Impermanent loss is an option derivative, and it can be modeled with option theory and the Black-Scholes “greeks”. LPs are already selling this option every time they supply liquidity to an AMM, Zircon will simply find specific buyers for it.
This is what we call the Perpetual Move product. The name is inspired by the Move contract found on exchanges like FTX.
The Perpetual Move system allows traders to turn impermanent loss into a gain for them, making it into what's called an option strangle position. This means that they won't lose money from price movements: if the price goes in any direction, the position is in profit.
The potential losses for Perpetual Move traders come from the interests that they will pay for the privilege of earning from impermanent loss. These fees are designed to simulate the fact that the option loses value as it approaches expiration, which is known as theta decay.
These interests would go to all Zircon LPs as additional fees. This means that on Zircon, liquidity providers will be selling both their liquidity and their impermanent loss. And with Zircon Pylon they can choose the token to do that with.
The initial release of Zircon Pylon aims to demonstrate the strength of its compensation mechanism by using market incentives and liquidity mining subsidies. With the release of the Perpetual Move, subsidizing liquidity will become unnecessary, as option selling income should be more than enough.
We chose to build the Pylon first because the Perpetual Move requires placing liquidity in an external vault. This vault has to regulate the selling for the benefit of all LPs, and it also enables creating a fully two-sided options market.