program: more precise update k in prepeg (#294)

* bigz/use-get_update_k_result-in-prepeg * fix sqrt_k vs user_lp_shares * add max check for new_sqrt_k in formulaic_update_k * better lower_k function * program: fix should_cancel_reduce_only_order * program: tweak sqrt k validation rounding to be 15 * program: allow duplicate reduce only orders (#293) * program: place order does not alter users order base asset amount * fix race condition in serumTests * update CHANGELOG.md * sdk: accept makerInfo in sendMarketOrderAndGetSignedFillTx * v2.6.0-beta.1 * update CHANGELOG.md Co-authored-by: Chris Heaney <[email protected]>
drift-labs · Dec 16, 2022 · 7e46d40 · 7e46d40
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diff --git a/CHANGELOG.md b/CHANGELOG.md
@@ -11,6 +11,7 @@ and this project adheres to [Semantic Versioning](https://semver.org/spec/v2.0.0
 
 ### Fixes
 
+- program: more precise update k in prepeg ([#294](https://github.com/drift-labs/protocol-v2/pull/294))
 - program: allow duplicative reduce only orders ([#293](https://github.com/drift-labs/protocol-v2/pull/293))
 - program: fix should_cancel_reduce_only_order
 - ts-sdk: add Oracle OrderType to dlob idl

diff --git a/programs/drift/src/controller/amm.rs b/programs/drift/src/controller/amm.rs
@@ -325,7 +325,8 @@ pub fn formulaic_update_k(
 
         let new_sqrt_k = bn::U192::from(market.amm.sqrt_k)
             .safe_mul(bn::U192::from(k_scale_numerator))?
-            .safe_div(bn::U192::from(k_scale_denominator))?;
+            .safe_div(bn::U192::from(k_scale_denominator))?
+            .max(bn::U192::from(market.amm.user_lp_shares.safe_add(1)?));
 
         let update_k_result = get_update_k_result(market, new_sqrt_k, true)?;
 

diff --git a/programs/drift/src/controller/amm/tests.rs b/programs/drift/src/controller/amm/tests.rs
@@ -115,6 +115,14 @@ fn formualic_k_tests() {
         },
         ..PerpMarket::default()
     };
+    let (new_terminal_quote_reserve, new_terminal_base_reserve) =
+        amm::calculate_terminal_reserves(&market.amm).unwrap();
+    market.amm.terminal_quote_asset_reserve = new_terminal_quote_reserve;
+    let (min_base_asset_reserve, max_base_asset_reserve) =
+        amm::calculate_bid_ask_bounds(market.amm.concentration_coef, new_terminal_base_reserve)
+            .unwrap();
+    market.amm.min_base_asset_reserve = min_base_asset_reserve;
+    market.amm.max_base_asset_reserve = max_base_asset_reserve;
 
     let prev_sqrt_k = market.amm.sqrt_k;
 
@@ -139,8 +147,8 @@ fn formualic_k_tests() {
     // positive means amm supossedly paid $500 in funding payments for interval
     let funding_cost_2: i128 = (500 * QUOTE_PRECISION) as i128;
     formulaic_update_k(&mut market, &oracle_price_data, funding_cost_2, now).unwrap();
-    assert!(prev_sqrt_k > market.amm.sqrt_k);
     assert_eq!(market.amm.sqrt_k, 499500000000); // max k decrease (.1%)
+    assert!(prev_sqrt_k > market.amm.sqrt_k);
     assert_eq!(market.amm.total_fee_minus_distributions, 1000014768); //$.014768 acquired from slippage increase
 
     // negative means amm recieved $500 in funding payments for interval
@@ -247,6 +255,62 @@ fn iterative_no_bounds_formualic_k_tests() {
     assert_eq!(market.amm.total_fee_minus_distributions, 985625040);
 }
 
