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Finish draft of AMM tutorial
This commit is contained in:
mDuo13
@@ -1,8 +1,7 @@
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const xrpl = require('xrpl')
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const BigNumber = require('bignumber.js')
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/*
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* Convert a trading fee to a value that can be multiplied
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/* Convert a trading fee to a value that can be multiplied
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* by a total to "subtract" the fee from the total.
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* @param tFee int {0, 1000}
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* such that 1 = 1/100,000 and 1000 = 1% fee
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@@ -12,8 +11,7 @@ function feeMult(tFee) {
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return BigNumber(1).minus( feeDecimal(tFee) )
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}
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/*
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* Same as feeMult, but with half the trading fee.
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/* Same as feeMult, but with half the trading fee.
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* @param tFee int {0, 1000}
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* such that 1 = 1/100,000 and 1000 = 1% fee
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* @returns BigNumber (1 - (fee/2)) as a decimal
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@@ -22,8 +20,7 @@ function feeMultHalf(tFee) {
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return BigNumber(1).minus( feeDecimal(tFee).dividedBy(2) )
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}
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/*
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* Convert a trading fee to a decimal BigNumber value,
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/* Convert a trading fee to a decimal BigNumber value,
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* for example 1000 becomes 0.01
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* @param tFee int {0, 1000}
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* such that 1 = 1/100,000 and 1000 = 1% fee
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@@ -34,8 +31,7 @@ function feeDecimal(tFee) {
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return BigNumber(tFee).dividedBy(AUCTION_SLOT_FEE_SCALE_FACTOR)
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}
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/*
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* Implements the AMM SwapOut formula, as defined in XLS-30 section 2.4 AMM
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/* Implement the AMM SwapOut formula, as defined in XLS-30 section 2.4 AMM
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* Swap, formula 10. The asset weights WA/WB are currently always 1/1 so
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* they're canceled out.
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* C++ source: https://github.com/XRPLF/rippled/blob/2d1854f354ff8bb2b5671fd51252c5acd837c433/src/ripple/app/misc/AMMHelpers.h#L253-L258
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@@ -60,8 +56,7 @@ function swapOut(asset_out_bn, pool_in_bn, pool_out_bn, trading_fee) {
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).dividedBy(feeMult(trading_fee))
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}
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/*
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* Computes the quadratic formula. Helper function for ammAssetIn.
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/* Compute the quadratic formula. Helper function for ammAssetIn.
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* Params and return value are BigNumber instances.
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*/
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function solveQuadraticEq(a,b,c) {
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@@ -71,8 +66,7 @@ function solveQuadraticEq(a,b,c) {
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return ( b.negated().plus(b2minus4ac.sqrt()) ).dividedBy(a.multipliedBy(2))
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}
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/*
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* Implements the AMM single-asset deposit formula to calculate how much to
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/* Implement the AMM single-asset deposit formula to calculate how much to
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* put in so that you receive a specific number of LP Tokens back.
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* C++ source: https://github.com/XRPLF/rippled/blob/2d1854f354ff8bb2b5671fd51252c5acd837c433/src/ripple/app/misc/impl/AMMHelpers.cpp#L55-L83
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* @param pool_in string - Quantity of input asset the pool already has
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@@ -100,38 +94,7 @@ function ammAssetIn(pool_in, lpt_balance, desired_lpt, trading_fee) {
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return asset1Balance.multipliedBy(solveQuadraticEq(a,b,c))
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}
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/*
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* Calculates the necessary bid to win the AMM Auction slot, per the pricing
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* algorithm defined in XLS-30 section 4.1.1, if you already hold LP Tokens.
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* Not useful in the case where you need to make a deposit to get LP Tokens,
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* because doing so causes more LP Tokens to be issued, changing the min bid.
