Hybrid Order Type (HOT)
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About Hybrid Order Type (HOT)
Hybrid Order Type (HOT) is a special type of execution for a Valantis pool.
HOT-enabled pools have two swap execution modes:
A permissionless AMM, closely mimicking a single concentrated liquidity position as implemented in UniV3. This AMM is endowed with a dynamic swap fee mechanism (to be described below) and offers native support for rebase tokens (such as stETH and aTokens).
Hybrid Order Type (HOT) Quotes. Solvers obtain an HOT Quote from the pool’s Liquidity Manager via an API, as a signed intent. These quotes include a volume and price the Solver can directly fill from the pool before expiry. The HOT Quotes also contain an update to the AMM state: spot price and fee parameters are reset after processing the HOT swap.
A Liquidity Manager Protocol exposes an API to market-make directly to Solvers. The Liquidity Manager can include AMM spot price and volatility-dependent swap fee updates inside these quotes.
AMM Stale-Quote Fee
A time-based dynamic fee ensures that AMM swaps receive a minimum fee following a spot price update. The pool is protected against arbitrage opened up by the spot price becoming stale. The AMM fee increases at a rate defined by the Liquidity Manager, corresponding to the pairs current expected volatility.
Benefits
Solvers integrate with a deterministic source of liquidity (no slippage), providing competitive pricing net gas. This source of liquidity offers a fixed price and partially fillable order for a reasonable amount of time.
LPs receive extra non-toxic volume from filling Solvers directly, which otherwise might have not been accessible to them.
Any actor can execute low-gas AMM swaps at a minimum fee if the signed HOT quote quickly lands onchain. This is because, upon a HOT swap being quickly executed onchain, the AMM's spot price will reset to the most accurate and recently observed value (as observed off-chain by the Liquidity Manager), and the swap fee parameter will be reset to its minimum possible value.
LPs can maximize their non-toxic volume while reducing exposure to Top-of-Block arbitrage.
Solvers can submit more than one HOT quote per block without worrying about reverted transactions, except on rare edge cases where the wrong input data is signed or the proposed price is significantly different from a reference onchain Oracle.
What's covered in these Hybrid Order Type (HOT) Docs?
The following documentation covers the HOT smart contract architecture, which acts as both a Liquidity Module and a Swap Fee Module, plugged into a Valantis Sovereign Pool. Moreover, we also describe the API which connects Liquidity Managers and Solvers for the broadcasting of HOT Quotes as intents.
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