# Liquidity Management for Synthetic Stocks

The Fedz issues two synthetic stock tokens:

* **FTSLA** — long exposure to TSLA
* **sFTSLA** — inverse (short) exposure to TSLA

Both tokens trade against FUSD inside their own liquidity pools:

* **FTSLA–FUSD Pool**
* **sFTSLA–FUSD Pool**

Because The Fedz is both the issuer and the primary liquidity provider, we have a unique ability—and responsibility—to manage systemic exposure without distorting fair prices or introducing hidden mechanics.

This section explains how we use AMM liquidity as a soft, transparent stability tool across both the long and short synthetic markets.

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### **1. FTSLA: A Synthetic Asset With Long-Term Exposure**

FTSLA tracks the real-world price of TSLA. At the moment FTSLA is minted, The Fedz effectively takes the other side of that exposure. If TSLA rises over time, FTSLA holders gain value.

This gain represents **outstanding long-term debt**—a liability for the protocol that increases as TSLA appreciates. It is not an immediate loss. But it is a risk that accumulates over time.

If the ecosystem becomes **long-heavy** (too many FTSLA outstanding), and TSLA trends upward, the protocol absorbs a growing unrealized liability. That is the core structural exposure of issuing long synthetic assets.

We cannot eliminate this, but we **can manage it** using liquidity.

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### **2. Using Liquidity to Guide Exposure**

Prices are always correct.\
FTSLA always tracks TSLA.\
We never manipulate these formulas.

What we can adjust is the **shape of liquidity** around those prices.

Since The Fedz contributes most of the liquidity to the FTSLA–FUSD pool, we can subtly control:

* depth near the active price
* how easy it is to take large long positions
* how quickly long exposure grows
* how much slippage forms when large trades occur

This is the safest and most transparent way to guide the system back toward balanced exposure without interfering with fair pricing.

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### **3. Why sFTSLA Exists: Completing the Exposure Picture**

To avoid remaining permanently long TSLA as a protocol, we issue **sFTSLA**, which tracks the inverse return of TSLA.

sFTSLA does not eliminate long exposure by itself—but it gives the ecosystem the *option* to generate offsetting short exposure. When traders mint or buy sFTSLA, the system naturally gains the opposite risk of FTSLA.

This lets The Fedz approach **delta neutrality**:

> As FTSLA exposure grows, sFTSLA exposure can offset it.\
> As sFTSLA exposure grows, FTSLA offsets it.

But demand rarely balances itself perfectly.\
That is why **liquidity** becomes the coordinating mechanism.

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## **4. Coordinated Liquidity: Managing FTSLA and sFTSLA Together**

We track a simple imbalance measure between long and short exposure.\
Depending on which side dominates, we adjust the liquidity in each pool:

#### **A. When the system is long-heavy**

Too much FTSLA outstanding → growing long-term TSLA liability.

We adjust:

* **FTSLA–FUSD pool → becomes shallower**\
  Large long trades experience more slippage.\
  New long exposure grows more slowly.
* **sFTSLA–FUSD pool → becomes deeper**\
  Short exposure becomes easier to take.\
  Market naturally shifts toward balance.

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#### **B. When the system is short-heavy**

Too much sFTSLA outstanding → growing inverse TSLA liability.

We adjust:

* **sFTSLA–FUSD pool → becomes shallower**\
  Excessive short exposure slows down.
* **FTSLA–FUSD pool → becomes deeper**\
  Long exposure is gently encouraged.

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#### **C. When the system is balanced**

Both pools operate with normal, concentrated liquidity.\
Trading is efficient and symmetric.\
Exposure remains healthy.

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### **5. What We Never Touch**

To maintain long-term trust and predictability:

* We never adjust token formulas
* We never change prices artificially
* We never impose hidden fees
* We never block trades or restrict users
* All liquidity changes are on-chain and transparent

Liquidity is the *only* intervention layer.

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## **6. Why This Works**

Liquidity management creates a **soft, market-driven feedback loop**:

* When exposure becomes dangerous, the pool becomes shallower.
* When exposure needs support, the pool deepens.
* When everything is balanced, we step back.

Users always trade at the correct price.\
What shifts is how the market absorbs size—\
a gentle, permissionless incentive that nudges the system toward stability.

This is the decentralized equivalent of open-market operations:\
steering liquidity rather than intervening in price.

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## **7. Our Priorities**

We do not chase short-term performance.\
We do not optimize for maximum trading volume.\
We do not guess the market’s direction.

We prioritize **long-term stability** over short-term outcomes.

This means:

* Fair, formula-based prices that users can rely on
* Transparent liquidity adjustments that protect solvency
* A balanced ecosystem where long and short exposures coexist responsibly
* Sustainable growth of the synthetic marketplace

Liquidity management lets us uphold these priorities without sacrificing open access or market fairness.
