Liquidity in Hetu

Overview

Hetu's Automated Market Maker (AMM) provides decentralized liquidity for trading between HETU tokens and subnet-specific Alpha tokens. The SubnetAMM contract implements a sophisticated mechanism that supports both stable and dynamic pricing models based on Subtensor architecture.

AMM Architecture

Core Components

• HETU Token: Network's native token used across all subnets

• Alpha Token: Subnet-specific tokens representing value within individual subnets

• Dual Mechanism: Supports both stable (1:1) and dynamic (AMM) pricing models

• System-Controlled Liquidity: Only authorized system addresses can inject/withdraw liquidity

Reserve Structure

The AMM maintains three key reserves following Subtensor specifications:

• Subnet HETU: HETU tokens held in the pool

• Subnet Alpha In: Alpha tokens available for trading in the pool

• Subnet Alpha Out: Alpha tokens circulating outside the pool

Mechanism Types

Stable Mechanism

• Fixed Exchange Rate: 1:1 exchange between HETU and Alpha tokens

• No Slippage: Price remains constant regardless of trade size

• Ideal for: Subnets requiring price stability and predictable exchanges

Dynamic Mechanism

• Constant Product Formula: Uses AMM pricing based on k = HETU_reserve × Alpha_reserve

• Market-Driven Pricing: Price adjusts based on supply and demand

• Price Impact: Larger trades result in higher slippage

• Ideal for: Subnets with fluctuating token values and market dynamics

Trading Functions

HETU to Alpha Swaps

Users can exchange HETU tokens for subnet Alpha tokens:

• Input: HETU amount and minimum Alpha output required

• Price Calculation: Based on current reserves and mechanism type

• Slippage Protection: Transactions revert if output falls below minimum

• Volume Tracking: All trades contribute to user and total volume statistics

Exchange Formulas

Stable Mechanism (1:1 Exchange)

Alpha_out = HETU_in

Dynamic Mechanism (AMM)

k = subnetHETU × subnetAlphaIn (constant product)
new_subnetHETU = subnetHETU + HETU_in
new_subnetAlphaIn = k ÷ new_subnetHETU
Alpha_out = subnetAlphaIn - new_subnetAlphaIn

Where:

• k: Constant product maintained by the AMM

• subnetHETU: Current HETU reserve in pool

• subnetAlphaIn: Current Alpha reserve available for trading

• HETU_in: Amount of HETU tokens being swapped

• Alpha_out: Amount of Alpha tokens received

Alpha to HETU Swaps

Users can exchange Alpha tokens back to HETU:

• Input: Alpha amount and minimum HETU output required

• Reverse Pricing: Calculates HETU output based on Alpha input

• Consistent Logic: Uses same mechanism rules in reverse direction

• Statistical Updates: Maintains comprehensive trading records

Exchange Formulas

Stable Mechanism (1:1 Exchange)

HETU_out = Alpha_in

Dynamic Mechanism (AMM)

k = subnetHETU × subnetAlphaIn (constant product)
new_subnetAlphaIn = subnetAlphaIn + Alpha_in
new_subnetHETU = k ÷ new_subnetAlphaIn
HETU_out = subnetHETU - new_subnetHETU

Where:

• Alpha_in: Amount of Alpha tokens being swapped

• HETU_out: Amount of HETU tokens received

• Other variables same as above

Liquidity Management

System-Controlled Injection

Only authorized system addresses can add liquidity:

• HETU Injection: Adds HETU tokens to increase pool depth

• Alpha Injection: Adds Alpha tokens to balance the pool

• Flexible Ratios: Can inject tokens independently or together

• Reserve Updates: Automatically updates all reserve tracking

Protected Withdrawal

System addresses can withdraw liquidity with safeguards:

• Minimum Liquidity: Ensures pool never falls below minimum thresholds

• Balanced Withdrawal: Can withdraw HETU, Alpha, or both

• Destination Control: Specifies recipient address for withdrawn tokens

• Safety Checks: Prevents pool depletion and maintains functionality

Liquidity Protection

• Minimum Pool Liquidity: Configurable minimum reserve requirement

• Withdrawal Limits: Prevents complete liquidity drainage

• Trading Continuity: Ensures trades remain possible even during withdrawals

Price Discovery and Tracking

Current Price Calculation

• Real-Time Pricing: Calculated as (HETU_reserve × 1e18) / Alpha_reserve

• Mechanism Dependent: Stable mechanism maintains 1:1 ratio

• Dynamic Updates: Price changes with each trade in dynamic mechanism

Price Formulas

Current Alpha Price

Alpha_Price = (subnetHETU × 1e18) ÷ subnetAlphaIn

Price After HETU→Alpha Swap

new_Price = (new_subnetHETU × 1e18) ÷ new_subnetAlphaIn

Price Impact Calculation

Price_Impact = ((new_Price - old_Price) × 10000) ÷ old_Price

Result in basis points (bps), where 100 bps = 1%

Moving Average Price

• Exponential Moving Average: Smooths price fluctuations over time

• Block-Based Updates: Updates based on blockchain block progression

• Halving Time: Configurable decay rate for historical price influence

• Price Stability: Provides reference for long-term value trends

Moving Average Formula

blocks_elapsed = current_block - last_update_block
alpha = (blocks_elapsed × 1e18) ÷ (blocks_elapsed + HALVING_TIME)
one_minus_alpha = 1e18 - alpha

moving_Price = (alpha × capped_current_price + one_minus_alpha × previous_moving_price) ÷ 1e18

