Smart Contracts

Overview

Levery's smart contracts incorporates a variety of sophisticated features designed to facilitate dynamic fee management, enforce compliance through permissions, and integrate with price feed oracles. Core components that harness the power of decentralized finance technology to enhance functionality, compliance, and efficiency, critical for institutional adoption and regulatory approval.

Dynamic Fee Calculation

Let:

$P_0$ and $P_1$ be the current prices for asset 0 and asset 1, respectively.
$M$ be the real-time market price from the Oracle.
$\alpha$ be the liquidity provider fee multiplier.
$F_{\text{base}}$ be the base fee for the swap.
$F_{\text{pool}}$ be the pool-specific fee for the swap, which takes precedence over $F_{\text{base}}$ if defined.

Initial Swap Fee Definition

The initial swap fee $F_{\text{swap}}$ is defined as:

F_{\text{swap}} = \begin{cases} F_{\text{pool}} & \text{if } F_{\text{pool}} \neq 0 \\ F_{\text{base}} & \text{otherwise} \end{cases}

Price Comparison and Fee Adjustment

If a market price oracle is defined, we adjust $F_{\text{swap}}$ based on the price comparison:

If compareWithPrice0 is true:

F_{\text{swap}} = \begin{cases} F_{\text{swap}} + \left( \frac{P_0 - M}{M} \times \alpha \right) & \text{if } P_0 > M \text{ and } \text{params.zeroForOne} \\ F_{\text{swap}} + \left( \frac{M - P_0}{M} \times \alpha \right) & \text{if } P_0 < M \text{ and not } \text{params.zeroForOne} \\ F_{\text{swap}} & \text{otherwise} \end{cases}

Else:

F_{\text{swap}} = \begin{cases} F_{\text{swap}} + \left( \frac{M - P_1}{M} \times \alpha \right) & \text{if } P_1 < M \text{ and } \text{params.zeroForOne} \\ F_{\text{swap}} + \left( \frac{P_1 - M}{M} \times \alpha \right) & \text{if } P_1 > M \text{ and not } \text{params.zeroForOne} \\ F_{\text{swap}} & \text{otherwise} \end{cases}

Final Fee Update

The updated swap fee is used to update the dynamic LP fee:

\text{poolManager.updateDynamicLPFee}(key, F_{\text{swap}})

Description of the Calculations

The above calculations determine the dynamic swap fee ( $F_{\text{swap}}$ ) by comparing the current asset prices ( $P_0$ and $P_1$ ) with the real-time market price ( $M$ ) obtained from an oracle. The liquidity provider fee multiplier ( $\alpha$ ) is used to proportionally adjust the swap fee based on the price difference.

If the current price of asset 0 ( $P_0$ ) is greater than the market price ( $M$ ) and the swap is from asset 0 to asset 1 ( $\text{params.zeroForOne}$ ), the fee is increased proportionally to the difference.
If the current price of asset 0 ( $P_0$ ) is less than the market price ( $M$ ) and the swap is from asset 1 to asset 0 ( $\text{not params.zeroForOne}$ ), the fee is also increased proportionally to the difference.
Similarly, if the current price of asset 1 ( $P_1$ ) is less than the market price ( $M$ ) and the swap is from asset 0 to asset 1 ( $\text{params.zeroForOne}$ ), the fee is increased proportionally.
If the current price of asset 1 ( $P_1$ ) is greater than the market price ( $M$ ) and the swap is from asset 1 to asset 0 ( $\text{not params.zeroForOne}$ ), the fee is increased proportionally.

In all other cases (i.e., if none of these specific conditions are met), the swap fee remains unchanged.

This ensures that the swap fee dynamically adjusts to market conditions, providing a more accurate and fair fee structure for liquidity providers.

Levery's Core Components

Permissioned AMM Mechanism Integration

Unlike traditional decentralized exchanges (DEXs) that offer anonymity and purely non-custodial transactions, Levery introduces a permissioned Automated Market Maker (AMM) mechanism. While maintaining the benefits of non-custodial, peer-to-peer transactions, Levery ensures that all smart contract functions are executed with permissioned controls. This means that identity verification and risk analysis are integral parts of every transaction, allowing financial institutions to operate in compliance with regulatory requirements.