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* @returns BigNumber - the minimum amount of LP tokens to win the auction slot
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*/
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function auctionPrice(old_bid, time_interval, trading_fee, lpt_balance) {
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const tfee_decimal = feeDecimal(trading_fee)
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const lptokens = BigNumber(lpt_balance)
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const min_bid = lptokens.multipliedBy(tfee_decimal).dividedBy(25)
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const b = BigNumber(old_bid)
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let new_bid = min_bid
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if (time_interval == 0) {
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new_bid = b.multipliedBy("1.05").plus(min_bid)
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} else if (time_interval <= 19) {
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const t60 = BigNumber(time_interval).multipliedBy("0.05"
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).exponentiatedBy(60)
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new_bid = b.multipliedBy("1.05").multipliedBy(
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BigNumber(1).minus(t60)
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).plus(min_bid)
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}
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const rounded_bid = new_bid.plus(lptokens).precision(15, BigNumber.CEILING
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).minus(lptokens).precision(15, BigNumber.FLOOR)
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return rounded_bid
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}
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/*
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* Calculates how much to deposit, in terms of LP Tokens out, to be able to win
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/* Calculate how much to deposit, in terms of LP Tokens out, to be able to win
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* the auction slot. This is based on the slot pricing algorithm defined in
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* XLS-30 section 4.1.1, but factors in the increase in the minimum bid as a
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* result of having new LP Tokens issued to you from your deposit.
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@@ -173,7 +136,7 @@ async function main() {
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const wallet = (await client.fundWallet()).wallet
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console.log(`Got address ${wallet.address} / seed ${wallet.seed}.`)
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// Look up the AMM
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// Look up AMM status -----------------------------------------------------
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const from_asset = {
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"currency": "XRP"
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}
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@@ -242,21 +205,12 @@ async function main() {
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console.log(`Potential savings: ${xrpl.dropsToXrp(potential_savings)} XRP`)
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// Calculate the cost of winning the auction slot, in LP Tokens -----------
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// The price is slightly different if you already hold LP Tokens vs if you
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// have to make a deposit, because the deposit causes more LP Tokens to be
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// issued, which increases the minimum bid.
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const lp_auction_price = auctionPrice(old_bid, time_interval,
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full_trading_fee, lpt.value
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).precision(15)
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console.log(`Auction price for current LPs: ${lp_auction_price} LP Tokens`)
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const auction_price = auctionDeposit(old_bid, time_interval,
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full_trading_fee, lpt.value
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).precision(15)
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console.log(`Auction price after deposit: ${auction_price} LP Tokens`)
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// Calculate how much XRP to deposit to receive that many LP Tokens
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// Calculate how much XRP to deposit to receive that many LP Tokens -------
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const deposit_for_bid = ammAssetIn(pool_in_bn, lpt.value, auction_price,
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full_trading_fee
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).dp(0, BigNumber.ROUND_CEIL)
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@@ -337,3 +291,42 @@ async function main() {
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} // End of main()
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main()
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/// TODO: move everything below here to a separate code sample with minimal setup to make it work:
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// /* Calculate the necessary bid to win the AMM Auction slot, per the pricing
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// * algorithm defined in XLS-30 section 4.1.1, if you already hold LP Tokens.
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// * Not useful in the case where you need to make a deposit to get LP Tokens,
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// * because doing so causes more LP Tokens to be issued, changing the min bid.
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// * @returns BigNumber - the minimum amount of LP tokens to win the auction slot
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// */
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// function auctionPrice(old_bid, time_interval, trading_fee, lpt_balance) {
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// const tfee_decimal = feeDecimal(trading_fee)
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// const lptokens = BigNumber(lpt_balance)
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// const min_bid = lptokens.multipliedBy(tfee_decimal).dividedBy(25)
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// const b = BigNumber(old_bid)
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// let new_bid = min_bid
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// if (time_interval == 0) {
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// new_bid = b.multipliedBy("1.05").plus(min_bid)
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// } else if (time_interval <= 19) {
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// const t60 = BigNumber(time_interval).multipliedBy("0.05"
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// ).exponentiatedBy(60)
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// new_bid = b.multipliedBy("1.05").multipliedBy(
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// BigNumber(1).minus(t60)
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// ).plus(min_bid)
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// }
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// const rounded_bid = new_bid.plus(lptokens).precision(15, BigNumber.CEILING
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// ).minus(lptokens).precision(15, BigNumber.FLOOR)
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// return rounded_bid
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// }
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//
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//
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// // The price is slightly different if you already hold LP Tokens vs if you
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// // have to make a deposit, because the deposit causes more LP Tokens to be
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// // issued, which increases the minimum bid.
