Liq-single-sided-funded-AMM/docs/design-decisions.md

Confirmed design decisions

Confirmed by Kyle through the design questionnaire on November 6, 2026. These decisions supersede the corresponding open questions and earlier alternatives; they describe the proposed design, not an implemented or deployed system.

Liquidity and ownership

• Subsequent native-only deposits mint matching LIQ in the current pool reserve ratio.
• New LP shares are priced using net equity after the mint liability and accrued obligations, rather than gross reserves. Accrue rewards and charges before pricing entry.
• Matching LIQ minting creates an equal liability and therefore adds no net equity at the assumed 1:1 valuation; the native deposit contributes the new equity.
• LP interests are pooled fungible shares. Each share carries proportional reserve ownership, mint liability and accrued charges, including on transfers and partial exits.
• Withdrawals settle the allocated lien and accrued charges before returning the residual native/LIQ asset mix.
• Shortfall settlement uses 1:1 native-to-LIQ backing conversion. No additional equity buffer is selected beyond covering the lien and other obligations.

Trading and withdrawal routing

• Use a constant-product curve as the initial design and simulation baseline, with swap fees still to be selected.
• The withdrawal proxy maximizes net native output among immediately executable routes, allowing split routing and respecting user minimum output and deadlines.
• Queued ordinary redemption is offered separately as an explicit user choice.
• Ordinary redemption capacity is reserved atomically against uncommitted eligible backing; gross staked balance is not necessarily immediately available liquidity.
• An AMM-routed withdrawal is a swap: LIQ enters pool reserves and the outstanding lien remains unchanged.
• Ordinary redemption burns LIQ and consumes ordinary backing without changing AMM reserves or its lien.
• Special-minted LIQ is fully fungible with ordinary LIQ. Only the designated AMM contract may use the new special-mint entrypoint, and ordinary withdrawal is enforced as proxy-only.

Rewards and yield-support obligations

• Assess yield-support charges on the full outstanding special-mint lien.
• Match the applicable Liq reward-index changes rather than treating the diagram's 2.8% as a fixed rate. Exact chain-specific index integration remains to be verified.
• Pool-held LIQ earns ordinary rewards for LPs.
• Trading fees fund support payments; insufficient fee income reduces LP equity.
• If obligations exhaust available equity, preserve accrued debt and restrict operations that worsen the deficit. Allow repayment or recapitalization; detailed recovery and loss-allocation rules remain open.

Remaining design and verification work

• Select swap fees and any protocol fee allocation.
• Verify Ethereum and Solana reward-index mechanics, including fee treatment, negative changes, reward realization and avoidance of double counting.
• Specify exact net-equity share issuance, rounding, partial-exit and last-LP formulas; validate protection against deposit-price manipulation.
• Define deficit detection, allowed recovery operations and loss allocation.
• Specify proxy quotes, reservation accounting, queue behavior and atomic settlement.
• Validate entry, swaps, reward payments, external redemption and full exit together in worked examples and simulations.
• Resolve native versus wrapped asset interfaces and chain-specific authority, callback and transfer-hook integration.