> For the complete documentation index, see [llms.txt](https://paimon-finance.gitbook.io/paimon.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://paimon-finance.gitbook.io/paimon.finance/overview/problem-definition.md).

# Problem Definition

## 1.1 The Liquidity Paradox of Alternative Assets

The alternative asset market exceeds $13 trillion, yet its on-chain adoption faces fundamental barriers.

### Limitations of Traditional Frameworks

* **Ambiguous Rights Chain**: Unclear mapping between on-chain tokens and off-chain legal entitlements
* **Valuation Black Box**: NAV relies on infrequent external audits, causing severe information asymmetry
* **Exit Friction**: Quarterly/annual redemption windows conflict with DeFi's 24/7 trading expectations

### Challenges of Existing RWA Protocols

| Solution Type            | Representative Projects | Issue                                                          |
| ------------------------ | ----------------------- | -------------------------------------------------------------- |
| Pure compliance approach | Securitize              | Extremely poor liquidity; secondary market exists in name only |
| Pure DeFi approach       | Early RWA pools         | Lacks real asset backing, unsustainable returns                |
| Hybrid approach          | Most Projects           | Neither here nor there—neither compliant nor liquid            |

## 1.2 Paimon's Design Trade-offs

Paimon does not pursue the goal of enabling all assets to "exit instantly like ETH"—the nature of alternative assets makes this objective unfeasible.

### Core Principles

1. **Liquidity is a budget, not a right**: Instant exit is a limited resource that must be rationally allocated through cost mechanisms
2. **Weakly Coupled Pricing**: The intrinsic value (NAV) of PPs and market price (P\_mkt) are permitted to diverge, converging under controlled rules
3. **Transparency over promises**: Publicly disclose all liquidity budgets and queue statuses, allowing the market to price risk premiums autonomously

### Design Philosophy

```
Traditional Approach:
Asset → Token → "Instant Liquidity" (Promise)
         ↓
      Failure when stressed

Paimon Approach:
Asset → Token → Tiered Liquidity (Budget-based)
         ↓
      Sustainable under stress
```

The key insight is that **alternative assets cannot and should not promise instant liquidity**. Instead, Paimon creates a transparent, rules-based system where:

* Users understand the liquidity constraints upfront
* The cost of liquidity reflects its true scarcity
* Market participants can price risk appropriately
* The system remains stable under redemption pressure