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// const lp_auction_price = auctionPrice(old_bid, time_interval,
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// full_trading_fee, lpt.value
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// ).precision(15)
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// console.log(`Auction price for current LPs: ${lp_auction_price} LP Tokens`)
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@@ -10,7 +10,7 @@ This tutorial does not exhaustively cover all possible market conditions and cir
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- You need a connection to the XRP Ledger network. As shown in this tutorial, you can use public servers for testing.
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- You should be familiar with basic usage of the [xrpl.js client library](https://github.com/XRPLF/xrpl.js/). See [Get Started Using JavaScript](../build-apps/get-started.md) for setup steps.
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- The AMM for the asset pair you want to trade must already be created. This tutorial uses an AMM on Testnet which has been set up in advance. For instructions on creating an AMM for a different currency pair, see [Create an Automated Market Maker](../../how-tos/use-tokens/create-an-automated-market-maker.md).
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- The AMM for the asset pair you want to trade must already exist in the ledger. This tutorial uses an AMM on Testnet which has been set up in advance. For instructions on creating an AMM for a different currency pair, see [Create an Automated Market Maker](../../how-tos/use-tokens/create-an-automated-market-maker.md).
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## Background
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@@ -20,9 +20,8 @@ This tutorial uses an AMM instance that has been set up on the XRP Ledger Testne
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| Currency Code | Issuer | Notes |
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|---|---|---|
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| XRP | N/A | Testnet XRP is functionally similar to XRP, but holds no real-world value. You can get it for free from a [faucet](/resources/dev-tools/xrp-faucets).
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| TST | `rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd` | A test token pegged to XRP at a rate of approximately 10 XRP per 1 TST. The issuer has existing Offers on the XRP Ledger Testnet to buy and sell these tokens. |
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| TST | `rP9jPyP5kyvFRb6ZiRghAGw5u8SGAmU4bd` | A test token pegged to XRP at a rate of approximately 10 XRP per 1 TST. The issuer has existing Offers on the XRP Ledger Testnet to buy and sell these tokens. This token has no [transfer fee](../../../concepts/tokens/transfer-fees.md) or [Tick Size](../../../concepts/tokens/decentralized-exchange/ticksize.md) set. |
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TST can be issued and redeemed through _backstop_ Offers, managed by its issuer, in the order book part of the DEX. The backstop offers have a spread of ±15%, meaning that it takes 11.5 XRP to buy 1 TST, but it takes 1.15 TST to buy back 10 XRP. The backstop offers have very large quantity, so they are unlikely to be used up, meaning that these represent the worst case scenario exchange rate between these two assets. Also, rP9j... does not have a [Tick Size](../../../concepts/tokens/decentralized-exchange/ticksize.md) set, so exchange rates can use the full 15 digits of precision. If one were set, you would have to do more rounding when calculating what exchange rate you would get.
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## Steps
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@@ -33,34 +32,134 @@ At a high level, the steps involved in using an AMM auction slot to save money o
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3. If winning the auction slot is cheaper, use AMMDeposit to acquire some LPTokens and then use AMMBid to spend those tokens on winning the auction slot.
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4. Make the intended trade using an OfferCreate transaction. (You could also use a cross-currency Payment transaction, but this tutorial uses OfferCreate.)
