bigz/amm-reservation-price-offset

CHANGELOG.md

@@ -9,6 +9,8 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ### Features
 
+- program: amm can use reference price offset from oracle price based on clamped inventory and persist market premiums ([#681](https://github.com/drift-labs/protocol-v2/pull/681))
+
 ### Fixes
 
 ### Breaking
@@ -55,6 +57,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 - program: account for step size when canceling reduce only orders
 
 ### Breaking
+
 - sdk: UserStatsMap use bulkAccountLoader (`UserStatsMap.subscribe` and `UserStatsMap.sync` now requires list of authorities) ([#716](https://github.com/drift-labs/protocol-v2/pull/716))
 
 ## [2.47.0] - 2023-11-26
@@ -134,6 +137,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 - program: add positive perp funding rate offset ([#576](https://github.com/drift-labs/protocol-v2/pull/576/files))
 
 ### Fixes
+
 - program: add validation check in update max imbalances ([#667](https://github.com/drift-labs/protocol-v2/pull/667))
 
 ### Breaking

programs/drift/Cargo.toml

@@ -33,6 +33,8 @@ serum_dex = { git = "https://github.com/project-serum/serum-dex", rev = "85b4f14
 enumflags2 = "0.6.4"
 phoenix-v1 = { git = "https://github.com/drift-labs/phoenix-v1", rev = "4c65c9", version = "0.2.4", features = ["no-entrypoint"] }
 solana-security-txt = "1.1.0"
+static_assertions = "1.1.0"
+drift-macros = { git = "https://github.com/drift-labs/drift-macros.git", rev = "c57d87" }
 
 [dev-dependencies]
 bytes = "1.2.0"

programs/drift/src/controller/amm.rs

@@ -167,6 +167,31 @@ pub fn update_spread_reserves(amm: &mut AMM) -> DriftResult {
 }
 
 pub fn update_spreads(amm: &mut AMM, reserve_price: u64) -> DriftResult<(u32, u32)> {
+    let max_offset = amm.get_max_reference_price_offset()?;
+
+    let reference_price_offset = if amm.curve_update_intensity > 0 {
+        let liquidity_ratio = amm_spread::calculate_inventory_liquidity_ratio(
+            amm.base_asset_amount_with_amm,
+            amm.base_asset_reserve,
+            amm.max_base_asset_reserve,
+            amm.min_base_asset_reserve,
+        )?;
+
+        amm_spread::calculate_reference_price_offset(
+            reserve_price,
+            amm.last_24h_avg_funding_rate,
+            liquidity_ratio,
+            amm.min_order_size,
+            amm.historical_oracle_data.last_oracle_price_twap_5min,
+            amm.last_mark_price_twap_5min,
+            amm.historical_oracle_data.last_oracle_price_twap,
+            amm.last_mark_price_twap,
+            max_offset,
+        )?
+    } else {
+        0
+    };
+
     let (long_spread, short_spread) = if amm.curve_update_intensity > 0 {
         amm_spread::calculate_spread(
             amm.base_spread,
@@ -196,6 +221,7 @@ pub fn update_spreads(amm: &mut AMM, reserve_price: u64) -> DriftResult<(u32, u3
 
     amm.long_spread = long_spread;
     amm.short_spread = short_spread;
+    amm.reference_price_offset = reference_price_offset;
 
     update_spread_reserves(amm)?;
 

programs/drift/src/controller/insurance/tests.rs

@@ -1534,7 +1534,7 @@ fn test_transfer_protocol_owned_stake() {
     .unwrap();
     if_balance -= amount_returned;
 
-    assert_eq!(amount_returned, 99500000000);
+    assert_eq!(amount_returned, 99500000000_u64);
     assert_eq!(spot_market.insurance_fund.user_shares, 0);
     assert_eq!(spot_market.insurance_fund.total_shares, 21105203599);
 
@@ -1597,7 +1597,7 @@ fn test_transfer_protocol_owned_stake() {
 
     let mut expected_if_stake_2 = InsuranceFundStake::new(Pubkey::default(), 0, 0);
     expected_if_stake_2
-        .increase_if_shares(21105203599, &spot_market)
+        .increase_if_shares(21105203599_u128, &spot_market)
         .unwrap();
 
     assert_eq!(user_stats_2.if_staked_quote_asset_amount, 99500000000);

programs/drift/src/instructions/admin.rs

@@ -727,7 +727,10 @@
             padding1: 0,
             padding2: 0,
             total_fee_earned_per_lp: 0,
-            padding: [0; 32],
+            net_unsettled_funding_pnl: 0,
+            quote_asset_amount_with_unsettled_lp: 0,
+            reference_price_offset: 0,
+            padding: [0; 12],
         },
     };
 

programs/drift/src/math/amm_spread.rs

@@ -11,16 +11,15 @@
     AMM_TIMES_PEG_TO_QUOTE_PRECISION_RATIO_I128, AMM_TO_QUOTE_PRECISION_RATIO_I128,
     BID_ASK_SPREAD_PRECISION, BID_ASK_SPREAD_PRECISION_I128, BID_ASK_SPREAD_PRECISION_U128,
     DEFAULT_LARGE_BID_ASK_FACTOR, DEFAULT_REVENUE_SINCE_LAST_FUNDING_SPREAD_RETREAT,
-    MAX_BID_ASK_INVENTORY_SKEW_FACTOR, PEG_PRECISION, PERCENTAGE_PRECISION,
-    PERCENTAGE_PRECISION_U64, PRICE_PRECISION, PRICE_PRECISION_I128,
+    FUNDING_RATE_BUFFER, MAX_BID_ASK_INVENTORY_SKEW_FACTOR, PEG_PRECISION, PERCENTAGE_PRECISION,
+    PERCENTAGE_PRECISION_I128, PERCENTAGE_PRECISION_U64, PRICE_PRECISION, PRICE_PRECISION_I128,
+    PRICE_PRECISION_I64,
 };
 use crate::math::safe_math::SafeMath;
 
 use crate::state::perp_market::AMM;
 use crate::validate;
 
