HP025 - Wind Down V1 in anticipation of Hubblenet

Temperature Check
1

This proposal seeks to:

  • Halt trading on V1.
  • Settle all open positions at index price

Background

Hubble Exchange’s V1 launched on 8th August 2022. Although since its inception, it has garnered over $150M of Cumulative Trading Volume, V1 has design limitations which have been a bottleneck in its growth.

In its vAMM design, using the CurveCrypto Invariant, Makers in Hubble Exchange V1 don’t possess the ability to express their view of the market. Although the CurveCrypto invariant is more capital efficient than UniV2 since it concentrates liquidity, it still has the cost associated with Constant Function Market Makers: adverse selection. The phenomenon of adverse selection is not specific to the CurveCrypto Invariant or CFMMs. In fact, it is a concept inherent to Market Making. As you provide liquidity to a market, you end up holding more inventory of the asset going down in value, relative to the asset going up in value. Traditionally, MMs providing liquidity to an orderbook have the flexibility to minimise adverse selection and its consequences in their strategy by adjusting their spreads appropriately and hedging their position. They manage adverse selection as a risk and profit despite it. However, this was not an option for MMs on V1 as they couldn’t rebalance their liquidity themselves, making them susceptible to information asymmetry. Additionally, methods of hedging this Impermanent Loss were quite expensive, for example long straddles.

As a result of this exposure to adverse selection, Makers on V1 have consistently found themselves taking the unpopular position and paying funding payments. Due to this, Makers have experienced Impermanent Loss, slowly draining their liquidity.

Hubble Exchange Orderbook

In its new version, the protocol contributors have set out to solve these challenges and converged on a Limit Order Book Based design in which Makers express their view of the market by concentrating liquidity by adjusting their own price ranges (bid ask spreads), using traditional limit orders, akin to centralised exchanges. The introduction of limit orders in Hubble Exchange, enables market makers to concentrate liquidity with pricing edge, allowing for protection against adverse selection. This Limit Order Book Based design also increases capital efficiency, relative to V1, by an order of magnitude.

This proposal seeks to close down V1 in anticipation of Hubble Exchange’s upcoming Orderbook.

The Plan

24 hours after this proposal is ratified, Hubble Exchange will undertake the settlement of all open positions using the index price. Upon the completion of settlements and subsequent decommissioning of Hubble Exchange V1:

  1. Traders will be granted their unrealized profit and loss (PnL) based on the index price, ensuring they avoid any slippage.
  2. Market makers will find their impermanent positions transitioned to permanent ones and subsequently closed. This will entail an Impermanent Loss deduction from their collateral.

In light of this, users will need to undertake the following steps:

  1. Select “Start Withdrawal Process” and confirm the transaction to credit the margin account with the PnL from the settled position
  2. Proceed to withdraw hUSD and queue it for withdrawal.
  3. In instances where the hUSD balance is negative due to negative PnL, users will need to swap their collateral within the application to pay the negative balance. The remaining collateral can then be withdrawn accordingly
  • For
  • Against
  • Neither

0 voters

1 Like