How Honeycomb Works
Dive deep into the mechanics of our peer-to-peer perpetual trading system and understand the lifecycle of positions, markets, and profits.
Opening a Position (Long/Short)
The Position Creation Process
- 1Token Approval: You approve the smart contract to interact with your USDC tokens
- 2Fund Transfer: Your USDC gets transferred securely to the contract
- 3Leverage Calculation: The system calculates your leverage multiplier based on position size
- 4Liquidation Price: Your liquidation threshold is automatically computed and stored
- 5Market Pool: If trading a new token, a fresh market pool is created on-the-fly
Taking Profits
When you close a profitable position, your earnings are sourced from the opposing side's liquidity combined with any available virtual liquidity within that specific market. Profit settlement occurs instantly on-chain, delivering your initial margin plus gains without any closing fees.
Profit Flow
Your profits = Initial margin + (Opposing traders' losses + Virtual liquidity contributions)
Managing Losses
When closing a losing position, your losses flow directly to profitable traders or get added to the market's virtual liquidity pool. Your maximum risk is strictly limited to your initial margin - you can never lose more than what you initially invested.
Loss Protection
Maximum loss = Your initial margin (never more than what you put in)
Liquidation Process
Our liquidation bot continuously monitors Oracle data to track when positions reach or breach their liquidation prices. Once detected, positions are automatically closed. The forfeited margin gets added to the market's virtual liquidity pool, ensuring system stability.
Liquidation Timeline
Oracle detects price breach → Automated position closure → Margin forfeiture → Liquidity pool addition
Leverage Mechanics
Honeycomb employs synthetic leverage, meaning leverage isn't borrowed from external liquidity providers. Instead, it's algorithmically simulated within our protocol architecture, enabling traders to achieve amplified exposure and receive full leveraged payouts without requiring external capital dependencies.
Synthetic Leverage Benefits
- • No dependence on external liquidity providers
- • Algorithmic leverage calculation
- • Full leveraged payouts guaranteed
- • Self-contained within protocol
Market Lifecycle
Market Birth
A market springs to life the moment a trader opens the first position in a previously untouched token
Liquidity Foundation
Market liquidity builds from losing traders and initial virtual liquidity added by administrators. Some markets may start with zero initial liquidity.
Isolated Operations
Profits and losses are handled within isolated market liquidity, completely separated from other token markets
Liquidity Migration
Virtual liquidity can be strategically moved between markets when older token markets become inactive
Liquidation Bot System
Our smart contracts calculate liquidation prices based on leverage usage and position parameters. The liquidation bot utilizes emission chains to continuously track all trader positions, automatically executing liquidations when Oracle prices reach liquidation thresholds.
Future Decentralization
Liquidation operations will eventually transition to a fully decentralized model, removing any central points of control.