# DEX Strategy (Phase 2)

{% hint style="warning" %}
**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.
{% endhint %}

## 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


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