How It Works

# Power Perpetuals

S&F does not use borrowed linear leverage.

It uses power exposure: synthetic assets can track the underlying price, the price squared, or the price cubed.

This is a major design tradeoff. It is one reason S&F can avoid trader liquidations.

# Linear leverage

In a traditional perpetual venue, 2x leverage usually means borrowing exposure.

If a trader deposits 1 ETC of margin and opens a 2x position, the venue gives the trader 2 ETC worth of exposure. If losses approach the margin, the trader must be liquidated to protect the venue and LPs.

That model needs:

• margin accounts;
• liquidation thresholds;
• liquidators or keepers;
• fast price feeds;
• execution infrastructure for forced closes.

# Power exposure

S&F does not create leverage by lending extra collateral to the trader.

Instead, leverage is embedded in the asset definition.

For a tracked price P, S&F can create:

• P: standard exposure;
• P^2: squared exposure;
• P^3: cubed exposure.

This is why the docs refer to squared and cubed tokens, not 2x and 3x tokens.

# Squared is not 2x

Squared exposure is not the same as 2x linear leverage.

If the price moves from 10 to 30:

• linear exposure moves from 10 to 30;
• 2x linear leverage doubles the gain or loss;
• squared exposure moves from 10^2 to 30^2, or 100 to 900.

The effective leverage changes with the price path. It is power exposure, not a borrowed multiplier.

# Why there is no liquidation engine

In S&F, the trader does not borrow extra collateral from the protocol to create leverage.

The token price itself tracks a powered price. If the powered exposure loses value, the position token loses value. There is no margin account that must be forcibly closed before it goes below a maintenance threshold.

That does not remove risk. It moves the risk into token value, pool accounting, funding rate, and black swan mechanics.

# Tradeoff

Power perpetuals are simpler to settle without liquidations, but they behave differently from linear leverage.

Users should not read squared exposure as "2x". They should understand it as exposure to P^2.

This can produce much larger gains or losses depending on the price path.