program: spread use liquidity ratio instead of base amount (#374)

* bigz/amm-spread-inventory-pct * wip2 * working rust * amm.ts: add sdk for new inventory spread scale * fix test * fix test 2 * update CHANGELOG.md * incorp feedback add tests * add mirror rust test for ts test * make ts more consistent w/ rust impl --------- Co-authored-by: lil perp <[email protected]>
drift-labs · Feb 28, 2023 · d67c73f · d67c73f
1 parent 86cf411
commit d67c73f
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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
 ### Features
 
 - program: max number of subaccounts to 3000
+- program: amm spread logic more consistent across market by using liquidity ratio rather than base asset amount for inventory spread scaling([#374](https://github.com/drift-labs/protocol-v2/pull/374))
 - program: add pyth1M/pyth1K as OracleSource ([#375](https://github.com/drift-labs/protocol-v2/pull/375))
 
 ### Fixes

diff --git a/programs/drift/src/controller/repeg/tests.rs b/programs/drift/src/controller/repeg/tests.rs
@@ -158,7 +158,10 @@ pub fn update_amm_test() {
     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_eq!(
+        (ask - bid) * 1000000 / reserve_price,
+        (market.amm.max_spread) as u64
+    );
 }
 
 #[test]
@@ -264,8 +267,8 @@ pub fn update_amm_larg_conf_test() {
     let cost_of_update = _update_amm(&mut market, &oracle_price_data, &state, now, slot).unwrap();
     assert_eq!(cost_of_update, -42992787); // amm wins when price increases
 
+    assert_eq!(market.amm.short_spread, 975 - market.amm.long_spread);
     assert_eq!(market.amm.long_spread, 76);
-    assert_eq!(market.amm.short_spread, 975 - 76);
 
     let reserve_price_after = market.amm.reserve_price().unwrap();
     assert_eq!(reserve_price_after, 18849999999);
@@ -291,7 +294,7 @@ pub fn update_amm_larg_conf_test() {
 
     assert_eq!(market.amm.long_spread, 76);
     assert_eq!(market.amm.peg_multiplier, 19443664550);
-    assert_eq!(market.amm.short_spread, 975 - 76);
+    assert_eq!(market.amm.short_spread, 975 - market.amm.long_spread);
 
     // add move lower
     let oracle_price_data = OraclePriceData {
@@ -320,7 +323,7 @@ pub fn update_amm_larg_conf_test() {
     let cost_of_update = _update_amm(&mut market, &oracle_price_data, &state, now, slot).unwrap();
     assert_eq!(cost_of_update, 30468749);
     assert_eq!(market.amm.long_spread, 60);
-    assert_eq!(market.amm.short_spread, 975 - 60);
+    assert_eq!(market.amm.short_spread, 975 - market.amm.long_spread);
 
     let mrk = market.amm.reserve_price().unwrap();
     let (bid, ask) = market.amm.bid_ask_price(mrk).unwrap();
@@ -342,7 +345,7 @@ pub fn update_amm_larg_conf_test() {
     let cost_of_update = _update_amm(&mut market, &oracle_price_data, &state, now, slot).unwrap();
     assert_eq!(cost_of_update, -3046875);
     assert_eq!(market.amm.long_spread, 60);
-    assert_eq!(market.amm.short_spread, 975 - 60);
+    assert_eq!(market.amm.short_spread, 975 - market.amm.long_spread);
 
     let mrk = market.amm.reserve_price().unwrap();
     let (bid, ask) = market.amm.bid_ask_price(mrk).unwrap();
@@ -416,7 +419,10 @@ pub fn update_amm_larg_conf_w_neg_tfmd_test() {
     assert_eq!(market.amm.last_update_slot, slot);
 
     assert_eq!(market.amm.long_spread, 389);
-    assert_eq!(market.amm.short_spread, 975 - 389);
+    assert_eq!(
+        market.amm.short_spread,
+        market.amm.max_spread - market.amm.long_spread
+    );
 
     let reserve_price_after = market.amm.reserve_price().unwrap();
     assert_eq!(reserve_price_after, 18849999999);
@@ -490,7 +496,7 @@ pub fn update_amm_larg_conf_w_neg_tfmd_test() {
     assert_eq!(market.amm.last_update_slot, slot);
 
     assert_eq!(market.amm.long_spread, 369);
-    assert_eq!(market.amm.short_spread, 975 - 369);
+    assert_eq!(market.amm.short_spread, 975 - market.amm.long_spread);
 
