DEX Liquidity Protection Functional Doc (External)

Key Terms for DEX Liquidity Protection

Epoch - A length of time as measured by a number of blocks. While this is set by a number of blocks, it may be represented in terms of hours, days, or longer.
Maximum net threshold amount of ROWAN - The total maximum net amount of ROWAN that can be sold during an epoch. This number will be communicated through Sifchain communication channels, as well on the documents site as a percentage. This net threshold amount of ROWAN takes into consideration BOTH buys and sells of ROWAN.
Remaining amount of ROWAN eligible to be sold - The total remaining amount of ROWAN that is able to be sold in a given epoch at any given time.

Example of these terms:

Epoch = 24 hours. This means the epoch length is roughly 10,800 blocks (assuming 1 block = 8 seconds).
The Maximum net threshold amount of ROWAN = 2,000,000 ROWAN.
- This means that for every rolling 24 hours, 2,000,000 ROWAN can be sold.
Remaining amount of ROWAN eligible to be sold = this is based on buys & sells of ROWAN during that epoch. If users buy ROWAN, the remaining amount of ROWAN that can be sold in that epoch will increase by that amount (up to the maximum threshold). If users sell ROWAN, the remaining amount of ROWAN that can be sold in that epoch will decrease by that amount.
- Visual representation is shown below.

Summary

What is DEX Liquidity Protection?
1. DEX Liquidity Protection aims to help protect the Sifchain DEX and in specific, its external liquidity. It does this by implementing controls over how much external liquidity can be bought from Sifchain’s DEX using ROWAN during a defined time period, called an epoch. In putting these controls in place, it aims to help Sifchain DEX users and ROWAN holders feel more confident in using the DEX and being a ROWAN holder.
How does DEX Liquidity Protection work?
1. DEX Liquidity Protection measures the sales of ROWAN against both of the ‘maximum net threshold amount of ROWAN’ & the ‘remaining amount of ROWAN eligible to be sold’. There are two ways the ‘remaining amount of ROWAN eligible to be sold’ can be impacted:
  1. Automatically increases over time: Each block, the remaining amount of ROWAN that can be sold will continue to slowly increase. The amount that can be sold will continue to increase block by block until it reaches the maximum net threshold.
  2. When ROWAN is purchased or sold on the DEX: Purchasing ROWAN will increase the amount of ROWAN that can be sold during that epoch, up to the max threshold amount. If someone sells ROWAN, then the remaining amount of ROWAN that can be sold during that epoch decreases. For example, if 100,000 ROWAN are purchased in a block, and 25,000 are sold in that same block, the remaining amount that can be sold would increase by 75,000. To showcase the max threshold, if it is set to 1,000,000 ROWAN and someone purchases 5,000,000, the amount of ROWAN that can be sold is still 1,000,000 (as that is the max net threshold).
2. The below DEX liquidity protection parameters will be set:
  1. The maximum net threshold amount of ROWAN that can be sold in an epoch.
  2. The length of an epoch.
3. Visual example:
How will the maximum net threshold amount of ROWAN that can be sold in an epoch be determined?
1. This will be set based on these principles:
  1. Maintain a healthy and stable amount of external liquidity in the Sifchain DEX.
  2. Normal sell activity should not trigger the net threshold amount being hit, as based upon previous selling activity of ROWAN on the DEX.
2. This parameter can be changed via a governance proposal following the normal Sifchain governance proposal process, or ad-hoc in accordance with the above principles.
What happens when the maximum net threshold amount of ROWAN that can be sold per epoch is hit?
1. Subsequent sales of ROWAN may be blocked. Epochs consist of many blocks, and with each subsequent block, the amount of ROWAN that can be sold will increase. This means that at the very next block an amount of ROWAN can be sold. This will continue with each block. Also, new purchases of ROWAN would increase the amount that can be sold as well.

FAQ: User Impacts

How does this impact Liquidity Providers on the DEX?
1. DEX liquidity protection may help you feel more confident about the value of your LPs. DEX Liquidity Protection does not otherwise impact the experience of providing liquidity.
Will DEX Liquidity Protection change the withdrawal process when removing liquidity from the Sifchain DEX?
1. No, DEX Liquidity Protection does not change the liquidity removal process.
I am interested in providing liquidity. How does this impact me?
1. Symmetrical liquidity providing: DEX Liquidity Protection will not change the experience of providing liquidity in a 50/50 ratio.
2. Asymmetrical liquidity providing where TKN > ROWAN: DEX Liquidity Protection will not change the experience of providing liquidity where TKN > ROWAN.
3. Asymmetrical liquidity providing where ROWAN > TKN: This feature may impact the experience for users providing liquidity in a ratio where ROWAN > TKN because these liquidity adds trigger a behind-the-scenes sale of ROWAN for the paired TKN. If the ROWAN sale threshold has been met for the current epoch, these actions may be blocked on the DEX until the next block.
Does DEX Liquidity Protection change the swapping experience on the Sifchain DEX?
1. Swapping ROWAN for another TKN decreases the amount of ROWAN that can be sold in that epoch. If the ROWAN sale threshold has been met for the current epoch, these actions may be blocked on the DEX until the remaining amount of ROWAN eligible to be sold increases in the subsequent block, or from other users purchasing ROWAN.
2. Swapping another TKN for ROWAN will not be impacted. But, in the background, the amount of ROWAN that can be sold in that epoch will increase because of this purchase of ROWAN.
If the ‘remaining amount amount of ROWAN eligible to be sold’ is at 500,000, and I try to sell 500,500, what will happen?
1. The entire sale will be blocked. You can re-try by selling 500,000 and the sale will succeed.
Does DEX Liquidity Protection change staking or delegating ROWAN to a validator?
1. No, staking & delegating are not changed by DEX Liquidity Protection.

HackMd Spec

https://hackmd.io/3MCsy4EqSaeNvstUL6hDKg?view#Sifchain-DEX-Liquidity-Protection