Introduction

Mooncake is a permissionless leveraged token market. It uses a structured design to split the USD value of any token into two components: a Leveraged Position and a Funding Position.

  • Leveraged Position: Tracks the price fluctuations of the underlying token in USD terms. Holders of Leveraged Positions gain exposure to market volatility but need to pay a funding fee.

  • Funding Position: Earns the funding fees paid by Leveraged Position holders, denominated in USD.

This structure allows users to create leveraged exposure without liquidation risk while offering yield opportunities for funding providers.

Underlying Token Value=Funding Position Value+Leveraged Position ValueUnderlying\ Token\ Value =Funding\ Position\ Value + Leveraged\ Position\ Value

This formula means that the dollar value of one underlying token can be split into two parts:

  • Funding Position: A stable USD-denominated claim that earns funding fees.

  • Leveraged Position: A residual claim that amplifies the price exposure of the underlying asset.

Example: 2X Leveraged SOL

Suppose the underlying token is SOL, and the target leverage of the Leveraged Position is 2x

If 1 SOL = $200, we can split it as:

SOL ($200)=Funding Position ($100)+Leveraged Position ($100)SOL\ (\$200) = Funding\ Position\ (\$100) + Leveraged\ Position\ (\$100)

  • The Funding Position is like a stable $100 note, collecting funding fees.

  • The Leveraged Position represents the “risky” part of SOL. Because it only costs $100 but still moves with the full $200 SOL price, it effectively gives 2x leverage.

If the price of SOL increases from $200 to $220 — a 10% gain — then the value of a leveraged position would rise from $100 to $120, representing a 20% increase.

Leveraged Tokens (LT)

Leveraged Tokens are the receipt tokens of the Leverage Vault, and their price is denominated in USD. Each market has its own independent Leverage Vault, which holds Leveraged Positions for that market. Leveraged Tokens are a packaged form of leveraged exposure to an underlying asset.

mUSD (Funding Token)

mUSD, also known as the Funding Token, is the receipt token of the Funding Vault, and its price is denominated in USD. Each market has its own independent Funding Vault, which holds Funding Positions for that market. When a Funding Vault is fully composed of Funding Positions, the price of mUSD behaves similarly to a yield-bearing stablecoin — it continuously accrues funding fees over time.

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