BAL Hookathon - ReBalancer Hook #113

utkarshdagoat · 2024-10-20T23:30:05Z

ReBalancer

ReBalancer is a balancer v3 hook that dynamically rebalances lp positions and fees based on real-time events and market implied volatility.

The Motivation

Volatility spikes are common during key real-world asset (RWA) events like central bank interest rate decisions, inflation reports (e.g., CPI), corporate earnings releases, bond coupon payments, and dividend announcements. Additionally, off-market hours in traditional finance and major geopolitical developments can drive price fluctuations.
RWAs that generate income, when these predictable price changes occur (like a bond's coupon payment), the value lost due to this change is permanent. That’s because the LP has effectively lost part of the asset’s value as it was transferred in the form of a coupon or dividend to the holder.
As the value of RWA tokens is expecteed to cross $16 Trillion by 2030 said by bcg. Solving such a problem with balancer hooks can attaract LPs that provide such assets.

The Problem

Arbitrageurs capture all expected price and volatility changes at the expense of LPs. These predictable arbitrages harm liquidity, lead to MEV leaks, and deter swappers due to poor liquidity

Solution

A hook that dynamically optimizes LP fees and positions by leveraging forward-looking volatility for flexible fee adjustments, redirecting value from arbitrageurs to LPs, and using anticipated price movements to rebalance LP positions in advance.

ReBalancer solves the problems by

Positions itself smartly in case of future events that leads to voltality of these assets.
Improve LP returns by dynamic rebalancing and fees.
Minimizes losses to arbitrages
Feedback
The documentation is quite lacking in various areas. I generally tried to see the code more than read documentation about what going on!. Because I feel like making a hook or something like this can only be done hands on!

Check out the Readme for more details on implmentation and the maths behind Rebalancer!!

vercel · 2024-10-20T23:30:09Z

@utkarshdagoat is attempting to deploy a commit to the Matt Pereira's projects Team on Vercel.

A member of the Team first needs to authorize it.

utkarshdagoat · 2024-10-21T11:47:19Z

Hey So my project had a little bit of math which did not rendered correctly on github for some reason. Here is the same stuff with a picture

EndymionJkb · 2024-10-22T20:19:44Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+    ///@dev prevent race conditions when rebalancing
+    bool private isRebalancing;
+
+    modifier nonReentrantRebalance() {


Might be able to use our ReentrancyGuardTransient for this part

EndymionJkb · 2024-10-22T20:28:30Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+            wethIsEth,
+            ""
+        );
+        uint256[] memory lpBptAmount = amountTokens[pool][msg.sender];


The name is confusing here; you're tracking the portion of this pool's token balances for this sender, not the BPT

Yup I got a little confused here. I just couldn't find a way to get active lp from the vault api and tried to do this myself last minute so got things a little mixed up will resolve this

EndymionJkb · 2024-10-22T20:30:08Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+        TokenConfig[] memory,
+        LiquidityManagement calldata
+    ) public override onlyVault returns (bool) {
+        ///@dev removing for testing


The check would be that the factory is the WeightedPoolFactory - very important, or else it wouldn't work at all - and then that the pool is from that factory. Should be able to test with a real weighted pool

Yup so for the longest time I couldn't find a example for weighted pool test as for all the example it was done otherwise. So I don't know what I thought of when I tried to test for a normal pool (a little sleep deprived I guess) and commented this line of code out.

I finally looked at Weighted pool test itself and got how to set up weighted pool itself. So removing this line would work and I could also put in a test for wrong factory check

EndymionJkb · 2024-10-22T20:36:01Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+                                  Setter Functions
+    ***************************************************************************/
+    function setWeightedPoolFactoryAddress(address newWeightedPoolFactory) external onlyOwner {
+        ///@dev I am a little confused that whether to check if the factory is disable or not would love


If the factory is disabled, no more pools can be created from it. Existing pools will continue to work (unless we're migrating because of an issue and they're all paused).

In production, either you'd have a single immutable factory - meaning you'd need to redeploy a new hook with a new factory if Balancer migrated it - or have a set of valid factories that you could add/remove from.

Got it thanks for the answering

EndymionJkb · 2024-10-22T20:52:36Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+    function setRebalanceData(address pool, RebalanceData[] memory _rebalanceData) external {
+        PoolRoleAccounts memory roleAccounts = _vault.getPoolRoleAccounts(pool);
+
+        if (msg.sender != roleAccounts.poolCreator) {


This is mixing concerns a bit. The purpose of the pool creator is to set pool creator fees. You're using it for a different purpose here - and it prevents you from using it with standard WeightedPools, which can't have a pool creator (though this can be circumvented in test code with mocks).

Could use a custom factory to record the pool deployer.

Got it didn't know weighted pools had no creators I guess a custom factory would be the way to go as this part should only be done by the creator.

