Post Approval

After the instrument is approved, the market will then proceed to a post-assessment stage. Liquidity is amortized among participants, which means every longZCB buyer needs a counterparty; a shortZCB buyer or a longZCB seller. Likewise for shortZCB. More info at the post-approval section in AMM

Before diving into details, here is the potential action space after an instrument is approved

1. For both types of instruments, all participants can trade longZCB/shortZCB before the instrument resolves, subject to certain conditions.

2. For Perpetual Instruments, a manager can issue/redeem longZCB

3. For Fixed Instruments, a manager/shortZCB buyer can only redeem at maturity

Perpetual Instrument

After an instrument is approved, a manager can still supply a perpetual instrument by issuing new longZCB. Whenever a new longZCB is issued, the collateral used to issue + some amount of collateral from the vault is supplied to the instrument. These newly issued longZCB will accrue value as the underlying instrument accrues yield, and can be redeemed from the protocol whenever there is available liquidity to withdraw from the instrument. During redemption, capital would also be withdrawn from the instrument back to the vault.

Diagram for issuance. Same flow for redmption, but with opposite direction

Fixed Instrument

The redemption price for the ZCB tokens will be computed based on the contrast between the instrument’s realized returns vs proposed returns from the Instrument, after which any longZCB/shortZCB holders can redeem with this price. Profit from the instrument after all the ZCB holders redeemed are distributed to VT holders. Reputation scores for the managers who participated in the assessment phase are updated. Capital is withdrawn from the instrument contract back to the vault, and all additional accounting logic takes place.

Derivations for longZCB pricing and redemption prices are in the whitepaper.