Deep Insights 09: HurricaneAlliance
Before introducing HurricaneAlliance, let’s briefly review the LP-Bridge mechanism of HurricaneSwap.
The liquidity provider deposits the corresponding proportion of CAKE and USDT in the HurricaneStation on BSC and generates CAKE/USDT LP. Then the Roke Protocol will mint an aCAKE/aUSDT aLP on the Avalanche, so that users can trade aCAKE on HurricaneSwap.
Roke Protocol lays the foundation for LP cross-chain in HurricaneSwap. However, at the project’s early stage, the gap in trade volume and liquidity between HurricaneSwap and DEXs on other chains will lead to the appearance of a price gap. A significant price gap causes a negative impact on the user’s trading experience. There are various ways to solve the problem of the price gap: CEXs use cross-exchange arbitrage strategy while DEXs on the same chain use liquidity rewards and arbitrage strategies.
In cross-chain DEXs, due to the lack of effective exchange means for cross-chain assets, “cross-chain bridge” is often used to eliminate the price gap, which not only improves the user experience, but also brings considerable benefits to arbitrageurs. Binding the right to earn arbitrage profit with on-chain governance and nodes can promote nodes to protect the exchange interests spontaneously. HurricaneSwap puts the above strategy into practice through HurricaneAlliance, utilizing arbitrage profit as an incentive mechanism to promote HurricaneAlliance to safeguard the interests of HurricaneSwap spontaneously.
A node needs to stake a certain amount of HCT to join HurricaneAlliance, responsible for tracking the price gap and executing arbitrage accordingly. If the node is unable to narrow the price gap on HurricaneSwap within the specified time, part of the staked HCT will be slashed. Besides arbitrage profit, HurricaneAlliance will also receive a portion of HCT rewards. In the following, we will explain in detail the responsibilities and incentive mechanism of HurricaneAlliance.
Responsibilities of HurricaneAlliance
- Verify cross-chain LPs
To add liquidity in HurricaneSwap, LPs need to lock corresponding assets in HurricaneStation at the source chain. After confirming assets have been locked, HurricaneAlliance will conduct the following verification:
- Asset contract address satisfies the requirement of HurricaneSwap;
- The proportion of assets added satisfies the requirement of the
corresponding trading pair;
- The transaction is legal and verified by a specific block.
If confirmed, HurricaneAlliance will initiate the signature on the source chain. After receiving the liquidity adding transaction and the signature by HurricaneAlliance, Roke Protocol will mint corresponding aToken assets on Avalanche and add to HurricaneSwap to provide liquidity.
When LPs want to withdraw liquidity and initiate withdrawal application on HurricaneSwap, HurricaneAlliance will conduct the same but reverse verification.
2. Narrow Price Gap
HurricaneAlliance is responsible for monitoring the price gap between HurricaneSwap and DEXs on other chains. When HurricaneAlliance detects that the price gap exceeds the threshold, it will narrow the gap through the single token cross-chain. The threshold is decided by the cross-chain cost of the token pair and can be adjusted by on-chain governance.
Take CAKE as an example. Suppose the CAKE/USDT pair on the BSC chain is 1 CAKE=10 USDT, whereas the price of aCAKE/aUSDT pair on HurricaneSwap is 1 aCAKE=12 aUSDT. Suppose the price gap has exceeded the threshold. To narrow the gap, HurricaneAlliance will buy CAKE on BSC chain at the price of 1 CAKE=10 USDT, generate aCAKE through a single token cross-chain, and sell aCAKE on HurricaneSwap, repeating the steps till the price gap between aCAKE/aUSDT pair and CAKE/USDT pair is below the threshold.
On the contrary, suppose the price of aCAKE/aUSDT pair is 1 aCAKE=8 aUSDT, and the price of CAKE/USDT is 1 CAKE=10 USDT. Suppose the price gap has exceeded the threshold. HurricaneAlliance will buy USDT on other chains, generate aUSDT through the single token cross-chain, and buy aCAKE on HurricaneSwap till the price gap between aCAKE/aUSDT pair and CAKE/USDT pair is below the threshold.
HurricaneAlliance can acquire the corresponding profit from executing the single token cross-chain arbitrage strategy.
To avoid single token cross-chain becoming a way of malicious attack, access to this function is currently only given to verified nodes of HurricaneAlliance. One has to stake a certain amount of HurricaneToken (HCT) to join HurricaneAlliance. The minimum staking amount of HCT will dynamically change based on HurricaneSwap’s TVL. If the node is unable to stake enough HCT within the specified time, it will automatically exit HurricaneAlliance in the next epoch (168 hours). Nodes on HurricaneAlliance need to wait seven days to unlock staked HCT. Nodes on HurricaneAlliance are responsible for monitoring and eliminating the price gap. Part of their staked HCT will slash if any of the following happens:
- Fail to narrow the price gap of designated token pair within the specified time;
- Initiate illegal single token cross-chain;
- Initiate single token cross-chain when price gap of token pair has not reached
- No response in a long time;
At the project’s early stage, HurricaneAlliance is comprised of 7 master nodes and 14 backup nodes. The term of each master node is 24 hours. During its term, the master node is responsible for monitoring the token pairs’ prices on HurricaneSwap and keeping the price gap within the threshold. When malicious behavior appears in a master node, its term automatically ends and is rotated to the next master node. The master node rotates every 168 hours.
50% of HCT slashed due to malicious behavior will be burned, the remaining 50% will enter the HCT reward pool to reward HCT holders and LPs in the form of dividends.
To sum up, under the HurricaneAlliance mechanism, the price gap between HurricaneSwap and other CEXs/DEXs can be easily eliminated, ensuring that the price of the cross-chain token is consistent with the native token, and providing a better cross-chain transaction experience for users.