+#[test]
+fn decrease_k_up_to_user_lp_shares() {
+    let mut market = PerpMarket {
+        amm: AMM {
+            base_asset_reserve: 512295081967,
+            quote_asset_reserve: 488 * AMM_RESERVE_PRECISION,
+            sqrt_k: 500 * AMM_RESERVE_PRECISION,
+            user_lp_shares: 150 * AMM_RESERVE_PRECISION,
+            peg_multiplier: 50000000,
+            concentration_coef: MAX_CONCENTRATION_COEFFICIENT,
+            base_asset_amount_with_amm: -12295081967,
+            total_fee_minus_distributions: -100 * QUOTE_PRECISION as i128,
+            total_fee_withdrawn: 100 * QUOTE_PRECISION,
+            curve_update_intensity: 100,
+            ..AMM::default()
+        },
+        ..PerpMarket::default()
+    };
+    // let prev_sqrt_k = market.amm.sqrt_k;
+    let (new_terminal_quote_reserve, new_terminal_base_reserve) =
+        amm::calculate_terminal_reserves(&market.amm).unwrap();
+    market.amm.terminal_quote_asset_reserve = new_terminal_quote_reserve;
+    let (min_base_asset_reserve, max_base_asset_reserve) =
+        amm::calculate_bid_ask_bounds(market.amm.concentration_coef, new_terminal_base_reserve)
+            .unwrap();
+    market.amm.min_base_asset_reserve = min_base_asset_reserve;
+    market.amm.max_base_asset_reserve = max_base_asset_reserve;
+
+    // let reserve_price = market.amm.reserve_price().unwrap();
+    let now = 10000;
+    let oracle_price_data = OraclePriceData {
+        price: 50 * PRICE_PRECISION_I64,
+        confidence: 0,
+        delay: 2,
+        has_sufficient_number_of_data_points: true,
+    };
+
+    // negative funding cost
+    let mut count = 0;
+    let mut prev_k = market.amm.sqrt_k;
+    let mut new_k = 0;
+    while prev_k != new_k && count < 100000 {
+        let funding_cost = (QUOTE_PRECISION * 100000) as i128;
+        prev_k = market.amm.sqrt_k;
+        formulaic_update_k(&mut market, &oracle_price_data, funding_cost, now).unwrap();
+        new_k = market.amm.sqrt_k;
+        msg!("quote_asset_reserve:{}", market.amm.quote_asset_reserve);
+        msg!("new_k:{}", new_k);
+        count += 1
+    }
+
+    assert_eq!(market.amm.base_asset_amount_with_amm, -12295081967);
+    assert_eq!(market.amm.sqrt_k, 162234889619);
+    assert_eq!(market.amm.total_fee_minus_distributions, 29796232175);
+}
+
 #[test]
 fn update_pool_balances_test_high_util_borrow() {
     let mut market = PerpMarket {

diff --git a/programs/drift/src/controller/repeg/tests.rs b/programs/drift/src/controller/repeg/tests.rs
@@ -30,15 +30,23 @@ pub fn update_amm_test() {
             base_spread: 250,
             curve_update_intensity: 100,
             max_spread: 55500,
-            concentration_coef: 1020710,
-
+            concentration_coef: 31020710, //unrealistic but for poc
             ..AMM::default()
         },
         status: MarketStatus::Initialized,
         contract_tier: ContractTier::B,
         margin_ratio_initial: 555, // max 1/.0555 = 18.018018018x leverage
         ..PerpMarket::default()
     };
+    let (new_terminal_quote_reserve, new_terminal_base_reserve) =
+        amm::calculate_terminal_reserves(&market.amm).unwrap();
+    // market.amm.terminal_quote_asset_reserve = new_terminal_quote_reserve;
+    assert_eq!(new_terminal_quote_reserve, 64000000000);
+    let (min_base_asset_reserve, max_base_asset_reserve) =
+        amm::calculate_bid_ask_bounds(market.amm.concentration_coef, new_terminal_base_reserve)
+            .unwrap();
+    market.amm.min_base_asset_reserve = min_base_asset_reserve;
+    market.amm.max_base_asset_reserve = max_base_asset_reserve;
 
     let state = State {
         oracle_guard_rails: OracleGuardRails {
@@ -86,6 +94,7 @@ pub fn update_amm_test() {
 
     let cost_of_update = _update_amm(&mut market, &oracle_price_data, &state, now, slot).unwrap();
 
