.

For a full close:

payout = remaining margin + remaining escrow − restore cost − close fee

offset-short PnL
  = payout − margin deposited − later margin additions + margin withdrawals − open fee

A fall in above-floor premium can make restore cheaper and benefit the short. A rally, floor raise, or unfavorable close order can make restore more expensive and consume margin. Open and close restore integrals may telescope when nothing else moves, but external trades change the shared curve coordinate.

Margin and health

The contract tracks:

available assets = margin after carry + released-premium escrow

conservative restore = max(live-tip restore, recorded-band restore)

full-close obligation
  = conservative restore + close fee + liquidation buffer

equity = available assets − full-close obligation

New positions must supply initial margin. A margin withdrawal must leave equity at or above the initial-margin requirement. Health quotes preview pending carry instead of reporting the stored margin as if no time had passed.

Carry

Carry charges for occupying curve coordinate. It is not a transfer between conventional long and short traders.

daily carry rate = 0.03%
carry base       = entry restore cost for the remaining size
destination      = protocol fee bucket

Carry is deducted from margin only. Released-premium escrow is never used for carry. If margin reaches zero, unpaid carry remains attached to the live position and consumes later margin additions before they improve health. Terminal non-recourse settlement clears any uncollectible remainder without touching escrow.

Partial and full close

A partial close:

• restores only the requested size;
• charges the 0.125% close fee on that restore cost;
• returns no immediate payout;
• keeps the remaining band anchored to its more expensive end;
• reduces the remaining carry base with position size; and
• requires the remaining position to satisfy initial margin.

A full close pays out all assets left after restore cost and the close fee, subject to the trader's maximum restore-cost and minimum-payout limits.

Opening a short removes sellable curve coordinate. The market cannot burn tokens below its signed supply offset, so aggregate token sells may be limited until active offset is restored or surrendered. The offset is not a lock on a particular wallet's tokens, but it can leave part of the market's token supply temporarily outside the curve-sell path.

Flag, liquidation, and surrender

Anyone may flag a position whose equity is at or below maintenance margin. An unchanged position cannot be re-flagged to restart the five-minute grace period. Unrelated market activity and time-based carry do not invalidate the flag; health is recomputed at execution.

After grace:

1. The contract verifies the position witness and settles pending carry.
2. It recomputes health from current curve state.
3. If assets cover full restore and the close fee, the position closes. The liquidator receives at most 1% of remaining margin, and any remainder goes to the owner.
4. If assets cannot restore the full offset, the contract restores the maximum affordable size, charges the close fee on that restored size, and records the rest as surrendered short offset.

Surrender is non-recourse. It pays no owner claim, never debits another position, and cannot take more than the position's margin plus escrow. The caller still supplies a maximum restore cost and minimum restored size, so surrender cannot silently ignore slippage protection.

Fixed safety envelope

Positive short transitions must satisfy every cap, not just one:

The 1,000,000-AVM aggregate bound and 50,000-USDC market escrow bound are a paired economic safety envelope. They are absolute values, not percentages that automatically grow with a market. This release does not allow increaseCaps to raise either one.

Directory gross-cap accounting also counts active short margin and escrow. Ordinary market inflows cannot consume the restoration headroom reserved for live positions, and close/surrender paths remain subject to market and protocol caps.

Portfolio P&L history

The indexer discovers each attached OffsetPerpMarket and updates the owner's existing portfolio ledger when a position opens, adds or removes margin, partially closes, flags, closes, liquidates, or surrenders.

The portfolio API and graph keep offset shorts separate from token trading and advance financing:

total portfolio P&L
  = token realized P&L
  + token unrealized P&L
  + advance financing P&L
  + offset-short realized P&L
  + offset-short unrealized P&L

A live offset short is marked at its latest position event using the full-close value quoted by the contract. The graph labels that component as estimated between position events because passive carry and unrelated curve trades can move the executable value before the next indexed position mutation. A close, liquidation, or surrender replaces the live mark with terminal realized P&L.

Perps trading interface

The market's Perps tab uses one collateral-first workflow for both sides:

1. Choose Long or Short.
2. Enter the USDC you are contributing.
3. Select leverage from 1.0× through the displayed ceiling. The live quote may lower the usable maximum when floor capacity, liquidity, or market caps bind.
4. Review the derived position size, AVM amount, average entry or entry premium, fees, debt or total wallet debit, and position health.

For a long, the protocol uses the USDC contribution plus floor-backed financing to buy and pledge real AVM. Repeating the action increases the same owner/market position. For a short, the contribution is isolated margin and the quote solves for the largest offset-short size inside that premium exposure. Repeated short opens remain independent on-chain lots because each lot has its own entry band and carry checkpoint; the interface presents them together as the wallet's short-side position without erasing those lot-level safety records.

The positions section uses average entry for longs and entry premium for offset shorts. These are not option strike prices. A short lot exposes Add margin, which adds USDC without increasing size and therefore lowers effective leverage. Add collateral on a physical long repays USDC debt without selling pledged AVM, also lowering leverage without shrinking the position. Physical longs have no liquidation price; their row shows debt and floor equity instead. Offset shorts show maintenance health because their liquidation condition depends on the live curve, floor, carry, and entry band rather than a single external oracle price.

The shared TypeScript SDK owns this interpretation for every consumer, not only the SV3 web app. It reads a block-pinned PerpMarketContext, derives the maximum leverage and its binding constraint, calculates the complete raw long or short quote, discovers the attached perp address, and prepares a standard simulated transaction. Interfaces should format those values rather than reimplement debt, premium, margin, or cap math.

For shorts, 3.3× sits just inside the 30% initial-margin envelope (1 ÷ 30% ≈ 3.33×). The live maximum can be lower because position size, aggregate active plus surrendered offset, the 20% share limit, minimum remaining curve supply, market/protocol escrow, or Directory backing headroom binds. Longs share the 3.3× release ceiling but may quote lower because their actual limit comes from floor-backed borrowing capacity, liquidity, fees, price impact, and Directory caps.

Pause behavior

A global market pause blocks new short releases but does not block restore or surrender. Positions must retain a path to reduce exposure and settle while new risk is disabled.

Native longs are different

SV3's native long path is the existing physical token purchase plus floor-backed advance, collateral, expand, shrink, repayment, and non-recourse collateral surrender. The user owns real AVM. That path has no long-side liquidation, funding rate, expiry, or separate derivative pool.

See Borrowing & Loops for the physical long path, Fees for charge bases, and Risks & Controls for the trust boundary.