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Say you are tasked with coding a smart contract with the following features:

  1. Users can deposit token A and receive liquidity shares in return.
  2. The contract starts selling token A for token B depending on some arbitrary rules. Every time there is a trade, all users receive a pro rata share of token B.
  3. Users can redeem their liquidity shares in exchange for both token A and token B.
  4. Other users can deposit token A and receive liquidity shares, but they are not eligible to withdraw token B earned by previous users.

In an ideal world, the protocol would do a multisender.app-style distribution of token B, but this is impossible because of block gas limits. Hence I must issue shares and let users retroactively claim their rewards.

Is there a framework or a protocol that I could use to implement this?

I looked at Set Protocol, but their Rebalancing Sets are out of scope for my use case - they depend on auctions to rebalance the composition of the Set.

I also looked at Balancer, which gets close, but their pooled model breaks feature no. 4 from above. Users who deposit late should not be eligible to withdraw tokens B that had been earned by previous depositors.

Is this smart contract design even possible? I personally can't see a way for the contract to selectively distribute token A and token B to users, on a pro-rata basis, while taking into account the times at which users deposited token A.

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  • do you have an example of this finished product on github? Apr 13 at 18:39
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Formula

I eventually found a solution, but it involves relying on an oracle for an USD price feed:

sMinted = sStarting * (aDepositedUSD / (aStartingUSD + bStartingUSD))

Where:

  • sMinted: the number of shares to mint
  • sStarting: the number of already existing shares
  • aDepositedUSD: the USD value of the amount of A tokens deposited
  • aStartingUSD: the USD value of the already existing amount of A tokens in the contract
  • bStartingUSD: the USD value of the already existing amount of B tokens in the contract

Explanation

The logic is that we need a common denominator between the two assets, lest we lose track of "retroactive proportionality". The value in USD of each token serves this purpose.

Of course, there are exceptions: What if the existing amount of shares is zero? And what happens if there are no A and no B tokens in the contract? A proper implementation would have to carry out several checks before applying the formula above.

Interestingly, Uniswap solves a similar problem with their constant product formula (x * y = k), but I cannot apply that here. I didn't want to morph the contract into a DEX - the purpose was simply to bundle two assets and pro-rate their ownership to everybody who deposits money.

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