-use super::constants::PERCENTAGE_PRECISION_I128;
-
 #[cfg(test)]
 mod tests;
 
@@ -328,8 +327,10 @@
         volume_24h,
     )?;
 
-    let mut long_spread = max((base_spread / 2) as u64, long_vol_spread);
-    let mut short_spread = max((base_spread / 2) as u64, short_vol_spread);
+    let half_base_spread_u64 = (base_spread / 2) as u64;
+
+    let mut long_spread = max(half_base_spread_u64, long_vol_spread);
+    let mut short_spread = max(half_base_spread_u64, short_vol_spread);
 
     let max_target_spread = max_spread
         .cast::<u64>()?
@@ -448,20 +449,23 @@
         PositionDirection::Short => amm.short_spread,
     };
 
+    let spread_with_offset: i32 = spread.cast::<i32>()?.safe_add(amm.reference_price_offset)?;
+
     let quote_asset_reserve_delta = if spread > 0 {
         amm.quote_asset_reserve
-            .safe_div(BID_ASK_SPREAD_PRECISION_U128 / (spread.cast::<u128>()? / 2))?
+            .safe_div(BID_ASK_SPREAD_PRECISION_U128 / (spread_with_offset.cast::<u128>()? / 2))?
     } else {
         0
     };
 
-    let quote_asset_reserve = match direction {
-        PositionDirection::Long => amm
-            .quote_asset_reserve
-            .safe_add(quote_asset_reserve_delta)?,
-        PositionDirection::Short => amm
-            .quote_asset_reserve
-            .safe_sub(quote_asset_reserve_delta)?,
+    let quote_asset_reserve = if spread_with_offset >= 0 && direction == PositionDirection::Long
+        || spread_with_offset <= 0 && direction == PositionDirection::Short
+    {
+        amm.quote_asset_reserve
+            .safe_add(quote_asset_reserve_delta)?
+    } else {
+        amm.quote_asset_reserve
+            .safe_sub(quote_asset_reserve_delta)?
     };
 
     let invariant_sqrt_u192 = U192::from(amm.sqrt_k);
@@ -473,3 +477,75 @@
 
     Ok((base_asset_reserve, quote_asset_reserve))
 }
+
+#[allow(clippy::comparison_chain)]
+pub fn calculate_reference_price_offset(
+    reserve_price: u64,
+    last_24h_avg_funding_rate: i64,
+    liquidity_fraction: i128,
+    _min_order_size: u64,
+    oracle_twap_fast: i64,
+    mark_twap_fast: u64,
+    oracle_twap_slow: i64,
+    mark_twap_slow: u64,
+    max_offset_pct: i64,
+) -> DriftResult<i32> {
+    if last_24h_avg_funding_rate == 0 {
+        return Ok(0);
+    }
+
+    let max_offset_in_price = max_offset_pct
+        .safe_mul(reserve_price.cast()?)?
+        .safe_div(PERCENTAGE_PRECISION.cast()?)?;
+
+    // calculate quote denominated market premium
+    let mark_premium_minute: i64 = mark_twap_fast
+        .cast::<i64>()?
+        .safe_sub(oracle_twap_fast)?
+        .clamp(-max_offset_in_price, max_offset_in_price);
+    let mark_premium_hour: i64 = mark_twap_slow
+        .cast::<i64>()?
+        .safe_sub(oracle_twap_slow)?
+        .clamp(-max_offset_in_price, max_offset_in_price);
+    // convert last_24h_avg_funding_rate to quote denominated premium
+    let mark_premium_day: i64 = last_24h_avg_funding_rate
+        .safe_div(FUNDING_RATE_BUFFER.cast()?)?
+        .safe_mul(24)?
+        .clamp(-max_offset_in_price, max_offset_in_price); // todo: look at how 24h funding is calc w.r.t. the funding_period
+
+    // take average clamped premium as the price-based offset
+    let mark_premium_avg = mark_premium_minute
+        .safe_add(mark_premium_hour)?
+        .safe_add(mark_premium_day)?
+        .safe_div(3_i64)?;
+
+    let mark_premium_avg_pct: i64 = mark_premium_avg
+        .safe_mul(PRICE_PRECISION_I64)?
+        .safe_div(reserve_price.cast()?)?;
+
+    let inventory_pct = liquidity_fraction
+        .cast::<i64>()?
+        .safe_mul(max_offset_pct)?
+        .safe_div(PERCENTAGE_PRECISION.cast::<i64>()?)?
+        .clamp(-max_offset_pct, max_offset_pct);
+
+    // only apply when inventory is consistent with recent and 24h market premium
+    let offset_pct = if (mark_premium_avg_pct >= 0 && inventory_pct >= 0)
+        || (mark_premium_avg_pct <= 0 && inventory_pct <= 0)
+    {
+        mark_premium_avg_pct.safe_add(inventory_pct)?
+    } else {
+        0
+    };
+
+    let clamped_offset_pct = offset_pct.clamp(-max_offset_pct, max_offset_pct);
+
+    validate!(
+        clamped_offset_pct.abs() <= max_offset_pct,
+        ErrorCode::InvalidAmmDetected,
+        "clamp offset pct failed {}",
+        clamped_offset_pct
+    )?;
+
+    clamped_offset_pct.cast()
+}