Settlement
Settling Pnl moves a profit or loss from a perp market into the USDC token balance.
This has no impact on your open positions or health.
Warning: this can take up to 60 seconds to complete when using the feature on the UI.
Types of PnL
Accounts that interact with perp markets normally have a certain amount of unsettled pnl. Unsettled pnl represents a valuation change in the perp position that hasn't been settled into a token position yet.
Separately from the question of settlement, pnl can also be categorized as realized or unrealized. Pnl is realized when a position is reduced at a price that's different from its average entry price. Realized pnl can be settled or unsettled.
Example:
you buy 2 BTC-PERP at $20k: initially there's zero unsettled pnl
the BTC price increases to $25k: now there is $10k of unsettled pnl (which is also unrealized, because the position isn't closed)
you sell 1 BTC-PERP at $24k, price is still at $25k: you now have $9k of unsettled pnl ($4k realized from the sale and $5k unrealized from the remaining position)
you settle $7k of the pnl: now you have $2k of unsettled pnl left (and your USDC token balance has increased by $7k)
PnL Settlement Action
The act of pnl settlement takes two perp market participants with unsettled pnl of opposite sign and reduces it equally on both sides by transfering a tokens between the accounts.
Example: Account A has +$10k unsettled pnl and account B has -$4k unsettled pnl. Settling between the two would transfer $4k token from B to A and leave the unsettled pnl at A: $6k and B: $0.
In this way pnl settlement converts potential profit or loss from the perp market into actual token profit or loss.
Automatic PnL Settlement
Pnl settlement is a permissionless action: anyone could settle two account's pnls at any time.
LEH's risk engine considers positive unsettled pnl as more risky than USDC token balances, meaning that settling the pnl will improve the accounts health.
To avoid long-lived large unsettled positions, LEH currently incentivizes the caller of a settle transaction in some scenarios:
if at least $100 are settled, the caller receives $0.0001
if an account is close to liquidation, the caller receives up to 1% of the settled value
These fees are paid by the account that had positive unsettled pnl.
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