OIP1: Asset Feature - MLP2 (Market Liquidity Pool 2)

[froooze]

OIP: 001
Title: Asset Feature - MLP2 (Market Liquidity Pool Version 2)
Author: [bench] <https://github.com/froooze>
Status: Draft
Type: Protocol
Created: 2020-06-11

Abstract

• MLP2 is an asset lending feature, to provide liquidity for asset exchanges, at the current price level
• Simplified version of the Bancor Protocol without connector weight
• Stepless liquidity with no order book for any asset pair
• Blockchain as borrower and liquidity provider
• ONS as central node and base currency
• Market fees are shared to asset lender and blockchain

Motivation

• User has no easy way to provide liquidity to markets
• Most order books have low liquidity and high market spread
• Order books are dependent on certain price levels

Rationale

• Provide an easy, effective and robust liquidity feature for every user, asset and asset pair on the protocol level
• Generate demand for ONS and income for Onest Blockchain

Solution

• Every asset pair can have the MLP2 asset feature
• The MLP2 asset feature is based on the x * y = k modell
• x = amount_asset_X, y = amount_asset_Y, k = invariant
• MLP2 is separated in passive and active liquidity, to allow one asset deposit/withdraw

Exchange

• The ratio of amount_asset_X/ amount_asset_Y or price_asset defines the asset exchange rate
• The invariant is not changed during the asset exchange
• amount_asset_X * sqrt(price_X) = amount_asset_Y * sqrt(price_Y)

Passive liquidity

• Passive liquidity gets created, when there is an unequal amount of assets, because only one asset was removed/added from/to the MLP2.
• Passive liquidity needs an equal amount of the corresponding asset, to become active liquidity.
• Passive liquidity, which was created by removing assets from MLP2, are prioritized for active liquidity over newly added assets.
• The reduction of passive liquidity is defined by the smaller order of both assets.

Add/remove asset(s) from MLP2

Add an equivalent amount of both assets

• No passive liquidity
• No waiting time
• Highest market fee share

Remove an equivalent amount of both assets

• Passive liquidity is not changed

Add only one asset

• Instantly, when it is the inverse asset of the passive liquidity
• Waiting time, when it is the asset of the passive liquidity
• Lower market fee share

Remove only one asset

• No waiting time
• Active liquidity gets reduced
• Passive liquidity can get increased or decreased

MLP2 start values

MLP2 after quadruple ONS price or asset sell for half amount_ONS

MLP2 Charts

• amount_ONS * amount_asset = invariant
• sqrt(price_ONS) * amount_ONS = constant
• sqrt(price_asset) * amount_asset = constant
• price_ONS * price_asset = 1

Fee structure

The asset owner, defines the fee structure for the MLP2
The market fee share to network is defined by the network.

ONS market pairs

• Only paid in ONS
• Only for ONS -> asset trading
• Added partial after the exchange to the MLP2
• Shared to both assets lenders

Other market pairs

• Paid in both assets
• Paid in both directions
• Added both partial after the exchange to the MLP2
• Shared to both asset lenders
• Network cut gets settled by the corresponding ONS market pair

Example fee schedule

0.6% ONS -> asset market fee

• 75% for the MLP2 asset holder (= 0.45%)
• 5% for referral system (= 0.03%)
• 5% for the reserve pool (= 0.03%)
• 15% for the asset owner (= 0.09%)

0.3% asset -> asset market fee

• 75% for the MLP2 asset holder (= 0.225%)
• 5% for referral system (= 0.015%)
• 5% for the reserve pool (= 0.015%)
• 15% for the asset owner (= 0.045%)

Price Distribution

Network Example with different MLP asset features

Market Dynamics

• Every asset exchange uses the full inventory of the MLP2 asset feature
• Every asset is backed by same value of the other asset
• When ONS price decreases, demand for ONS is increased

MLP2 price changes

ROS = (Relative Order Size) = amount_order/active_mlp
Premium on the exchange rate compared to the current price_asset

ROS	Premium	delta_price_asset
0.1%	0.1%	0.2%
1%	1%	2%
5%	5%	11%
10%	11%	23%
20%	25%	56%
50%	100%	400%

Orderbook

• Supported with extra liquidity
• Reduced market spread
• Any trading pair can have liquidity with ONS as central node
• Asymmetric market fee reduces asset/asset market spread

Price feed

The MLP2 asset feature is not only exchange feature, but also a price feed indicator, which oscillates around the market price.

Manipulation

• Shorting ONS on MLP2 generates market fee and market spread
• Shorting ONS generates extra demand for ONS
• Arbitrage pays no market fee and gets an advantage to increase ONS price on DEX

Comparison

Lending options

Case	MPLP	MLP2	BSIP-70
Motivation	interest rate	market fee	interest rate
Borrower	peer	blockchain	peer
Input	debt asset	any asset or asset pair	any asset
Purpose	increase CR & debt	increase liquidity	lending/trading
Collateral	no	no	yes
Order book	no	no	yes

Implementation

Case	MLP2	Uniswap2
Market fee	a-/symmetric	symmetric
Assets	ONS assets	ERC-20
Non-core markets	yes	yes
One asset support	yes	no
Fee share	yes	no