I was able to get the test passed with vm.mock's so yeah

EndymionJkb · 2024-10-22T20:56:51Z

packages/foundry/test/ReBalancerE2E.t.sol

+        (daiIdx, usdcIdx) = getSortedIndexes(address(dai), address(usdc));
+    }
+
+    // Overrides approval to include NFTRouter


Suggested change

// Overrides approval to include NFTRouter

// Overrides approval to include Rebalancer

EndymionJkb · 2024-10-22T21:01:38Z

packages/foundry/test/ReBalancerE2E.t.sol

+            data[i] = ReBalancerHook.RebalanceData({ minRatio: minRatios[i], rebalanceRequired: false });
+        }
+
+        vm.prank(address(0)); // Only pool creator can set rebalance data


Interesting trick :) Not sure what you would do in production, though. Maybe you would need a custom Weighted Pool Factory that deploys the regular WeightedPool, but keeps track of the deployer in the factory, so you could query not only whether a given pool came from that factory, but who the deployer was. (In practice, you could just check that the deployer is non-zero.)

Okay so when I was trying to find the interfaces for finding owner from the pool and only looked at code for weighted pool directly from the code of monorepo and did not have look at the factory code. I will definetly fix this

EndymionJkb · 2024-10-22T21:15:13Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+    }
+
+    /// @inheritdoc BaseHooks
+    function onAfterRemoveLiquidity(


Could also be a before hook, to fail faster?

I mean if I do it before hook I would need to do a rebalance i.e removing and adding liquidity before the swap wouldn't that change the swap qoute for that swap?

EndymionJkb · 2024-10-22T21:29:02Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+        bool remove,
+        bool wethIsEth
+    ) internal {
+        if (!remove) {


Better to use positive logic here

Yeah got it

EndymionJkb · 2024-10-22T21:40:17Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+    /***************************************************************************
+                                  Router Functions
+    ***************************************************************************/
+    function addLiquidityProportional(


So if I understand this, you're making people add/remove/swap through this hook (it reverts if you use a standard router). When they add, the tokens go to the Vault, but the hook gets the BPT. When they remove, the hook burns the BPT and gives them the tokens from the Vault. It's tracking the LPs and their token balances inside the hook (whereas the Vault just has the total).

When they swap, it does the normal operation... then potentially redistributes tokens afterward by pulling tokens from LPs and sending back adjusted amounts (fuzzy on how this settles), which seems like it could be done more simply as a "counter-swap".

Yeah so I guess the BPT tracking part got a little mixed up it was not my intention to take bpt but to only track the bpt amount to get the active LPs for the pool as I couldn't find the API/interface to do so!

So the problem I tried to solve could be understand as follows. Let's say we have stETH/eth pool:
So as we know when the ethereum network distributes staking rewards the stETH token rebases i.e each token is worth a little more than ETH

So let me take you through an example
The Initial State for the pool might look like:

1 stETH = 1 ETH

LP Pool has 100 ETH and 100 stETH

Pool value = 200 ETH equivalent

Expected staking reward: 0.5%

Post-rebase: 1 stETH will = 1.005 ETH

Now a rebase happens daily so what an arbitrageur can do pre rebase is

Borrow 100 ETH

Sell ETH to pool for stETH at 1:1 ratio
and after rebase as the stETH value increases

stETH in pool rebases to 1.005 ETH each

Arbitrageur buys back 100. 5 ETH using 100 stETH

Returns borrowed 100 ETH

Profit: 0.5 ETH

Therefore the vaule - 0.5 which was the LP's staking reward was lost to arbitrageur.

This would be the case for every dividend/yeild based RWAs pool

So what my plan is to have an oracle tell me that an event like rebase is coming for my pool which is given by the predicted price and when this price is significant my pool rebalncing the liquidity pool so in this case it would take out 0.5 stETH out and protect the LPs from losing out ont the profit

And the principal for rebalancing the pool is actually very simple just keep the value same in the pool. I worked out the math and in terms of token changes it would look something like this

Where Bt' is our new balance and rt is the ratio of new price and last price and K are the number of tokens

For the counter swap argument I think it can be done for a two token pool. But for multiple token I would have to implement some sort of algorithm that would give to swap which token for which as I can only swap two tokens at a time (I think).
So yeah counter swap is better but could get complex with increased number of tokens!

EndymionJkb · 2024-10-22T21:50:33Z

packages/foundry/contracts/hooks/rebalancer/Rebalancer.sol

+            userData
+        );
+        address[] storage lps = liquidityProviders[pool];
+        lps.push(msg.sender);


Would create duplicates of the LP on every add. Do you really need all the token balances? Could there just be a mapping of LP -> BPT?

Yeah it would. damn I did write some trash code! Sorry,

for making my case for the longest I did not had any idea the hookathon extended. Only got to know on Wednesday and started coding on friday night and sunday night was submission. So I know this is not an excuse to write bad code but hopefully you understand

utkarshdagoat added 4 commits October 20, 2024 02:33

adds oracle

353b5a7

rebalancer logic done

0b4a164

minor changes

f073d96

readme: math pending

4919481

utkarshdagoat force-pushed the main branch from 2b79f79 to 4919481 Compare October 21, 2024 05:02

EndymionJkb reviewed Oct 22, 2024

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BAL Hookathon - ReBalancer Hook #113

BAL Hookathon - ReBalancer Hook #113

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	// Overrides approval to include NFTRouter
	// Overrides approval to include Rebalancer

BAL Hookathon - ReBalancer Hook #113

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BAL Hookathon - ReBalancer Hook #113

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utkarshdagoat commented Oct 20, 2024 • edited Loading

ReBalancer

The Motivation

The Problem

Solution

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