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custom_curve_CSMM.md

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Custom curve CSMM

cssm-noop-hook

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NoOp hooks

NoOp Hooks are called such because they have the ability to ask the core PoolManager contract to do "nothing". This mean is to "skip" over a certain part of the logic within the PoolManager.

NoOp Hooks types**

  • beforeSwapReturnDelta has the ability to partially, or completely, bypass the core swap logic of pool manager by taking care of the swap request itself inside beforeSwap.
  • afterSwapReturnDelta has the ability to extract tokens to keep for itself from the swap's output amount, ask the user to send more that the input amount of the swap with the excess going to the hook, or add additional tokens to the swap's output amount for the user.
  • afterAddLiquidityReturnDelta has the ability to charge the user an additional amount over what they're adding as liquidity, or send them some tokens.
  • afterRemoveLiquidityReturnDelta same as above.

BeforeSwapDelta

BalanceDelta - type returned from swap & modifyLiquidity. It is of the form (amount0, amount1) and represents the delta of token0 and token1 respectively after user performs an action. The user's responsibility is to account for this balance delta and receive the tokens it's responsible to receive, and pay for the tokens it's responsible to pay, from and to the PoolManager.

BeforeSwapDelta is kind of simular. It's a distinct type that can be returned from the beforeSwap hook function if the beforeSwapReturnDelta flag has been enabled.

BeforeSwapDelta is of the form (amountSpecified, amountUnspecified). amountSpecified refers to the delta amount of the token which was "specified" by the user. amountUnspecified is the opposite. What does specified mean? Well, it depends on the swap parameters.

There are four types of swap configurations that are possible:

  1. Exact Input Zero for One We specify zeroForOne = true and amountSpecified = a negative number in the swap parameters. This implies that we are specify an amount of token0 to exactly receive in the user's wallet as the output of the swap.
  2. Exact Output Zero for One We specify zeroForOne = true and amountSpecified = a positive number in the swap parameters. This implies that we are specify an amount of token1 to exactly receive in the user's wallet as the output of the swap.
  3. Exact Input One for Zero Specified token is token1
  4. Exact Output One for Zero Specified token is token0

CSMM (constant sum market maker)

CSMM follows the pricing curve that uses addition instead of multiplication x + y = k.

CSMMs are great for stablecoins or stable assets. For example USDC vs DAI or stETH vs ETH.

Mechanism design

Swap flow:

  1. User calls swap on Swap Router
  2. Swap Router calls swap on Pool Manager
  3. Pool Manager calls beforeSwap on Hook
  4. Hook should return a BeforeSwapDelta such as that it consumes the input token, and return an equal amount of the opposite token
  5. Core swap logic gets skipped
  6. Pool Manager returns final BalanceDelta
  7. Swap Router accounts for the balances

For adding liquidity to the pool we need to do a couple of things:

  1. Disable the default add and remove liquidity behaviour (we can do this by throwing an error from beforeAddLiquidity and beforeRemoveLiquidity)
  2. Create a custom addLiquidity function on the hook contract that accepts tokens from the users to use as liquidity of the pool.

Further improvements

  • add way to remove liquidity create a mapping in the hook contract and store how many tokens each user added as liquidity over time to represent their share of the pool, and allow them to remove liquidity if they wish to based on that.
  • Add way to charge fees We can do this by modifying our BeforeSwapDelta such that it doesn't give back exactly 1:1 amounts of tokens back, but instead gives back a little less output token back. For example, 99 output tokens in exchange for 100 input tokens would be a 1% fee being charged. This fee can be distributed to the LPs of your pool.