Pylon V1.1 Release Changelog: New Fee System, New Formulas, More Safeguards

With this update Zircon is mature enough to go outside of Moonriver!

Zircon Finance

Feb 9, 2023

After several months of work we’re happy to announce the release of Zircon Pylon V1.1, a key update for our liquidity management protocol that makes it more resilient and useful.

Here’s a quick summary:

With Pylon V1.1, the Float side is defined by a parabolic function that can result in positive, zero, or negative impermanent loss
A new Divergence parameter shows impermanent gain or loss as a percentage
Added a new fee system for Hybrid Add/Burn methods (those with two tokens) to prevent front-running and manipulation
Panic deterrents have been added to prevent excessive slippage and damage to other LPs
Changes have been made to pool token accounting, fee distribution, and various bug fixes

Head over to app.zircon.finance to check out the farms!

Or if you want to read more, let’s go through each feature.

New Float formula

The Pylon single-sided system is designed to mitigate impermanent loss and give Stable vault holders the entirety of their original share. But underneath, it’s still the same old AMM pool of always, and sometimes the pool may simply not have enough money to satisfy all claims.

The underlying reason is that the pool itself still suffers impermanent loss: there’s no getting around it.

The most critical element of the Pylon design is how it handles these losses. To stabilize the situation, the Pylon introduces a reduction factor for Stable withdrawals called Omega. The reduction is temporary, lasting until the pool rebalances itself through either new liquidity or price recovery (or both).

To rebalance, the protocol needs to offer favorable terms to new and existing Float LPs. In V1.0, it reduced their impermanent loss to zero until the price recovered. However, this proved too inflexible and resulted in occasional losses when joining pools, especially if the pool was distressed after a heavy dump.

With Pylon V1.1, the Float side is now defined by a parabola that can result in positive, zero, or negative impermanent loss. It all depends on how much Float liquidity is supplied. This means that there could be impermanent loss even in the case of a distressed pool. There is also now a hard limit to how much Float can be added, after which adding Pylon liquidity results in a ZP: ReduceOnly error.

These changes are shown by the new Divergence parameter, which is now a percentage that shows your impermanent loss. For example 10% divergence means that for each 10% pump, you’ll only gain 9% (so suffering 10% IL).

To be exact, Divergence is a somewhat shifted delta parameter, a term familiar to option traders. Here’s what it means:

0% divergence equals to 100% delta and perfect balance
positive divergence equals to delta < 100% and an impermanent loss situation
negative divergence equals to delta > 100% and impermanent gain (or negative loss)

Option Delta is a measure of how your portfolio is composed of your asset. A delta of 100% (or 1.0) means your portfolio entirely in the reference token, while a Delta of 50% means you have half of your portfolio in USD.

New fee system

The “50/50 methods” of adding liquidity (now called Hybrid Add/Burn) are a very convenient way of swapping without any slippage.

For example you can add a 50/50 mix of MOVR and USDC to the Stable side, and withdraw everything in USDC (if there’s liquidity for it). Similarly you can add only MOVR and withdraw as 50% MOVR, 50% USDC.

These methods are swaps, and because of that are rife with MEV opportunities from front-running and sandwiching. To prevent the majority of these attacks, we’ve added a fee system that detects the price change against an average in the past few minutes.

The price change (in %) is added to the fee for a Hybrid method, discouraging very aggressive (toxic) orders from extracting value. The base fee is also now double the regular liquidity fee, to make sure that most arbitrages are first taken through the regular swap.

This system is combined with our Anti-Flash Loan mechanism to further reduce the opportunity for manipulation.

Panic deterrent

Zircon has three ways it can process liquidity: through a buffer outside the pool, hybrid swaps and the direct-to-pool approach.

This last one was only meant as a last resort, since it causes slippage. But more importantly, it affects the price significantly, and may damage other LPs and trigger a cascade of liquidity removals.

With the new version, multiple warnings and pop ups appear when the slippage becomes excessive. If a user does decide to go through with the slippage-based approach, we’ve increased the slippage rate for actions that can damage other LPs in the pool, such as removing a lot of Stable liquidity at once.

Smaller changes

New way of accounting for Float pool tokens based on “liquidity units” (Underlying AMM pool tokens).
The fee distribution parameter between Float and Stable (mu) is now “clamped” to never go below 10% or above 90%.
A ReduceOnly mode for Float was added to deal with situations where large amounts of Stable liquidity are removed.
Various fixes of bugs:
- Occasional excessive compensation for Stable removals
- Occasional reverts due to too small amounts supplied
- Extra unreported fee on Hybrid Add

With this version, the Zircon protocol is effectively ready to settle down and get outside of the Moonriver/Kusama chaos! Stay tuned for when that’ll happen ;)