🔄Inverse Pricing

Pricing lender deposits on short pools

Sometimes you may come across pricing that looks funny, something like this:

On the left we have a “normal” long lending pool where wETH is used as collateral and USDC is borrowed. The price order book shows lender deposits priced at a discount to market price. 1 ETH = $2156

On the right we have an "inverse" short lending pool where USDC is used as collateral and wETH is borrowed. The order book shows a price that is hard to understand. 1 USDC = 0.002099 ETH

Price buckets show prices defined as 1 unit of collateral token denominated in the quote token. One way to understand how an inverse price related to the market price is to perform 1/inverse-price. In the example above this gives us the implied price of 1 wETH at the 0.0002099 price bucket, which is

In a short market the borrower’s position is liquidated when the price of the borrowed token rises. This is why we see a premium to the market price rather than a discount. In the example above, the lender is depositing their wETH tokens at a ~$4760 value, meaning the borrower can put up $4760 USDC to borrow 1 wETH at the maximum. If the market price of ETH at the time is $3800, this deposit implies a max LTV of ~1.25 or ~125%.