On-Chain Components
This page details the On-Chain components to our system architecture.
Index Liquidity Contracts (ILC)
These contracts are responsible for hosting the index funds and the weighted assets that compose them. These contracts are vital for the liquidity system, serving as a private counterparty in the arbitrage process. By design, these contracts are "private" & only accessible by our trading engine. We have leveraged these contracts as a means of enhancing the arbitrage process. Rather than interacting entirely with public liquidity pools (per the traditional arbitrage process), our system connects ILC's (Private Index Pools) with external liquidity pools for (value extraction), then leveraging ILC's as a means to rebalance a private pool to complete the arbitrage. This optimizes efficiency, as a significant portion of arbitrage value is typically lost to validators in the Priority Gas Auctions (PGA's). The Private Pool Network leverages ILC's to ensure efficiency in value extraction from volatility by maintaining private pools via arbitrage rebalancing and minimizing exposure to competing arbitrageurs.
At its core, the framework is built upon a reconfigured Balancer architecture. The selection of the Balancer system was deliberate, leveraging its well-established and battle-tested infrastructure, providing a secure foundation for the protocol. The fundamental structure underwent minimal modifications, primarily introducing whitelist parameters to the swap functions of the Automated Market Maker (AMM) logic. These parameters empower the protocol system to whitelist entities interacting with its liquidity. Consequently, only the protocol system has the authorization to execute the rebalancing sequence and capitalize on arbitrage opportunities, enhancing the security and control mechanisms of the overall framework.
Arbitrage Rebalancing Contracts (ARC)
Arbitrage Rebalancing Contracts are contracts hosting the product's arbitrage capital engage when specific parameters within the system match the criteria to initiate the arbitrage rebalancing sequence of the Index Liquidity Contracts. Once initiated, ARC contracts will interact with ILC contracts until the rebalancing criteria are satisfied.
Each strategy has a dedicated smart contract since every strategy differs in logic. An additional factor in separating strategy contract environments arose to enhance memory management and address concerns of byte-code length. This precaution prevents the byte code from becoming too large to be published on the blockchain if all the logic was to fit into a single contract. Furthermore, it allows for simplified management of each strategy and updates to it since all the contracts are maintained as a separate environment.
The global arbitrage contract is the system that oversees and allows management of the individual arbitrage strategy contracts. Its role is to select the specific strategy contract for executing the rebalancing sequence deemed most profitable by the off-chain engine.
Profit Distribution Contracts (PDC)
Accumulated profits from liquidity arbitrage and index rebalancing are distributed via PDC. The system automatically deposits profits there as they are generated. The share of the profit distribution is decided by the percentage share of the liquidity pool and the time length of participation.