     let mrk = market.amm.reserve_price().unwrap();
     let (bid, ask) = market.amm.bid_ask_price(mrk).unwrap();
@@ -514,7 +520,7 @@ 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, 299367);
     assert_eq!(market.amm.long_spread, 378);
-    assert_eq!(market.amm.short_spread, 975 - 378);
+    assert_eq!(market.amm.short_spread, 975 - market.amm.long_spread);
 
     let mrk = market.amm.reserve_price().unwrap();
     let (bid, ask) = market.amm.bid_ask_price(mrk).unwrap();

diff --git a/programs/drift/src/math/amm_spread.rs b/programs/drift/src/math/amm_spread.rs
@@ -8,17 +8,19 @@ use crate::math::amm::_calculate_market_open_bids_asks;
 use crate::math::bn::U192;
 use crate::math::casting::Cast;
 use crate::math::constants::{
-    AMM_RESERVE_PRECISION_I128, 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, PRICE_PRECISION, PRICE_PRECISION_I128,
+    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, PRICE_PRECISION,
+    PRICE_PRECISION_I128,
 };
 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;
 
@@ -153,6 +155,37 @@ pub fn calculate_long_short_vol_spread(
     ))
 }
 
+pub fn calculate_inventory_liquidity_ratio(
+    base_asset_amount_with_amm: i128,
+    base_asset_reserve: u128,
+    min_base_asset_reserve: u128,
+    max_base_asset_reserve: u128,
+) -> DriftResult<i128> {
+    // computes min(1, x/(1-x)) for 0 < x < 1
+
+    // inventory scale
+    let (max_bids, max_asks) = _calculate_market_open_bids_asks(
+        base_asset_reserve,
+        min_base_asset_reserve,
+        max_base_asset_reserve,
+    )?;
+
+    let min_side_liquidity = max_bids.min(max_asks.abs());
+
+    let amm_inventory_pct = if base_asset_amount_with_amm.abs() < min_side_liquidity {
+        base_asset_amount_with_amm
+            .abs()
+            .safe_mul(PERCENTAGE_PRECISION_I128)
+            .unwrap_or(i128::MAX)
+            .safe_div(min_side_liquidity.max(1))?
+            .min(PERCENTAGE_PRECISION_I128)
+    } else {
+        PERCENTAGE_PRECISION_I128 // 100%
+    };
+
+    Ok(amm_inventory_pct)
+}
+
 pub fn calculate_spread_inventory_scale(
     base_asset_amount_with_amm: i128,
     base_asset_reserve: u128,
@@ -165,38 +198,29 @@ pub fn calculate_spread_inventory_scale(
         return Ok(BID_ASK_SPREAD_PRECISION);
     }
 
-    // inventory scale
-    let (max_bids, max_asks) = _calculate_market_open_bids_asks(
+    let amm_inventory_pct = calculate_inventory_liquidity_ratio(
+        base_asset_amount_with_amm,
         base_asset_reserve,
         min_base_asset_reserve,
         max_base_asset_reserve,
     )?;
 
-    let min_side_liquidity = max_bids.min(max_asks.abs());
-
-    // cap so (6e9 * AMM_RESERVE_PRECISION)^2 < 2^127
-    let amm_inventory_size = base_asset_amount_with_amm.abs().min(6000000000000000000);
-
-    // inventory scale
-    let inventory_scale = amm_inventory_size
-        .safe_mul(amm_inventory_size.max(AMM_RESERVE_PRECISION_I128))?
-        .safe_div(AMM_RESERVE_PRECISION_I128)?
-        .safe_mul(DEFAULT_LARGE_BID_ASK_FACTOR.cast::<i128>()?)?
-        .safe_div(min_side_liquidity.max(1))?
-        .unsigned_abs();
-
-    // only allow up to scale up of larger of MAX_BID_ASK_INVENTORY_SKEW_FACTOR or half of max spread
+    // only allow up to scale up of larger of MAX_BID_ASK_INVENTORY_SKEW_FACTOR or max spread
     let inventory_scale_max = MAX_BID_ASK_INVENTORY_SKEW_FACTOR.max(
         max_spread
-            .safe_div(2)?
             .safe_mul(BID_ASK_SPREAD_PRECISION)?
             .safe_div(max(directional_spread, 1))?,
     );
 
     let inventory_scale_capped = min(
         inventory_scale_max,
         BID_ASK_SPREAD_PRECISION
-            .safe_add(inventory_scale.cast()?)
+            .safe_add(
+                inventory_scale_max
+                    .safe_mul(amm_inventory_pct.unsigned_abs().cast()?)
+                    .unwrap_or(u64::MAX)
+                    .safe_div(PERCENTAGE_PRECISION_I128.cast()?)?,
+            )
             .unwrap_or(u64::MAX),
     );