feat: allow choice of method to calculate liqudity fees

CHANGELOG.md

@@ -12,7 +12,7 @@
 
 ### 🛠 Improvements
 
-- [](https://github.com/vegaprotocol/vega/issues/xxxx) -
+- [9930](https://github.com/vegaprotocol/vega/issues/9930) - `LiquidityFeeSettings` can now be used in market proposals to choose how liquidity fees are calculated.
 
 ### 🐛 Fixes
 

commands/proposal_submission.go

@@ -880,7 +880,7 @@ func checkNewMarketChanges(change *protoTypes.ProposalTerms_NewMarket) Errors {
 	errs.Merge(checkNewInstrument(changes.Instrument, "proposal_submission.terms.change.new_market.changes.instrument"))
 	errs.Merge(checkNewRiskParameters(changes))
 	errs.Merge(checkSLAParams(changes.LiquiditySlaParameters, "proposal_submission.terms.change.new_market.changes.sla_params"))
-
+	errs.Merge(checkLiquidityFeeSettings(changes.LiquidityFeeSettings, "proposal_submission.terms.change.new_market.changes.liquidity_fee_settings"))
 	return errs
 }
 
@@ -930,6 +930,7 @@ func checkUpdateMarketChanges(change *protoTypes.ProposalTerms_UpdateMarket) Err
 	errs.Merge(checkUpdateInstrument(changes.Instrument))
 	errs.Merge(checkUpdateRiskParameters(changes))
 	errs.Merge(checkSLAParams(changes.LiquiditySlaParameters, "proposal_submission.terms.change.update_market.changes.sla_params"))
+	errs.Merge(checkLiquidityFeeSettings(changes.LiquidityFeeSettings, "proposal_submission.terms.change.update_market.changes.liquidity_fee_settings"))
 
 	return errs
 }
@@ -1646,6 +1647,41 @@ func checkSLAParams(config *protoTypes.LiquiditySLAParameters, parent string) Er
 	return errs
 }
 
+func checkLiquidityFeeSettings(config *protoTypes.LiquidityFeeSettings, parent string) Errors {
+	errs := NewErrors()
+	if config == nil {
+		return nil // no error, we'll default to margin-cost method
+	}
+
+	// check for valid enum range
+	if config.Method == protoTypes.LiquidityFeeSettings_METHOD_UNSPECIFIED {
+		errs.AddForProperty(fmt.Sprintf("%s.method", parent), ErrIsRequired)
+	}
+	if _, ok := protoTypes.LiquidityFeeSettings_Method_name[int32(config.Method)]; !ok {
+		errs.AddForProperty(fmt.Sprintf("%s.method", parent), ErrIsNotValid)
+	}
+
+	if config.FeeConstant == nil && config.Method == protoTypes.LiquidityFeeSettings_METHOD_CONSTANT {
+		errs.AddForProperty(fmt.Sprintf("%s.fee_constant", parent), ErrIsRequired)
+	}
+
+	if config.FeeConstant != nil {
+		if config.Method != protoTypes.LiquidityFeeSettings_METHOD_CONSTANT {
+			errs.AddForProperty(fmt.Sprintf("%s.method", parent), ErrIsNotValid)
+		}
+
+		fee, err := num.DecimalFromString(*config.FeeConstant)
+		switch {
+		case err != nil:
+			errs.AddForProperty(fmt.Sprintf("%s.fee_constant", parent), ErrIsNotValidNumber)
+		case fee.IsNegative():
+			errs.AddForProperty(fmt.Sprintf("%s.fee_constant", parent), ErrMustBePositiveOrZero)
+		}
+	}
+
+	return errs
+}
+
 func checkNewSpotRiskParameters(config *protoTypes.NewSpotMarketConfiguration) Errors {
 	errs := NewErrors()
 

commands/proposal_submission_new_market_test.go

@@ -183,6 +183,7 @@ func TestCheckProposalSubmissionForNewMarket(t *testing.T) {
 	t.Run("Submitting a new market with valid competition factor succeeds", testNewMarketChangeSubmissionWithValidCompetitionFactorSucceeds)
 	t.Run("Submitting a new market with invalid hysteresis epochs fails", testNewMarketChangeSubmissionWithInvalidPerformanceHysteresisEpochsFails)
 	t.Run("Submitting a new market with valid hysteresis epochs succeeds", testNewMarketChangeSubmissionWithValidPerformanceHysteresisEpochsSucceeds)
+	t.Run("Submitting a new market with invalid liquidity fee settings", testLiquidityFeeSettings)
 }
 
 func testNewMarketChangeSubmissionWithoutNewMarketFails(t *testing.T) {
@@ -5870,3 +5871,86 @@ func testNewMarketChangeSubmissionWithValidPerformanceHysteresisEpochsSucceeds(t
 
