DEX Strategy (Phase 2)

Phase 2 Concept — Not Deployed

There is no Paimon DEX contract on BSC mainnet today. No PP/USDC pool, no xSPCX/USDC pool, no Gauge / Bribe market is live. xSPCX (the tradable shadow of pSPCX) is currently freely transferable but does not yet have an official liquidity venue — secondary trading happens on existing third-party AMMs at LP discretion.

The design below describes the intended phased rollout once governance / token launch occurs.

Phase 1: v2-like AMM

Reasons for Selection

• Simple implementation, strong ecosystem compatibility

• Low deployment and integration costs

• Sufficient to meet early liquidity bootstrapping needs

Core Configuration

Parameter	Setting
Primary Pair	PP/USDC
Market Making	Constant product (x·y=k)
Oracle	Standard TWAP

Phase 2: v4 Hooks

Uniswap v4's hooks system enables custom logic execution before/after swap/liquidity operations, enabling Paimon to:

Hook Type	Use Cases
beforeSwap	Compliance checks, restricted trade gating
afterSwap	Dynamic fee rate adjustment, risk control signal updates
beforeAddLiquidity	LP Eligibility Verification
afterRemoveLiquidity	Liquidity Withdrawal Restrictions

Evolution Path

v2-like AMM            v4 Hooks              Advanced Features
(fast launch)   ──→   (base integration) ──→ (risk/compliance at pool level)
   │                     │                      │
   ↓                     ↓                      ↓
Build trading data     Pool-level programmability  Dynamic fees, restricted trading
Depth/fee baseline     Risk signal integration     Compliance gating, custom oracles

Liquidity Incentives

LP Rewards

Source	Description
Trading Fees	Standard AMM fees from swap volume
Mining Incentives	PAIMON emissions via Gauge voting
External Incentives	Third-party rewards through Nitro system

Gauge Integration

The PP/USDC pool has its own Gauge that receives emissions based on vePAIMON voting allocation. This creates a direct link between governance participation and liquidity depth.

Arbitrage Mechanics

Market Arbitrage

Scenario	Action	Effect
P_mkt < NAV (discount)	Buy PP → Redemption → Acquire underlying assets	Pushes up P_mkt, narrows discount
P_mkt > NAV (premium)	Subscribe PP → Sell	Pressure down P_mkt, narrow premium

Constraints

Arbitrage scale is constrained by:

• Redemption budget limits

• Subscription caps

• Protection band triggers

This prevents unlimited arbitrage from depleting liquidity while still enabling price convergence.

Price Discovery

NAV vs Market Price

Price	Source	Update Frequency
NAV	Audits, reconciliation, disclosure	Weekly minimum
P_mkt	DEX trading	Real-time

Convergence Mechanism

1. Long-term: Arbitrageurs drive P_mkt toward NAV

2. Short-term: Premium/discount reflects liquidity premium

3. Protection: Band limits prevent extreme divergence

Integration Points

With Prime Vault

• Subscription creates PP supply

• Redemption removes PP supply

• Both affect DEX liquidity

With Protection Band

• DEX price feeds into deviation calculation

• Band trigger suspends T+0 channel

• TWAP smooths price signals

With Governance

• Gauge voting directs emissions

• Parameter governance (fees, caps)

Future Considerations

v4 Hook Possibilities

Feature	Hook Implementation
KYC/AML gating	beforeSwap checks whitelist
Dynamic fees	afterSwap adjusts based on volatility
Circuit breakers	beforeSwap checks price deviation
Compliance reporting	afterSwap emits events for tracking

Cross-Chain Expansion

• Bridge integration for multi-chain liquidity

• Unified PP across chains

• Cross-chain arbitrage opportunities