+    assert_eq!(market.amm.sqrt_k, 63936000000);
     let is_oracle_valid = oracle::oracle_validity(
         market.amm.historical_oracle_data.last_oracle_price_twap,
         &oracle_price_data,
@@ -95,7 +104,7 @@ pub fn update_amm_test() {
         == OracleValidity::Valid;
 
     let reserve_price_after_prepeg = market.amm.reserve_price().unwrap();
-    assert_eq!(reserve_price_after_prepeg, 12743902020);
+    assert_eq!(reserve_price_after_prepeg, 12743902015);
     assert_eq!(
         market.amm.historical_oracle_data.last_oracle_price,
         12400000000
@@ -131,8 +140,8 @@ pub fn update_amm_test() {
     assert_eq!(-cost_of_update, profit);
     assert!(is_oracle_valid);
     assert!(profit < 0);
-    assert_eq!(peg, 13145260263);
-    assert_eq!(profit, -6158609290);
+    assert_eq!(peg, 13145260284);
+    assert_eq!(profit, -6158609264);
 
     let reserve_price = market.amm.reserve_price().unwrap();
     let (bid, ask) = market.amm.bid_ask_price(reserve_price).unwrap();
@@ -144,12 +153,12 @@ pub fn update_amm_test() {
         (market.margin_ratio_initial * 100) as u32
     );
 
-    assert_eq!(bid, 12038871128);
+    assert_eq!(bid, 12055425452);
     assert!(bid < (oracle_price_data.price as u64));
-    assert_eq!(reserve_price, 12743902020);
-    assert_eq!(ask, 12746157690);
+    assert_eq!(reserve_price, 12743902015);
+    assert_eq!(ask, 12762712014);
     assert!(ask >= (oracle_price_data.price as u64));
-    assert!((ask - bid) * 1000000 / reserve_price < market.amm.max_spread as u64);
+    assert!((ask - bid) * 1000000 / reserve_price == market.amm.max_spread as u64);
 }
 
 #[test]
@@ -462,14 +471,14 @@ pub fn update_amm_larg_conf_w_neg_tfmd_test() {
     let prev_peg_multiplier = market.amm.peg_multiplier;
     let prev_total_fee_minus_distributions = market.amm.total_fee_minus_distributions;
     let cost_of_update = _update_amm(&mut market, &oracle_price_data, &state, now, slot).unwrap();
-    assert_eq!(cost_of_update, 21459607); // amm loses when price decreases (given users are net short)
+    assert_eq!(cost_of_update, 21459587); // amm loses when price decreases (given users are net short)
     assert_eq!(market.amm.sqrt_k, 63936000000); // k lowered since cost_of_update is positive and total_fee_minus_distributions negative
-    assert_eq!(market.amm.base_asset_reserve, 64935000000);
-    assert_eq!(market.amm.quote_asset_reserve, 62952369231);
-    assert_eq!(market.amm.terminal_quote_asset_reserve, 63937000015);
-    assert_eq!(market.amm.min_base_asset_reserve, 45208890032);
-    assert_eq!(market.amm.max_base_asset_reserve, 90417708155);
-    assert_eq!(market.amm.peg_multiplier, 19421869977);
+    assert_eq!(market.amm.base_asset_reserve, 64935000065);
+    assert_eq!(market.amm.quote_asset_reserve, 62952369167);
+    assert_eq!(market.amm.terminal_quote_asset_reserve, 63936999950);
+    assert_eq!(market.amm.min_base_asset_reserve, 45208890078);
+    assert_eq!(market.amm.max_base_asset_reserve, 90417708246);
+    assert_eq!(market.amm.peg_multiplier, 19421869997);
     assert_eq!(market.amm.peg_multiplier < prev_peg_multiplier, true);
     // assert_eq!(market.amm.total_fee_minus_distributions, -9978167413);
     assert_eq!(
@@ -487,10 +496,10 @@ pub fn update_amm_larg_conf_w_neg_tfmd_test() {
     let (bid, ask) = market.amm.bid_ask_price(mrk).unwrap();
 