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This tutorial assumes that you have XRP and want to acquire a fixed amount of TST. The details of the steps will vary in other scenarios, such as if you want to spend a fixed amount of XRP to acquire as much TST as you can, or if a token you are buying or selling has a [transfer fee](../../../concepts/tokens/transfer-fees.md).
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For simplicity, this tutorial assumes that you have XRP, you want to acquire a fixed amount of TST in a single trade, and that the entire trade will execute using the AMM. Real-life situations are more complicated. For example, part of your trade may execute by consuming Offers rather than using the AMM, or you may want to do a series of trades over a period of time. If one or both of the assets you are trading has a transfer fee or tick size set, those details can also affect the calculations.
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### 1. Setup
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The following code imports necessary libraries, connects to the ledger, and instantiates an XRP Ledger wallet. For this use case, you need a high-precision number library such as Bignumber.js for correctly performing calculations on currency amounts you may find in the ledger.
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For this use case, you need a high-precision number library such as Bignumber.js for correctly performing calculations on currency amounts you may find in the ledger.
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@@TODO
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The following `package.json` file lists the necessary dependencies:
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### 2. Estimate the cost of AMM trading fees
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{% code-snippet file="/_code-samples/auction-slot/js/package.json" language="json" /%}
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Estimating the cost of AMM trading fees can be tricky and the details vary depending on the type of trade you are performing. For example, a "buy" trade that stops after receiving a target amount of an asset should be calculated differently than a "sell" trade, which continues until a target amount of an asset has been spent. Similarly, options such as immediate-or-cancel or limit quality may affect your calculations.
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After copying this file, run `npm install` from the same folder to download the appropriate dependencies.
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Also, the XRP Ledger's decentralized exchange is always open to other traders using it too, so new transactions can change the current state at the same time that you are doing these calculations and sending your transactions. You must always allow for some amount of _slippage_ (the change in rates between when you checked them and when your transaction executes) as well as the possibility that your transactions may not succeed at all. (For example, someone else might bid a higher amount for the auction slot right as you place your bid.)
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Start your JavaScript file with the following code to import dependencies:
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The following code estimates the amount that would be paid to an AMM's trading fee for a specific trade (selling XRP, buying TST.rP9j...):
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{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" before="/* Convert" /%}
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@@TODO:
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1. Calculate how much of the trade will use the AMM (as opposed to CLOB DEX)
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2. Calculate how much will be swapped into the AMM
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3. Calculate the full trading fee for the amount to be swapped in
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4. Calculate the reduced trading fee for the amount to be swapped in if you hold the auction slot
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5. Calculate the difference between the full trading fee and the reduced trading fee, in other words your potential savings
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After that, you should connect to the network and set up a `Wallet` instance in the usual way. For example:
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### 3. Compare with the cost of winning the auction slot
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{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="async function main()" before="// Look up AMM status" /%}
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The cost to win the auction slot depends on how long the current holder has held it and how much they paid, but it's always denominated in LP tokens. To win the auction slot if you currently only have XRP, you'll have to make a single-asset deposit to get LP Tokens. So, the comparison we want to make here is:
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@@TODO
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1. Calculate quantity of LP Tokens needed to win the auction slot
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2. Calculate single-asset amount needed to deposit to receive that many LP Tokens
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3. Compare the cost of winning the auction slot vs potential savings calculated in the previous step
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### 2. Look Up AMM Status
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To determine if your trade could benefit from the reduced fees of the AMM auction slot, you must first look up the current state of the AMM. To get the latest information, use the `amm_info` method and query the `current` (pending) ledger version.
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**Caution:** The `current` ledger incorporates recently-sent transactions that are likely to be confirmed; it is the most up-to-date picture of the ledger state, but the details may change when the ledger is validated. You can also use the `validated` ledger, which returns only the latest confirmed data.