Where:

• HALVING_TIME = 1000 blocks (configurable constant)

• capped_current_price: Current price capped at 1.0 (1e18)

• Prices are scaled by 1e18 for precision

Price Impact Analysis

• Trade Simulation: Preview price impact before executing trades

• Slippage Calculation: Shows expected price movement for given trade size

• Large Trade Warnings: Alerts for trades significantly impacting price

• Impact Thresholds: Categorizes trades as normal, medium, large, or very large

Trading Analysis and Statistics

Volume Tracking

• Total Volume: Comprehensive tracking of all trading activity

• User Volume: Individual user trading history and statistics

• Volume Percentage: User's share of total trading volume

• HETU-Denominated: All volumes calculated in HETU equivalent value

Pool Health Monitoring

• Liquidity Status: Real-time assessment of pool health

• Reserve Ratios: Balance between HETU and Alpha reserves

• Health Indicators: Clear status messages for pool conditions

• Risk Assessment: Early warning for low liquidity conditions

Performance Metrics

• Price History: Tracks current and moving average prices

• Trading Efficiency: Measures successful vs failed trade attempts

• Liquidity Utilization: Shows how much of the pool is being used

• Market Activity: Indicates trading frequency and patterns

Advanced Features

Trade Preview System

• Simulation Engine: Test trades without executing them

• Output Estimation: Accurate prediction of received tokens

• Price Impact Preview: Shows how trade affects overall price

• Liquidity Sufficiency: Confirms sufficient reserves for trade

Slippage Management

• Dynamic Calculation: Real-time slippage computation

• Mechanism-Aware: Different calculations for stable vs dynamic modes

• Theoretical Comparison: Shows difference from perfect pricing

• User Protection: Helps users set appropriate slippage tolerances

Slippage Calculation Formulas

Theoretical Output (Perfect Pricing)

For HETU→Alpha:

theoretical_Alpha_out = (HETU_in × subnetAlphaIn) ÷ subnetHETU

For Alpha→HETU:

theoretical_HETU_out = (Alpha_in × subnetHETU) ÷ subnetAlphaIn

Slippage Rate

slippage_rate = ((theoretical_out - actual_out) × 10000) ÷ theoretical_out

Result in basis points (bps)

Slippage Examples:

• 0-50 bps: Minimal slippage

• 50-200 bps: Low slippage

• 200-500 bps: Moderate slippage

• 500+ bps: High slippage

Note: Stable mechanism has zero slippage (slippage_rate = 0)

Reserve Verification

• Consistency Checks: Ensures internal accounting matches actual balances

• Error Detection: Identifies discrepancies in reserve tracking

• Audit Support: Provides transparency for pool operations

• Security Monitoring: Detects potential issues with token balances

Integration Points

Subnet Integration

• Network ID: Each AMM linked to specific subnet (netuid)

• Creator Recording: Tracks AMM creator for reference (no special privileges)

• System Coordination: Works with SubnetManager and other core contracts

• Token Compatibility: Seamlessly handles HETU and subnet Alpha tokens

Factory Pattern

• AMM Factory: SubnetAMM instances created through factory contract

• Standardization: Consistent deployment parameters across all AMMs

• Management: Centralized tracking of all subnet AMM instances

• Upgrades: Coordinated updates through factory mechanism

Security Features

Access Control

• System-Only Functions: Critical operations restricted to system addresses

• No Creator Privileges: AMM creators have no special control after deployment

• Immutable Parameters: Core settings cannot be changed after deployment

• Address Verification: Built-in checks for authorized system addresses

Economic Safety

• Reentrancy Protection: Prevents recursive call attacks

• Overflow Prevention: Safe math operations throughout contract

• Zero Address Checks: Validates all address parameters

• Amount Validation: Ensures positive values for all operations

Operational Safeguards

• Reserve Consistency: Maintains accurate internal accounting

• Minimum Liquidity: Prevents pool depletion below operational thresholds

• Trade Validation: Comprehensive checks before executing swaps

• Event Logging: Complete audit trail of all operations

Best Practices for Users

Trading Strategy

• Preview First: Always use trade preview before executing large trades

• Slippage Tolerance: Set appropriate slippage limits based on mechanism type

• Market Timing: Consider moving average price for better entry/exit points

• Volume Analysis: Review your trading patterns and frequency

Risk Management

• Large Trade Warnings: Pay attention to trade size impact warnings

• Pool Health: Check pool health before trading significant amounts

• Price Impact: Understand how your trade affects overall market price

• Liquidity Assessment: Ensure sufficient liquidity for your trading needs