Constant product

packages/zoe/src/contracts/constantProduct/README.md

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+# Constant Product AMM
+
+A constant product automatic market maker based on our Ratio library. It charges
+two kinds of fees: a pool fee remains in the pool to reward the liquidity
+providers and a protocol fee is extracted to fund the economy. The external
+entry point is a call to `pricesForStatedInput()` or `pricesForStatedOutput()`.
+
+This algorithm uses the x*y=k formula directly, without fees. Briefly, there are
+two kinds of assets, whose values are kept roughly in balance through the
+actions of arbitrageurs. At any time a trader can trade with the pool by
+offering to deposit one of the two assets. They will receive an amount
+of the complementary asset that will maintain the invariant that the product of
+the balances doesn't decrease. (Rounding is done in favor of the
+pool.) A fee is charged on the swap to reward the liquidity providers.
+
+The user can specify a maximum amount they want to pay or a minimum amount they
+want to receive. Unlike Uniswap, this approach will charge less than the user
+offered or pay more than they asked for when appropriate. By analogy, if a user
+is willing to pay up to $20 when the price of soda is $3 per bottle, it would
+give 6 bottles and only charge $18. Uniswap doesn't adjust the provided price,
+so it charges $20. This matters whenever the values of the smallest unit of the
+currencies are significantly different, which is common in DeFi. (We refer to
+these as "improved" prices.)
+
+The rules that drive the design include
+
+* When the user names an input (or output) price, they shouldn't pay more
+  (or receive less) than they said.
+* The pool fee is charged against the side not specified by the user (the
+  "computed side").
+* The protocol fee is always charged in RUN.
+* The fees should be calculated based on the pool balances before a transaction.
+* Computations are rounded in favor of the pool.
+
+We start by estimating the exchange rate, and calculate fees based on that. Once
+we know the fees, we add or subtract them directly to the amounts added to and
+extracted from the pools to adhere to those rules.
+
+## Calculating fees
+
+In these tables BLD represents any collateral. The user can specify how much
+they want or how much they're willing to pay. We'll call the value they
+specified **sGive** or **sGet** and bold it. We'll always refer to the currency
+being added as X (regardless of whether it's what they pay or what they receive)
+and the currency the user gets as Y. This table shows which brands the
+amounts each have, as well as what is computed vs. given. The PoolFee is
+computed based on the calculated amount (BLD in rows 1 and 2; RUN in rows 3 and
+4). The Protocol fee is always in RUN.
+
+|          | In (X) | Out (Y) | PoolFee | Protocol Fee | Specified | Computed |
+|---------|-----|-----|--------|-----|------|-----|
+| **RUN in** | RUN | BLD | BLD | RUN | **sGive** | sGet |
+| **RUN out** | BLD | RUN | BLD | RUN | **sGet** | sGive |
+| **BLD in** | BLD | RUN | RUN | RUN | **sGive** | sGet |
+| **BLD out** | RUN | BLD | RUN | RUN | **sGet** | sGive |
+
+We'll estimate how much the pool balances would change in the no-fee, improved
+price case using the constant product formulas. We call these estimates
+δX, and δY. The fees are based on δX, and δY. ρ is
+the poolFee (e.g. .003).
+
+The pool fee will be ρ times whichever of δX and δY was
+calculated. The protocol fee will be ρ * δX when RUN is paid in, and
+ρ * δY when BLD is paid in.
+
+|          | δX | δY | PoolFee | Protocol Fee |
+|---------|-----|-----|--------|-----|
+| **RUN in**  | **sGive** | calc | ρ × δY | ρ × **sGive** (= ρ × δX) |
+| **RUN out** | calc  | **sGet** | ρ × δY | ρ × **sGet** (= ρ × δY) |
+| **BLD in**  | **sGive**  | calc | ρ × δX | ρ × δY |
+| **BLD out** | calc | **sGet** | ρ × δX | ρ × δX |
+
+In rows 1 and 3, **sGive** was specified and sGet will be calculated. In rows 2
+and 4, **sGet** was specified and sGive will be calculated. Once we know the
