Introduction

Parcl V3 is exploring a significant protocol enhancement aimed at improving market stability and addressing excessive losses for liquidity providers. The proposal centers on implementing a 30-day minimum holding period for new positions and position additions, designed to address current challenges while maintaining investor flexibility for risk management. Existing positions would remain unaffected by this change. This consultation represents an opportunity for the community to collaboratively evaluate potential solutions to ongoing market balance challenges.

Current Market Challenges

Parcl V3 has observed patterns of trading strategies that take advantage of market predictability over relatively short timeframes, resulting in excessive losses for liquidity providers (LPs). Some traders have developed strategies that capitalize on predictable price movements within 3-12 day windows, creating ongoing strain on liquidity providers and disrupting market balance at the expense of LPs.

These patterns emerge from the unique characteristics of real estate markets, where price movements can be more predictable than traditional financial markets due to the underlying asset's stability and the daily price update mechanism. While this predictability is valuable for legitimate investment strategies, it has also enabled behavior that prioritizes short-term gains over long-term market health, often at the expense of liquidity providers, leading to excessive losses for liquidity providers.

The current measures implemented by Parcl V3, including increased premium/discount spreads and adjusted fee structures, have provided some protection for liquidity providers. However, these mechanisms alone have proven insufficient to fully address the trading strategies that continue to take advantage of market predictability and result in excessive LP losses.

Funding Mechanism Considerations

While funding mechanisms remain a valuable tool for market balance, the unique characteristics of real estate markets present specific challenges that limit their effectiveness. The combination of low volatility, daily price updates, and funding's continuous nature makes it difficult to appropriately tune for individual markets. This complexity affects both novice real estate investors who struggle to understand funding behavior and technical traders who find it challenging to model effectively.

Historically, when funding played a more dominant role in the exchange, it actually superseded the movements of the corresponding real estate markets, creating another opportunity for strategies that resulted in excessive LP losses. This experience demonstrated that funding mechanisms, when too prominent, can themselves become a source of market imbalance rather than a solution. For this reason, Parcl V3 is exploring the 30-day holding period as a complementary approach, with funding remaining at its current minimal tuning.

The current funding mechanism is optimized to have minimal impact on trading behavior, which, while reducing friction for legitimate traders, also limits its effectiveness in deterring strategies that take advantage of market predictability at the expense of LPs. The 30-day holding period proposal represents an alternative approach that could provide more direct protection against short-term strategies that result in excessive LP losses while maintaining the accessibility of the funding mechanism for its intended purposes.

Proposed Solution: 30-Day Minimum Holding Period

The proposed 30-day minimum holding period would function as follows: new positions opened on Parcl V3, as well as additions to existing positions, would be subject to a 30-day holding period. Existing positions would be unaffected by this requirement. The mechanism includes critical safeguards for risk management: investors can always close positions that would result in losses, but cannot close positions that would be profitable until the 30-day period expires. This ensures investors can always manage downside risk effectively while preventing profitable exits during the holding period.

How the Mechanism Would Work:

Opening New Positions:

• New long or short positions opened after implementation would be subject to the 30-day holding period

• Example: Opening 100 SqFt long position in Miami market on Day 1 → Cannot close if profitable until Day 31, but can always close if at a loss

• Example: Opening 50 SqFt short position in Austin market on Day 1 → Cannot close if profitable until Day 31, but can always close if at a loss

Adding to Existing Positions:

• Any additions to existing positions would subject the entire position to a new 30-day holding period

• Example: Existing 100 SqFt long position in Miami market + adding 50 SqFt on Day 1 → Cannot close if profitable until Day 31, but can always close if at a loss

• Example: Existing 200 SqFt short position in Austin market + adding 100 SqFt on Day 1 → Cannot close if profitable until Day 31, but can always close if at a loss

Position Reductions:

• Users can close any position prior to the 30-day holding periods completeion as long as that specific closure would not be profitable

• Example: 150 SqFt long position in Miami market (100 SqFt from Day 1, 50 SqFt added on Day 1) on Day 15:

  • If current price is below entry price → Can close (would be at a loss)

  • If current price is above entry price → Cannot close (would be profitable)

• Example: Same 150 SqFt long position in Miami market on Day 31:

  • Any reduction → Allowed (30-day period has passed, regardless of profitability)

Risk Management:

• Any position closure that results in negative P&L is always permitted

• Example: Long position in Miami market at $100, current price $95 → Can close immediately to cut losses

• Example: Short position in Austin market at $100, current price $105 → Can close immediately to cut losses

This mechanism is designed to address the core issue of trading strategies that take advantage of market predictability at the expense of LPs while preserving essential risk management capabilities. By blocking only profitable exits during the 30-day period (while always allowing loss-cutting), the proposal aims to reduce the incentive for short-term strategies that take advantage of market predictability and result in excessive LP losses. The smart contract validation ensures that the mechanism operates transparently and consistently across all new positions and position additions.

The 30-day timeframe has been selected to align with the observed patterns of short-term trading behavior, which typically occur within 3-12 day windows at the expense of LPs. This duration provides sufficient time to deter short-term strategies that take advantage of market predictability while remaining reasonable for legitimate investment horizons.

Risk Management and Flexibility

A critical aspect of the proposed mechanism is its preservation of downside risk management capabilities. The smart contract validation system would automatically permit position closures that result in negative P&L, ensuring that investors can always cut losses and avoid liquidations. This safeguard maintains the essential risk management functionality that is crucial for all trading strategies.

