Introduction

This documents presents the findings of trying to create a Nomos zone as close as possible to Uniswap V2, from difficulties arising from using UTxOs to quirks in our architecture.

Uniswap V2 is a Automated Market Maker (AMM), a system that allows users to trade on different assets by regulating prices algorithmically. Anybody can contribute liquidity to the protocol and earn fees.

The central operation is a SWAP, a trade on some currency pair. Each currency pair has some associated liquidity (called a pool), where reserves of both currencies are held. The price for a swap is automatically determined based on the balances of each currency according the following formula

$$ (x_{1} − 0.003 · x_{in})) · y_1 >= x_0 · y_0 $$

where:

$x_0, y_0$ are the initial balances of the pool for the respective currencies in the pair
$x_1, y_1$ are the balances of the pool after the swap
$x_{in}$ is the amount of the input currency the user wants to swap for some amount of the other currency
0.3% is the fee they have to pay in the input currency for the trade. Fees go to liquidity providers.

This design allows an user to become a liquidity provider (LP) by depositing his funds into a pair, this allows the user to passively provide a market making service while collecting fees from each swap.

The details around how LP’s and fee distribution works has been removed from the scope of this PoC. Instead we will focus on the SWAP operation

Overview

We will focus on the main components of the Uniswap Zone:

how pools are represented
how zone funds are managed
how SWAPs are encoded and executed.

Introduction

Overview

Pools