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The following code snippet reads the `amm_info` result and saves some of the details for later use:
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{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Look up AMM status" before="// Calculate price in XRP" /%}
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### 3. Estimate the cost of AMM trading fees
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Estimating the cost of AMM trading fees can be tricky and the details vary depending on the type of trade you are performing. For example, a "buy" trade that stops after receiving a target amount of an asset should be calculated differently than a "sell" trade, which continues until a target amount of an asset has been spent.
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This tutorial shows how to estimate the cost, in XRP, to buy TST using the AMM. First, define the target amount and check that the AMM can even fulfill the trade:
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{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Calculate price in XRP" before="// Use AMM's SwapOut formula" /%}
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Then, you use the _Swap Out_ formula, defined in the XRPL-0030 specification as formula 10, to estimate how much of one asset you have to swap in to the AMM to receive a target amount out of the other asset. The following function implements the formula:
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{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="/* Implement the AMM SwapOut formula" before="/* Compute the quadratic formula" /%}
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The following helper functions are also needed for Swap Out and other formulas later in the tutorial:
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{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="/* Convert a trading fee to a value that" before="/* Implement the AMM SwapOut formula" /%}
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Then, to estimate the cost of trading fees, calculate the Swap Out value twice: once with the full fee, and once with the discounted fee of the auction slot. The difference between the two results represents the maximum possible savings from the auction slot for this trade, not including the costs of winning the auction slot.
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{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Use AMM's SwapOut formula" before="// Calculate the cost of winning" /%}
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**Note:** For illustrative purposes, this code assumes that the entire trade will execute using the AMM and not by consuming Offers. In reality, a trade can use both in combination to achieve a better rate.
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||||
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### 4. Calculate the cost of winning the auction slot
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||||
The cost to win the auction slot depends on how long the current holder has held it and how much they paid, but it's always denominated in LP tokens. If you currently only have XRP and you want to win the auction slot, you must first deposit some of your XRP to get LP Tokens.
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||||
The price of winning the auction slot is defined in XLS-0030 section 4.1.1. However, the minimum bid scales with the number of LP Tokens issued. If you calculate the auction price and _then_ deposit exactly enough to pay for it, the auction price increases proportionally to the new LP Tokens you gained, so you need to invert the formula.
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This is similar to cases where you want to deliver exactly $100 after subtracting a 3% fee. If you calculate $100 + (0.03 * $100) = $103, only $99.91 will arrive because the extra $3 is also subject to the fee. Instead, you divide 100 ÷ 0.97 ≈ $103.10 (rounding up to make sure).
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The following function represents the inverted formula, which calculates the total amount of LP Tokens you need to receive to match the auction price:
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||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="/* Calculate how much to deposit" before="async function main()" /%}
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Then, you call the function like this:
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||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Calculate the cost of winning the auction slot" before="// Calculate how much XRP to deposit" /%}
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### 5. Compare the costs and savings
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The previous step gives a cost for the auction slot in the form of LP Tokens. To compare against your potential savings, you need to convert this to the XRP cost of the deposit. If the XRP cost of making the deposit and winning the auction slot is greater than your savings, then you should not go through with it.
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To do the conversion, you use the AMM _Asset In_ formula, which is implemented as follows:
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||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="/* Implement the AMM single-asset deposit" before="/* Calculate the necessary bid" /%}
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||||
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||||
In addition to the `feeMult(t)` and `feeMultHalf(t)` helper functions defined earlier, this formula needs to solve the quadratic equation. (You may remember the quadratic formula from high-school mathematics.) The following code implements a helper function for this:
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||||
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||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="/* Compute the quadratic formula." before="/* Implement the AMM single-asset deposit" /%}
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||||
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||||
The following code uses the Asset In formula to estimate the cost of the deposit:
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||||
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||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Calculate how much XRP to deposit" before="// Optional. Allow for costs" /%}
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|
||||
Since the XRP Ledger's decentralized exchange is always open to other traders using it too, new transactions can change the current state at the same time that you are doing these calculations and sending your own transactions. You should allow for some amount of _slippage_, the change in rates between when you checked them and when your transaction executes. The following example allows up to 1% slippage:
|
||||
|
||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Optional. Allow for costs" before="// Compare price of deposit+bid" /%}
|
||||
|
||||
Finally, you take the slippage-adjusted cost in XRP, add the transaction costs in XRP burned for sending two transactions, and compare that total to the potential savings calculated back in step 3. If the total cost is higher than the savings, you won't save money using the auction slot, so you stop here.