+fees, we can add or subtract the fees and calculate the pool changes.
+
+Notice that the ProtocolFee always affects the inputs to the constant product
+calculation (because it is collected outside the pool). The PoolFee is visible
+in the formulas in this table when the input to the calculation is in RUN.
+
+|          | input estimate | output estimate |
+|---------|-----|-----|
+| **RUN in** | **sGive** - ProtocolFee |  |
+| **RUN out** |  | **sGet** + ProtocolFee + PoolFee |
+| **BLD in** | **sGive** - ProtocolFee - PoolFee |  |
+| **BLD out** |  | **sGet** + ProtocolFee |
+
+We use the estimate of the amount in or out to calculate improved values of
+ΔX and ΔY. These values tell us how much the trader will pay, the
+changes in pool balances, and what the trader will receive. As before, ΔX
+reflects a balance that will be growing, and ΔY one that will be
+shrinking. If **sGive** is known, we subtract fees to get ΔX and calculate
+ΔY. If **sGet** is known, we add fees to get ΔY and calculate
+ΔX. ΔY and ΔX are the values that maintain the constant
+product invariant. The amount paid and received by the trader and changes to the
+pool are calculated relative to ΔX and ΔY so that the pool grows by
+the poolFee and the protocolFee can be paid from the proceeds.
+
+|          | xIncr | yDecr | pay In | pay Out |
+|---------|-----|-----|-----|-----|
+| **RUN in**  | ΔX | ΔY - PoolFee | ΔX + protocolFee | ΔY - PoolFee |
+| **RUN out**  | ΔX | ΔY - PoolFee | ΔX + protocolFee | ΔY - PoolFee |
+| **BLD in**  | ΔX + PoolFee | ΔY | ΔX + PoolFee + ProtocolFee | ΔY |
+| **BLD out**  | ΔX + PoolFee | ΔY | ΔX + PoolFee + ProtocolFee | ΔY |
+
+In the two right columns the protocolFee is either added to the amount the
+trader pays, or subtracted from the proceeds. The poolFee does the same on the
+left side, and it is either added to the amount deposited in the pool (xIncr)
+or deducted from the amout removed from the pool (yDecr).
+
+## Example
+
+For example, let's say the pool has 40,000,000 RUN and 3,000,000 BLD. Alice
+requests a swapIn with inputAmount of 30,000 RUN, and outputAmount of 2000 BLD.
+(SwapIn means the inputValue is the basis of the computation, while outputAmount
+is treated as a minimum). To make the numbers concrete, we'll say the pool fee
+is 25 Basis Points, and the protocol fee is 5 Basis Points.
+
+The first step is to compute the trade that would take place with no fees. 30K
+will be added to 40M RUN. To keep the product just above 120MM, the BLD will be
+reduced to 2,997,752.
+
+```
+40,030,000 * 2,997,752 > 40,000,000 * 3,000,000 > 40,030,000 * 2,997,751
+   120000012560000     >    120000000000000     >   119999972530000
+```
+
+But we get an even tighter bound by reducing the amount Alice has to spend
+
+```
+40,029,996 * 2,997,752 > 40,000,000 * 3,000,000 > 40,029,995 * 2,997,752
+    120000000568992    >    120000000000000     >   119999997571240
+```
+
+The initial price estimate is that 29,996 RUN would get 2248 BLD in a no-fee
+pool. We base fees on this estimate, so the **protocol Fee will be 15 RUN**
+(always in RUN) and the **pool fee will be 6 BLD**.  The pool fee is calculated
+on the output for `swapIn` and the input for `swapOut`.
+
+Now we calculate the actual ΔX and ΔY, since the fees affect the
+size of the changes to the pool. From the first row of the third table we see
+that the calculation starts from ΔX of
+`sGive - ProtocolFee (i.e. 30,000 - 15 = 29,985)`
+
+```
+40,029,985 * 2,997,7752 > 40,000,000 * 3,000,000 > 40,029,985 * 2,997,753
+```
+
+and re-checking how much is required to produce 2,997,753, we get
+
+```
+40_029_982 * 2,997,753 > 40,000,000 * 3,000,000 > 40,029,983 * 2,997,753
+```
+
+**ΔX is 29,983, and ΔY is 2247**.
+
+ * Alice pays ΔX + protocolFee, which is 29,983 + 15  (29998 RUN)
+ * Alice will receive ΔY - PoolFee which is 2247 - 6  (2241 BLD)
+ * The RUN in the pool will increase by ΔX   (29983 RUN)
+ * The BLD in the pool will decrease by ΔY   (2247 BLD)
+
+The Pool grew by 6 BLD more than was required to maintain the constant product
+invariant. 15 RUN were extracted for the protocol fee.
+

