ETP5: AMM DEX

[svanurin]

DEX

Metadata

• Status: draft
• Date: 2021 Jan
• Author: Zhidanov
• Translation: Yulia Bardinova

Summary

The document describes the functioning of DEX AMM (Decentralized EXchange with Automatic MarketMaking) on the Enecuum blockchain.

Key Points

DEX is designed for digital asset exchange. Assets are exchanged within independent liquidity pools. Only one pool can exist for each pair. The fee for exchange operations in the pool is set automatically at the time of creation. Any user can create pools, add liquidity to existing pools, remove previously added liquidity, and exchange assets. Each operation is performed by calling the corresponding smart contract.

Asset Management

To manage assets, the user must send a transaction with the necessary parameters to genesis.

Creating Pool (create_pool)

Parameters:

• asset_1 - hash of the first asset
• amount_1 - volume of the first asset
• asset_2 - hash of the second asset
• amount_2 - volume of the second asset

A pool {asset_1, asset_2} is created containing the volumes amount_1 and amount_2, respectively. The specified amounts of assets and the transaction fee in the native token are debited from the sender's active balance.

The pool volume k is calculated as amount_1 * amount_2. The exchange fee pool_fee is set as the default parameter default_pool_fee.

The sender is transferred lt = sqrt(amount_1 * amount_2) of liquidity tokens of this pair.

A transaction is rejected if:

• asset_1 == asset_2
• the pool for the specified pair already exists
• the sender has insufficient assets
• the sender does not have enough native tokens to pay the transaction fee
• amount_1 * amount_2 == 0

Adding liquidity (add_liquidity)

Parameters:

• asset_1 - hash of the first asset
• amount_1 - volume of the first asset
• asset_2 - hash of the second asset
• amount_2 - volume of the second asset

Based on the parameters of the pool {volume_1', volume_2'} (volume of the first asset, volume of the second asset), the values of the required amount of the first asset are calculated as required_1 = volume_1 * amount_2 / volume_2, and the required amount of the second asset as required_2 = volume_2 * amount_1 / volume_1.

In case amount_1 >= required_1, the pool parameters are changed as

volume_1 += required_1

volume_2 += amount_2, and the corresponding volumes of assets are debited from the sender's active balance, and the amount of added liquidity is calculated as

lt = sqrt(required_1 * amount_2) and lt liquidity tokens are credited to the sender.

In case amount_1 < required_1, the pool parameters are changed as

volume_1 += amount_1

volume_2 += required_2, and the corresponding volumes of assets are debited from the sender's active balance, and the amount of added liquidity is calculated as

lt = sqrt(amount_1 * required_2) and lt liquidity tokens are credited to the sender.

The new pool volume k is calculated as volume_1 * volume_2.

A transaction is rejected if:

• the pool for the specified pair does not exist
• the sender does not have enough native tokens to pay the transaction fee

Sell exact amount (sell_exact)

Parameters:

• asset_in - hash of the first asset
• amount_in - volume of the first asset
• asset_out - hash of the second asset

The amount of funds that will be received as a result of the exchange is calculated as amount_out = volume_2 - (volume_1 * volume_2)/(volume_1 + amount_in * (1 - pool_fee))

The specified amount amount_in of the asset asset_in and the transaction fee in the native token are debited from the sender's active balance. The calculated amount amount_out of the asset asset_out is credited to the sender's active balance.

Also, additional liquidity tokens are minted.
cmd_tokens = lp_total * cmd_fee * amount_in / volume_1,
where lp_total is total supply of liquidity token.
Minted tokens are added to Commander ENEX (alias for certain address), if corresponding liquidy pool ENX/LPtoken exists. Minted tokens are added to burn address otherwise.

A transaction is rejected if:

• the pool for the specified pair does not exist
• the sender does not have enough native tokens to pay the transaction fee

Buy exact amount (buy_exact)

Parameters:

• asset_in - hash of the first asset
• asset_out - hash of the second asset
• amount_out - volume of the second asset

The amount of funds that will be taken as a result of the exchange is calculated as amount_in = (volume_1 * volume_2)/(volume_2 - amount_in * (1 - pool_fee)) - volume_1

The specified amount amount_in of the asset asset_in and the transaction fee in the native token are debited from the sender's active balance. The calculated amount amount_out of the asset asset_out is credited to the sender's active balance.

Also, additional liquidity tokens are minted.
cmd_tokens = lp_total * cmd_fee * amount_in / volume_1,
where lp_total is total supply of liquidity token.
Minted tokens are added to Commander ENEX (alias for certain address), if corresponding liquidy pool ENX/LPtoken exists. Minted tokens are added to burn address otherwise.

A transaction is rejected if:

• the pool for the specified pair does not exist
• the sender does not have enough native tokens to pay the transaction fee

Removing liquidity (remove_liquidity)

Parameters:

• lt - hash of the liquidity token
• amount - volume of liquidity to be removed

The amount of funds that will be received as a result of removing liquidity is calculated as

amount_1 = volume_1 * amount / lt_emission

amount_2 = volume_2 * amount / lt_emission

, where lt_emission is overall emission of liquidity token. Liquidity token emission will be decreased for corresponding amount.

A transaction is rejected if:

• the pool for the specified pair does not exist
• the sender does not have enough liquidity tokens
• the sender does not have enough native tokens to pay the transaction fee