|
||||
|
||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Compare price of deposit+bid" before="// Do a single-asset deposit" /%}
|
||||
|
||||
**Tip:** You may still be able to save money if you plan to do additional trades for a larger total amount. Also, if the auction slot is currently occupied, the cost of outbidding the current slot holder decreases over 24 hours, so you can wait and try again later.
|
||||
|
||||
### 6. Send an AMMDeposit transaction to get LP Tokens
|
||||
|
||||
Assuming you determined that you could make money, it's now time to send actual transactions to the XRP Ledger, starting with an [AMMDeposit transaction][] to get the LP Tokens that you'll bid on the auction slot.
|
||||
|
||||
The "One Asset LP Token" deposit type is most convenient here since you can specify exactly how many LP Tokens you want to receive, and you only need to deposit XRP. The following code creates and sends the transaction:
|
||||
|
||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Do a single-asset deposit" before="// Actually bid" /%}
|
||||
|
||||
After the transaction is (or isn't) confirmed by the consensus process, the code displays the results to the console.
|
||||
|
||||
### 7. Send an AMMBid transaction to win the auction slot
|
||||
|
||||
Assuming the previous transaction was successful, the next step is to use the LP Tokens to bid on the auction slot. To do this, you send an [AMMBid transaction][] with the slippage-adjusted bid amount you calculated earlier in the `BidMax` field, as in the following code:
|
||||
|
||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Actually bid" before="// Trade using the discount" /%}
|
||||
|
||||
**Tip:** The amounts that LP Tokens get rounded can be surprising. If you don't plan on holding LP Tokens after bidding, you should set `BidMin` to the same as `BidMax` so that you aren't left with a trust line that contains a very tiny amount of LP Tokens that weren't spent on the auction price, and you don't have to meet the XRP reserve for that trust line.
|
||||
|
||||
### 8. Trade using the discount
|
||||
|
||||
If your previous transaction was successful, you should now be the auction slot holder until you are outbid or 24 hours have passed, whichever comes first. You can immediately use this opportunity to make the XRP for TST trade that you wanted to make in the first place. There are several ways to make trades in the XRP Ledger, but sending an OfferCreate transaction is the most conventional, as in the following code:
|
||||
|
||||
{% code-snippet file="/_code-samples/auction-slot/js/auction-slot.js" language="js" from="// Trade using the discount" before="// Done" /%}
|
||||
|
||||
**Tip:** If you are outbid before the auction slot expires, you'll get some of your LP Tokens refunded based on how much time you had left. You can use an [AMMWithdraw transaction][] to convert those to additional XRP, TST, or both as desired.
|
||||
|
||||
## Conclusion
|
||||
|
||||
Trading assets is never risk-free, and Automated Market Makers are no exception. However, the XRP Ledger's fast, low-cost transactions can be helpful in reducing the costs and fees associated with currency exchange. This tutorial demonstrates a minimal approach to using the auction slot to save money, but of course more creative uses are possible.
|
||||
|
||||
The details depend on your specific circumstances and the types of trades you are doing, or expect to do in the future, as well as the state of the market, the XRP Ledger network, and the AMM instances in particular. See the [Code Samples](/resources/code-samples) for additional related use cases, and feel free to contribute your own samples as well to show the community what can be done on the XRP Ledger.
|
||||
|
||||
|
||||
{% raw-partial file="/docs/_snippets/common-links.md" /%}
|
||||
|
||||
Reference in New Issue
Block a user