Specifications

Network_parameter

• fee_share_for_reserve

MLP_parameters

• asset_id
• mlp_fee_rate
• fee_share_asset
• fee_share_mlp
• fee_share_referral

MLP_object

• asset_id
• delta_asset_balance
• user_id
• mlp_function_id

MLP_asset_functions

x = active_amount_asset_X
y = active_amount_asset_Y

x_p = passive_amount_asset_X
y_p = passive_amount_asset_Y

Add both assets

if (y/x == delta_asset_X / delta_asset_Y) {
x += delta_asset_X
y += delta_asset_Y
}

Add one asset

if (delta_asset == passive_asset) {
mlp_passive += delta_asset
}

if (delta_asset_1 != passive_asset) {
mlp_passive -= delta_asset_2
mlp_active += delta_asset_1
}

Remove both assets

x -= delta_asset_X + market_fee_share_X
y -= delta_asset_Y + market_fee_share_Y

market_fee_share = ∫(market_fees * mlp_share)dn

Remove one asset

if (delta_asset_1 == passive_asset) {
mlp_active -= (delta_asset_1 + market_fee_share_1)
mlp_passive += delta_asset_2
}

if (delta_asset_1 != passive_asset) {
mlp_active -= (delta_asset_1 + market_fee_share_1)
mlp_passive -= delta_asset_2
}

market_fee_share = ∫(mlp_fee_rate * fee_share_mlp * mlp_active/(mlp_active + mlp_passive))dn

Exchange ONS to asset

mlp_fee = amount_ONS * fee_rate_mlp * fee_share_mlp // calculate fee cut for MLP2
x += mlp_fee // add fee to MLP2
k = x * y // calculate invariant
x += amount_ONS * (1 - fee_rate_mlp) // amount to exchange
amount_asset = y - k / x // amount to return

Exchange asset to ONS

k = x * y // calculate invariant
y += amount_asset // amount to exchange
amount_ONS = x - k / y // amount to return

Exchange asset_1 to asset_2

mlp_fee = amount_asset_1 * fee_rate_mlp * fee_share_mlp // calculate fee cut for MLP2
x += mlp_fee // add fee to MLP2
k = x * y // calculate invariant
x += amount_asset_1 * (1 - fee_rate_mlp) // amount to exchange
amount_asset_2 = y - k / x // amount to return

Flow Chart

Discussion and Summary for Shareholders

• This is a very important feature, to strengthen our infrastructure, use case and core token value
• This enables every user to take part in value creation and earning market fees at the same time

Risks

• Adding only one asset to the liquidity allows to increase rewards or looses.

Copyright

This document is placed in the public domain.

Sources

• MLP
• Uniswap2

[froooze]

What is new?

• One asset deposit/withdraw to/from MLP2
• Non-core token liquidity pairs
• No orderbook integration

[froooze]

Exchange Examples

Fee Schedule

0.5% ONS -> asset market fee

• 70% for the MLP asset holder (= 0.35%)
• 20% for referral system (= 0.1%)
• 10% for the reserve pool (= 0.05%)

ONS -> HONEST.USD Exchange

Pool Inventory

• x = 25 million ONS
• y = 1.25 million HONEST.USD
• k = 31.25 * 10^12 ONS * HONEST.USD
• ONS pool price = y / x = 0.05 HONEST.USD/ONS

Fee Distribution

• sell 25k ONS (without fee)
• fee = 25k ONS * 0.4% = 100 ONS
• sell 24.9k ONS (with fee)
• MLP += 70 ONS
• referral system += 20 ONS
• reserve pool += 10 ONS

Pool Change

• x = 25 million ONS + 24.9k ONS = 25,024,900 ONS
• y = k / x = 1,248,756.2 HONEST.USD
• Δy = 1243.8 HONEST.USD
• ONS exchange price = 1243.8 HONEST.USD / 25k ONS = 0.04975 HONEST.USD/ONS
• market spread = ONS pool price/ONS exchange price = 0.05/0.04975 = 0.5%
• pool price = y / x = 0.4990 HONEST.USD

Fee Addition

• x += 70 ONS = 25024970 ONS
• y = 1248756.2 HONEST.USD
• k = x * y = 3.125 * 10^13 + 8.6 * 10^7

The market fee does change k after the exchange and makes selling ONS for HONEST.USD less profitable.

HONEST.USD -> ONS Exchange

Pool Inventory

• x = 25,024,970 ONS
• y = 1,248,756.2 HONEST.USD
• k = 3.125 * 10^13 + 8.6 * 10^7
• pool prize = y / x = 0.4990 HONEST.USD

Pool Change

• buy ONS with 1250 HONEST.USD
• y += 1250 HONEST.USD = 1,250,006.2 HONEST.USD
• x = k / y = 24,999,944.8 ONS
• Δx= 25025.2 ONS
• ONS exchange price = 1250 HONEST.USD / 25025.2 ONS = 0.4995
• market spread = 0.04995/0.04990 = 0.1%

HONEST.USD -> HONEST.CNY Exchange

Every asset can be traded against each other by using ONS as a base currency.

• HONEST.USD -> ONS
  market spread ∼ order size
• ONS -> HONEST.USD
  market spread ∼ order size + market fee
• HONEST.USD -> ONS -> HONEST.CNY
  market spread ∼ 2 * order size + market fee