Overview

Kubo is a protocol that allows any user to create an isolated market for a given token. Each market settles entirely in the token and employs an oracle (e.g., Chainlink) to enable USD-denominated prices without needing USDC or funding rates.

Each Kubo Market is an automated market maker (AMM) consisting of a single-asset liquidity pool and a utility function. The utility function offers two types of offsetting trade instruments: leveraged long trades and delta-neutral Repo trades.

Kubo Markets naturally equilibrates. When there is too much demand for one instrument, Kubo offers favorable pricing for the other instrument and vice versa. In this way, the AMM always stays balanced.

When a market's underlying token price increases, the Kubo market owes leveraged long traders more tokens. Meanwhile, the price increase results in fewer tokens owed to Repo trades since they are only due an amount in USD terms. This differential enables Kubo's AMM to "balance its books." Inversely, when a market's underlying token price drops, many leveraged long positions will be liquidated, accounting for the increase in tokens required to payout Repo trades.

Architecturally, Kubo implements several innovations and tricks to allow for on-chain utility evaluation of an arbitrary number of positions at an array of future price points. However, doing this natively requires users to perform these computations off-chain, relying on Kubo only to accept and reject correct results. A front-end UX can easily abstract this process away from users. Check out the mathematical overview page for a technical explanation of how this works.

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