Congestion Pricing

Congestion pricing is our take on dynamic fee pricing. But unlike other attempts we don't prescribe what that fee should be. Our main focus is to make sure that users earn more on Hyperplex than they would on their base AMM, and to stretch that benefit as much as possible.

As most experienced AMM users know, Uniswap's fixed swap fee is not optimal. There's been lots of suggested alternatives but formula based approaches are always going to lag the market. Instead we're built around reserved liquidity.

Reserved Liquidity

We allow other protocols to reserve liquidity so they can swap against it in the future. This means they pay a borrow rate to reserve liquidity. The liquidity gets removed from the AMM, but when the price moves through that liquidity's range the borrower is forced to swap against it and pays the same swap fees. From a Hyperplex user's perspective, there is no difference. The liquidity behaves the exact same way, they earn the same swap fee, experience the same IL. And because this reserving behavior is done peer to pool, unless all the liquidity in the pool for that range is borrowed, each user can still withdraw freely. The only difference now is that our AMM depositors also earn an extra borrow fee from the reservations which gets split pro-rata among everyone who's deposited liquidity into the borrowed range.

Why would someone reserve liquidity?

Some protocols like derivative protocols offer complicated products to their users. They need assets to back those products and the ability to trade those assets to perfectly hedge the exposure of the product they sold. So by reserving liquidity on Hyperplex, they are guaranteeing themselves that they have the swap liquidity necessary to exit and enter positions as needed to synthetically replicate the derivative they're selling.

As a result, they save money because they don't need to bootstrap and manage their own liquidity pool. And a portion of those savings gets passed onto our re-LP's through that reservation fee. In then end, both sides come out better for it.

Risks?

Although with congestion pricing the AMM liquidity is effectively being used to underwrite derivative protocols, none of the deposited tokens are actually sent to those derivative protocols. Those protocols are just reserving the right to execute private swaps. Our depositors don't face any of the risks of the reserving protocol. Each reserving protocol puts down collateral to pay for their forced swaps and when they run out of collateral the reserved liquidity is moved backed to the base AMM.

Pricing

The reason this is called congestion pricing is simple. The more liquidity that gets reserved, the higher the borrow fee is. At really high borrow rates (like when 90% of the pool is borrowed out), the rate goes so high we start liquidating the borrowers so that our users can withdraw their funds. At the end of the day we make sure our users face as little illiquidity risk as possible.