packages/zoe/src/contracts/constantProduct/calcFees.js

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+// @ts-check
+
+import { AmountMath } from '@agoric/ertp';
+import { ceilMultiplyBy, makeRatio } from '../../contractSupport/ratio.js';
+
+import { BASIS_POINTS } from './defaults.js';
+
+const { details: X } = assert;
+
+/**
+ * Make a ratio given a nat representing basis points
+ *
+ * @param {NatValue} feeBP
+ * @param {Brand} brandOfFee
+ * @returns {Ratio}
+ */
+const makeFeeRatio = (feeBP, brandOfFee) => {
+  return makeRatio(feeBP, brandOfFee, BASIS_POINTS);
+};
+
+/** @type {Maximum} */
+const maximum = (left, right) => {
+  // If left is greater or equal, return left. Otherwise return right.
+  return AmountMath.isGTE(left, right) ? left : right;
+};
+
+/** @type {AmountGT} */
+const amountGT = (left, right) =>
+  AmountMath.isGTE(left, right) && !AmountMath.isEqual(left, right);
+
+/**
+ * Apply the feeRatio to the amount that has a matching brand. This used to
+ * calculate fees in the single pool case.
+ *
+ * @param {{ amountIn: Amount, amountOut: Amount}} amounts - a record with two
+ *   amounts in different brands.
+ * @param {Ratio} feeRatio
+ * @returns {Amount}
+ */
+const calcFee = ({ amountIn, amountOut }, feeRatio) => {
+  assert(
+    feeRatio.numerator.brand === feeRatio.denominator.brand,
+    X`feeRatio numerator and denominator must use the same brand ${feeRatio}`,
+  );
+
+  let sameBrandAmount;
+  if (amountIn.brand === feeRatio.numerator.brand) {
+    sameBrandAmount = amountIn;
+  } else if (amountOut.brand === feeRatio.numerator.brand) {
+    sameBrandAmount = amountOut;
+  } else {
+    assert(
+      false,
+      X`feeRatio's brand (${feeRatio.numerator.brand}) must match one of the amounts [${amountIn}, ${amountOut}].`,
+    );
+  }
+
+  // Always round fees up
+  const fee = ceilMultiplyBy(sameBrandAmount, feeRatio);
+
+  // Fee cannot exceed the amount on which it is levied
+  assert(
+    AmountMath.isGTE(sameBrandAmount, fee),
+    X`The feeRatio can't be greater than 1 ${feeRatio}`,
+  );
+
+  return fee;
+};
+
+/**
+ * Estimate the swap values, then calculate fees. The swapFn provided by the
+ * caller will be swapInNoFees or swapOutNoFees.
+ * SwapOut.
+ *
+ * @type {CalculateFees}
+ */
+const calculateFees = (
+  amountGiven,
+  poolAllocation,
+  amountWanted,
+  protocolFeeRatio,
+  poolFeeRatio,
+  swapFn,
+) => {
+  // Get a rough estimation in both brands of the amount to be swapped
+  const estimation = swapFn({ amountGiven, poolAllocation, amountWanted });
+
+  const protocolFee = calcFee(estimation, protocolFeeRatio);
+  const poolFee = calcFee(estimation, poolFeeRatio);
+
+  return harden({ protocolFee, poolFee, ...estimation });
+};
+
+harden(amountGT);
+harden(maximum);
+harden(makeFeeRatio);
+harden(calculateFees);
+
+export { amountGT, maximum, makeFeeRatio, calculateFees };

packages/zoe/src/contracts/constantProduct/calcSwapPrices.js

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+// @ts-check
+
+import { Far } from '@agoric/marshal';
+
+import { swap } from './swap.js';
+import { assertKInvariantSellingX } from './invariants.js';
+import { getXY } from './getXY.js';
+import { swapInNoFees, swapOutNoFees } from './core.js';
+
+// pricesForStatedOutput() and pricesForStatedInput are the external entrypoints
+// to the constantProduct module. The amountWanted is optional for
+// pricesForStatedInput and amountgiven is optional for pricesForStatedOutput.
+
+// The two methods call swap, passing in different functions for noFeeSwap.
+// pricesForStatedInput uses swapInNoFees, while pricesForStatedOutput uses
+// swapOutNoFees. the noFeesSwap functions
+const makeCalcSwapPrices = noFeesSwap => {
+  return Far(
+    'calcSwapPrices',
+    (
+      amountGiven,
+      poolAllocation,
+      amountWanted,
+      protocolFeeRatio,
+      poolFeeRatio,
+    ) => {
+      const result = swap(
+        amountGiven,
+        poolAllocation,
+        amountWanted,
+        protocolFeeRatio,
+        poolFeeRatio,
+        noFeesSwap,
+      );
+      const { x, y } = getXY({
+        amountGiven,
+        poolAllocation,
+        amountWanted,
+      });
+      assertKInvariantSellingX(x, y, result.xIncrement, result.yDecrement);
+      return result;
+    },
+  );
+};
+
+/** @type {CalcSwapInPrices} */
+const pricesForStatedInput = (
+  amountGiven,
+  poolAllocation,
+  amountWanted,
+  protocolFeeRatio,
+  poolFeeRatio,
+) => {
+  const calcSwapPrices = makeCalcSwapPrices(swapInNoFees);
+  return calcSwapPrices(
+    amountGiven,
+    poolAllocation,
+    amountWanted,
+    protocolFeeRatio,
+    poolFeeRatio,
+  );
+};
+
+/** @type {CalcSwapOutPrices} */
+const pricesForStatedOutput = (
+  amountGiven,
+  poolAllocation,
+  amountWanted,
+  protocolFeeRatio,
+  poolFeeRatio,
+) => {
+  const calcSwapPrices = makeCalcSwapPrices(swapOutNoFees);
+  return calcSwapPrices(
+    amountGiven,
+    poolAllocation,
+    amountWanted,
+    protocolFeeRatio,
+    poolFeeRatio,
+  );
+};
+
+harden(pricesForStatedInput);
+harden(pricesForStatedOutput);
+
+export { pricesForStatedOutput, pricesForStatedInput };