     let orc = oracle_price_data.price as u64;
-    assert_eq!(bid, 18817460574);
+    assert_eq!(bid, 18817460555);
     assert_eq!(orc, 18820000000);
-    assert_eq!(mrk, 18828870870);
-    assert_eq!(ask, 18835818723);
+    assert_eq!(mrk, 18828870851);
+    assert_eq!(ask, 18835818704);
 
     assert_eq!(bid <= orc, true);
 
@@ -503,16 +512,16 @@ pub fn update_amm_larg_conf_w_neg_tfmd_test() {
     };
 
     let cost_of_update = _update_amm(&mut market, &oracle_price_data, &state, now, slot).unwrap();
-    assert_eq!(cost_of_update, 299407);
+    assert_eq!(cost_of_update, 299367);
     assert_eq!(market.amm.long_spread, 378);
     assert_eq!(market.amm.short_spread, 975 - 378);
 
     let mrk = market.amm.reserve_price().unwrap();
     let (bid, ask) = market.amm.bid_ask_price(mrk).unwrap();
 
-    assert_eq!(bid, 18817335418);
-    assert_eq!(mrk, 18828576078);
-    assert_eq!(ask, 18835693279);
+    assert_eq!(bid, 18817335401);
+    assert_eq!(mrk, 18828576061);
+    assert_eq!(ask, 18835693262);
     assert_eq!((oracle_price_data.price as u64) > bid, true);
     assert_eq!((oracle_price_data.price as u64) < ask, true);
 }
diff --git a/programs/drift/src/instructions/admin.rs b/programs/drift/src/instructions/admin.rs
@@ -1062,6 +1062,14 @@ pub fn handle_update_k(ctx: Context<AdminUpdateK>, sqrt_k: u128) -> Result<()> {
         perp_market.amm.sqrt_k
     )?;
 
+    validate!(
+        perp_market.amm.sqrt_k > perp_market.amm.user_lp_shares,
+        ErrorCode::InvalidUpdateK,
+        "cannot decrease sqrt_k={} below user_lp_shares={}",
+        perp_market.amm.sqrt_k,
+        perp_market.amm.user_lp_shares
+    )?;
+
     perp_market.amm.total_fee_minus_distributions = perp_market
         .amm
         .total_fee_minus_distributions

diff --git a/programs/drift/src/math/repeg.rs b/programs/drift/src/math/repeg.rs
@@ -330,22 +330,11 @@ pub fn adjust_amm(
             let new_sqrt_k = market
                 .amm
                 .sqrt_k
-                .safe_sub(market.amm.sqrt_k.safe_div(1000)?)?;
+                .safe_sub(market.amm.sqrt_k.safe_div(1000)?)?
+                .max(market.amm.user_lp_shares.safe_add(1)?);
 
