Understanding HOT: A Graphical Overview

Hybrid Order Type (HOT) is a new type of liquidity pool built on the Valantis protocol. Designed by Arrakis Finance in collaboration with Valantis Labs, HOT-enabled pools have two execution modes: a permissionless AMM and an RfQ system based on signed HOT quotes. By applying a dynamic fee for traditional AMM swaps as well as adjusting the spot price on HOT quote fulfillment, this design provides robust guarantees of LVR reduction for LPs. This mechanism is illustrated in the following diagrams:

Step 1: Solvers Request a Quote.

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Step 2: Liquidity Manager responds with a signed HOT quote bundled with an AMM state update.

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Step 3: Solver sends the signed HOT quote to Valantis Pool.

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Step 4: AMM spot price updated and spread significantly lowered.

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Step 5: Permissionless AMM swaps happen at an updated price and lower spread for everyone else.

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