Levery integrates an AMM encoded flags mechanism for permissioned execution of the smart contract functions — a fundamental component that enables custom logic at specific points in the liquidity pool lifecycle. This allows Levery to implement tailored behaviors for trading actions, such as:

Dynamic Permission Enforcement: Permissions are enforced in real-time by verifying user identities and access rights before executing transactions, ensuring only authorized participants engage in trading activities.
Adaptive Fee Adjustments: Fees can be adjusted based on current market data and predefined rules, allowing for flexible fee structures that respond to changing market conditions.
Compliance and Risk Management Validation: Transactions are executed only when all compliance checks and risk management criteria are met, aligning operations with regulatory standards and mitigating potential risks

Dynamic Fee Structure

At the heart of Levery's trading mechanism is the dynamic fee structure, governed by variables such as baseFee and lpFeeMultiplier. These parameters are adjustable by the admin and are used to calculate trading fees based on current market conditions and pool-specific settings.

baseFee: Represents the default fee percentage for swaps within the pools, set by the admin.
lpFeeMultiplier: Used to adjust the liquidity provider's fee share, allowing fees to be responsive to market dynamics and volatility.

Pool-Specific Oracle Integration

Each liquidity pool can be assigned its specific price feed oracle through a mapping poolOracles, which stores oracle addresses and comparison flags to ensure price accuracy for fee calculations. This setup enables the contract to fetch real-time data to make informed decisions on fee adjustments.

Pool Settings

Levery's architecture includes the ability to tailor settings for individual pools via mappings that link pool identifiers to specific configurations:

poolBaseFees: Maps pool identifiers to customized base fees for each pool, allowing for tailored fee structures that can adapt to the unique characteristics of each token pair.
poolOracles: Links each pool to a designated oracle, facilitating accurate price feeds that are crucial for setting appropriate swap fees and mitigating arbitrage risks.

Enhanced Price Calculation

Each pool can be associated with a price feed oracle, specified in the PoolOracle struct, which includes the oracle address and a flag indicating whether to compare against price0 or price1.

Utilizing price oracles integration and internal libraries like TickMath and FullMath, the contract calculates precise token prices within a pool. This integration allows Levery to fetch real-time price data and is crucial for maintaining balance in response to market movements.

getLastOraclePrice: Fetches the latest price from a specified price feed oracle, adjusting for token decimals to ensure consistency across different assets.
getCurrentPrices: Calculates current prices within a pool, using advanced mathematical libraries like TickMath and FullMath to ensure precision.

Permission Manager

A vital component of Levery's contract is the PermissionManager. This module controls access to liquidity provision and swap actions, ensuring that only authorized users can perform these operations. It plays a critical role in maintaining compliance with regulatory standards, thereby ensuring that all trading activities align with legal requirements.

Admin Controls

The contract is equipped with administrative functions that allow for high-level control and configuration:

setAdmin and updateAdmin: Functions to set and update the administrator's address.
updateBaseFee and setPoolBaseFee: These functions allow the admin to adjust fee parameters globally or per pool, responding to evolving market dynamics.
setPermissionManager: Assigns a new PermissionManager, updating the contract's access control logic.

Levery’s Strategic Principles

Mitigation of Impermanent Loss

Levery dynamically adjust transaction fees based on real-time market data sourced from oracles. By aligning fees with current market dynamics, Levery helps protect liquidity providers from impermanent loss. This is achieved by adjusting the fees in response to price fluctuations and market conditions, ensuring that liquidity providers are adequately compensated.

Enhanced Liquidity Provider Returns

The dynamic adjustment of fees ensures that liquidity providers can maximize their returns under varying market conditions. By tailoring fees to reflect real-time data, Levery creates a more attractive environment for liquidity providers, promoting deeper and more stable liquidity pools.

Compliance Requirements

Levery utilizes the PermissionManager component to enforce compliance controls over who can participate in swaps and liquidity operations. This capability integrates comprehensive Know Your Customer (KYC) and Anti-Money Laundering (AML) checks directly into the transaction flow. By ensuring that only verified and compliant users can engage in trading and liquidity activities, Levery aligns with regulatory standards and mitigates potential compliance risks.

Fraud Detection and Response: A critical strategic use of Levery smart contracts is the ability to freeze liquidity or block swaps for specific users if fraud is detected. For instance, if a compliance risk is identified or if there is a request from authorities to block a user, Levery can temporarily halt that user's ability to perform swaps or add/remove liquidity. It is important to note that while Levery can restrict actions to maintain compliance and security, the protocol does not allow the use or transfer of users' funds without their consent.

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Last updated 14 days ago