-            let new_base_asset_reserve = market
-                .amm
-                .base_asset_reserve
-                .safe_sub(market.amm.base_asset_reserve.safe_div(1000)?)?;
-            let new_quote_asset_reserve = market
-                .amm
-                .quote_asset_reserve
-                .safe_sub(market.amm.quote_asset_reserve.safe_div(1000)?)?;
-
-            let update_k_result = cp_curve::UpdateKResult {
-                sqrt_k: new_sqrt_k,
-                base_asset_reserve: new_base_asset_reserve,
-                quote_asset_reserve: new_quote_asset_reserve,
-            };
+            let update_k_result =
+                cp_curve::get_update_k_result(market, bn::U192::from(new_sqrt_k), true)?;
 
             let adjustment_cost =
                 cp_curve::adjust_k_cost_and_update(&mut market_clone, &update_k_result)?;

diff --git a/programs/drift/src/math/repeg/tests.rs b/programs/drift/src/math/repeg/tests.rs
@@ -190,6 +190,14 @@ fn calculate_optimal_peg_and_budget_2_test() {
 
         ..PerpMarket::default()
     };
+    let (new_terminal_quote_reserve, new_terminal_base_reserve) =
+        amm::calculate_terminal_reserves(&market.amm).unwrap();
+    market.amm.terminal_quote_asset_reserve = new_terminal_quote_reserve;
+    let (min_base_asset_reserve, max_base_asset_reserve) =
+        amm::calculate_bid_ask_bounds(market.amm.concentration_coef, new_terminal_base_reserve)
+            .unwrap();
+    market.amm.min_base_asset_reserve = min_base_asset_reserve;
+    market.amm.max_base_asset_reserve = max_base_asset_reserve;
 
     let oracle_price_data = OraclePriceData {
         price: (17_800 * PRICE_PRECISION) as i64,
@@ -226,7 +234,7 @@ fn calculate_optimal_peg_and_budget_2_test() {
     // test amm update
     assert_eq!(market.amm.last_update_slot, 0);
     let c = _update_amm(&mut market, &oracle_price_data, &state, 1, 1337).unwrap();
-    assert_eq!(c, 424);
+    assert_eq!(c, 442);
     assert_eq!(market.amm.last_update_slot, 1337);
 }
 
@@ -271,7 +279,7 @@ fn calc_adjust_amm_tests_repeg_in_favour() {
 #[test]
 fn calc_adjust_amm_tests_sufficent_fee_for_repeg() {
     // btc-esque market
-    let market = PerpMarket {
+    let mut market = PerpMarket {
         amm: AMM {
             order_step_size: 1000,
             base_asset_reserve: 60437939720095,
@@ -299,6 +307,14 @@ fn calc_adjust_amm_tests_sufficent_fee_for_repeg() {
 
         ..PerpMarket::default()
     };
+    let (new_terminal_quote_reserve, new_terminal_base_reserve) =
+        amm::calculate_terminal_reserves(&market.amm).unwrap();
+    market.amm.terminal_quote_asset_reserve = new_terminal_quote_reserve;
+    let (min_base_asset_reserve, max_base_asset_reserve) =
+        amm::calculate_bid_ask_bounds(market.amm.concentration_coef, new_terminal_base_reserve)
+            .unwrap();
+    market.amm.min_base_asset_reserve = min_base_asset_reserve;
+    market.amm.max_base_asset_reserve = max_base_asset_reserve;
 
     let px = 35768 * PRICE_PRECISION_U64 / 1000;
     let optimal_peg = calculate_peg_from_target_price(

diff --git a/programs/drift/src/state/perp_market.rs b/programs/drift/src/state/perp_market.rs
@@ -530,7 +530,11 @@ impl AMM {
     }
 
     pub fn can_lower_k(&self) -> DriftResult<bool> {
-        let can_lower = self.base_asset_amount_with_amm.unsigned_abs() < self.sqrt_k / 4;
+        let (max_bids, max_asks) = amm::calculate_market_open_bids_asks(self)?;
+        let can_lower = self.base_asset_amount_with_amm.unsigned_abs()
+            < max_bids.unsigned_abs().min(max_asks.unsigned_abs())
+            && self.base_asset_amount_with_amm.unsigned_abs()
+                < self.sqrt_k.safe_sub(self.user_lp_shares)?;
         Ok(can_lower)
     }