The mechanism would operate at the smart contract level, providing transparent and consistent enforcement across all positions. This technical implementation ensures that the rules are applied fairly and predictably, without requiring manual intervention or subjective decision-making.

Investors would retain full flexibility to manage downside risk (can always close at a loss) while being required to hold profitable positions for the minimum period. This balance aims to protect both individual investors and the broader market ecosystem from the negative effects of short-term trading strategies that come at the expense of LPs.

Potential Benefits

The proposed 30-day minimum holding period could deliver several significant benefits for the Parcl V3 ecosystem:

Substantial Fee Reduction Potential: By reducing trading strategies that take advantage of market predictability at the expense of LPs, the protocol could potentially implement substantial fee reductions for all participants. The current fee structure includes premiums designed to protect liquidity providers from excessive losses, and reducing these strategies could allow for more competitive fee structures.

Improved Market Spreads: The reduction in strategies that take advantage of market predictability at the expense of LPs could lead to tighter spreads between long and short positions, improving market efficiency and reducing costs for all participants. This would particularly benefit longer-term investors who are not engaging in strategies that result in excessive LP losses.

Enhanced Liquidity Provider Protection: The mechanism would provide more direct protection for liquidity providers against excessive losses, potentially improving the overall health and sustainability of the liquidity ecosystem.

Better Long-Term Market Stability: By discouraging short-term strategies that take advantage of market predictability at the expense of LPs, the proposal could contribute to more stable and predictable market conditions, benefiting all participants in the ecosystem.

Acknowledging Potential Concerns

Parcl V3 recognizes that this proposal may raise legitimate concerns about reduced trading flexibility and potential impact on different investor strategies. Some may worry about the 30-day period being too restrictive for certain trading approaches, while others might question whether this addresses the root causes of market imbalance or creates new challenges. These concerns are not only valid but essential to consider as part of this collaborative evaluation process, and the team is committed to addressing them thoughtfully.

Specific concerns that have been anticipated include:

Trading Strategy Impact: Some investors may have legitimate strategies that require more frequent position adjustments, and the 30-day holding period could impact these approaches.

Market Efficiency Concerns: There may be concerns about whether the mechanism could reduce market efficiency or create unintended consequences for price discovery.

Implementation Complexity: Questions may arise about the technical implementation and whether the smart contract validation could introduce new risks or complications.

Alternative Solutions: Investors may have suggestions for alternative approaches that could achieve similar goals with different trade-offs.

30-Day Timeframe: Some may question why the holding period is set at 30 days specifically. This timeframe has been selected based on observed patterns of short-term trading behavior, which can last up to 20 days. The 30-day period provides a reasonable buffer while aligning with minimum holding periods in traditional real estate markets, where holding periods are typically measured in years (often 5+ years). For investors seeking genuine real estate exposure, a 30-day minimum should be minimal compared to traditional real estate investment horizons.

Governance Process: Some community members may wonder about the decision-making process for this proposal. Parcl V3 recognizes that while decentralization is a core value, certain protocol updates that directly impact system stability may require more immediate action than traditional governance processes allow. The current approach balances the need for decisive action to protect the ecosystem with meaningful community consultation. This consultation process ensures that community perspectives inform the final implementation while addressing the urgent need to protect liquidity providers from ongoing challenges.

These concerns are valuable input for the evaluation process, and Parcl V3 is committed to considering all perspectives in making an informed decision about implementation.

Seeking Investor Feedback

Parcl V3 invites all investors to share their perspectives on this proposal through a dedicated feedback form google form. To facilitate constructive dialogue and generate actionable insights, the team is particularly interested in feedback addressing these specific areas:

Strategy Impact Analysis:

• How might a 30-day holding period affect your current trading strategies?

• What specific use cases or scenarios would be most impacted?

Alternative Solutions:

• What alternative approaches should be considered alongside or instead of this proposal?

• Are there modifications to the 30-day period that would be more acceptable?

Risk Assessment:

• Are there specific market conditions or scenarios where this mechanism might be problematic?

• What additional safeguards or modifications would make this proposal more acceptable?

Implementation Considerations:

• What factors should the team prioritize when evaluating this proposal?

• How should success metrics be defined for any implemented solution?

All perspectives, whether supportive or critical, are valuable for making an informed decision about implementation. The goal is to find the best approach that balances market stability with investor needs.

Timeline and Next Steps

Parcl V3 is committed to a thorough and collaborative evaluation process for this proposal. The team has established a 7-10 day consultation period to gather comprehensive feedback from the investor community before making any implementation decisions.

Consultation Period: 7-10 days from the publication of this blog post

Feedback Collection: Through the dedicated feedback form google form.

Decision Timeline: Following the consultation period, the team will review all feedback and make an informed decision about whether to proceed with implementation

Implementation: If approved, the mechanism would be implemented through a smart contract upgrade with appropriate notice to all participants

The team is committed to transparency throughout this process and will provide regular updates on the consultation progress and any decisions made. All feedback will be carefully considered, and the final decision will be communicated clearly to the community with detailed reasoning.

This consultation represents an opportunity for the Parcl V3 community to collaboratively shape the future of the protocol, ensuring that any implemented solutions truly serve the best interests of all participants in the ecosystem.

For questions or feedback about this proposal, please use the feedback form google form or reach out to our support team. We look forward to hearing your perspectives and working together to find the best path forward for Parcl V3.