 	assert.NotContains(t, err.Get("proposal_submission.terms.change.new_market.changes.sla_params.performance_hysteresis_epochs"), commands.ErrMustBePositive)
 }
+
+func testLiquidityFeeSettings(t *testing.T) {
+	cases := []struct {
+		lfs   *vega.LiquidityFeeSettings
+		field string
+		err   error
+	}{
+		{
+			lfs: &vega.LiquidityFeeSettings{
+				Method:      vegapb.LiquidityFeeSettings_METHOD_MARGINAL_COST,
+				FeeConstant: ptr.From("0.1"),
+			},
+			field: "method",
+			err:   commands.ErrIsNotValid,
+		},
+		{
+			lfs: &vega.LiquidityFeeSettings{
+				Method:      vegapb.LiquidityFeeSettings_METHOD_WEIGHTED_AVERAGE,
+				FeeConstant: ptr.From("0.1"),
+			},
+			field: "method",
+			err:   commands.ErrIsNotValid,
+		},
+		{
+			lfs: &vega.LiquidityFeeSettings{
+				Method:      vegapb.LiquidityFeeSettings_METHOD_CONSTANT,
+				FeeConstant: nil,
+			},
+			field: "fee_constant",
+			err:   commands.ErrIsRequired,
+		},
+		{
+			lfs: &vega.LiquidityFeeSettings{
+				Method:      vegapb.LiquidityFeeSettings_METHOD_CONSTANT,
+				FeeConstant: ptr.From("hello"),
+			},
+			field: "fee_constant",
+			err:   commands.ErrIsNotValidNumber,
+		},
+		{
+			lfs: &vega.LiquidityFeeSettings{
+				Method:      vegapb.LiquidityFeeSettings_METHOD_CONSTANT,
+				FeeConstant: ptr.From("-0.1"),
+			},
+			field: "fee_constant",
+			err:   commands.ErrMustBePositiveOrZero,
+		},
+		{
+			lfs: &vega.LiquidityFeeSettings{
+				Method: vegapb.LiquidityFeeSettings_METHOD_UNSPECIFIED,
+			},
+			field: "method",
+			err:   commands.ErrIsRequired,
+		},
+		{
+			lfs: &vega.LiquidityFeeSettings{
+				Method: vegapb.LiquidityFeeSettings_Method(int32(100)),
+			},
+			field: "method",
+			err:   commands.ErrIsNotValid,
+		},
+	}
+
+	for _, c := range cases {
+		err := checkProposalSubmission(&commandspb.ProposalSubmission{
+			Terms: &vegapb.ProposalTerms{
+				Change: &vegapb.ProposalTerms_NewMarket{
+					NewMarket: &vegapb.NewMarket{
+						Changes: &vegapb.NewMarketConfiguration{
+							Instrument: &vegapb.InstrumentConfiguration{
+								Product: &vegapb.InstrumentConfiguration_Perpetual{
+									Perpetual: &vegapb.PerpetualProduct{},
+								},
+							},
+							LiquidityFeeSettings: c.lfs,
+						},
+					},
+				},
+			},
+		})
+		assert.Contains(t, err.Get("proposal_submission.terms.change.new_market.changes.liquidity_fee_settings."+c.field), c.err)
+	}
+}

core/events/market_event_test.go

@@ -25,6 +25,7 @@ import (
 	"code.vegaprotocol.io/vega/core/events"
 	"code.vegaprotocol.io/vega/core/types"
 	"code.vegaprotocol.io/vega/libs/num"
+	"code.vegaprotocol.io/vega/protos/vega"
 	vegapb "code.vegaprotocol.io/vega/protos/vega"
 	datapb "code.vegaprotocol.io/vega/protos/vega/data/v1"
 	"github.com/stretchr/testify/assert"
@@ -190,6 +191,9 @@ func TestMarketDeepClone(t *testing.T) {
 				InfrastructureFee: "0.2",
 				LiquidityFee:      "0.3",
 			},
+			LiquidityFeeSettings: &vega.LiquidityFeeSettings{
+				Method: vega.LiquidityFeeSettings_METHOD_MARGINAL_COST,
+			},
 		},
 		OpeningAuction: &vegapb.AuctionDuration{
 			Duration: 1000,

core/execution/engine_snapshot_test.go

@@ -23,6 +23,7 @@ import (
 	"testing"
 	"time"
 
+	"code.vegaprotocol.io/vega/protos/vega"
 	datapb "code.vegaprotocol.io/vega/protos/vega/data/v1"
 
 	snapshot "code.vegaprotocol.io/vega/protos/vega/snapshot/v1"
@@ -284,6 +285,9 @@ func getMarketConfig() *types.Market {
 				InfrastructureFee: num.DecimalFromFloat(0.1),
 				LiquidityFee:      num.DecimalFromFloat(0.1),
 			},
+			LiquidityFeeSettings: &types.LiquidityFeeSettings{
+				Method: vega.LiquidityFeeSettings_METHOD_MARGINAL_COST,
+			},
 		},
 		TradableInstrument: &types.TradableInstrument{
 			MarginCalculator: &types.MarginCalculator{

core/execution/future/liquidity_provision_test.go

@@ -87,12 +87,10 @@ func TestSubmit(t *testing.T) {
 		mktCfg := getMarket(pMonitorSettings, &types.AuctionDuration{
 			Duration: 10000,
 		})
-		mktCfg.Fees = &types.Fees{
-			Factors: &types.FeeFactors{
-				LiquidityFee:      num.DecimalFromFloat(0.001),
-				InfrastructureFee: num.DecimalFromFloat(0.0005),
-				MakerFee:          num.DecimalFromFloat(0.00025),
-			},
+		mktCfg.Fees.Factors = &types.FeeFactors{
+			LiquidityFee:      num.DecimalFromFloat(0.001),
+			InfrastructureFee: num.DecimalFromFloat(0.0005),
+			MakerFee:          num.DecimalFromFloat(0.00025),
 		}
 		mktCfg.TradableInstrument.RiskModel = &types.TradableInstrumentLogNormalRiskModel{
 			LogNormalRiskModel: &types.LogNormalRiskModel{
@@ -248,12 +246,11 @@ func TestSubmit(t *testing.T) {
 		mktCfg := getMarket(pMonitorSettings, &types.AuctionDuration{
 			Duration: 10000,
 		})
-		mktCfg.Fees = &types.Fees{
-			Factors: &types.FeeFactors{
-				InfrastructureFee: num.DecimalFromFloat(0.0005),
-				MakerFee:          num.DecimalFromFloat(0.00025),
-			},
+		mktCfg.Fees.Factors = &types.FeeFactors{
+			InfrastructureFee: num.DecimalFromFloat(0.0005),
+			MakerFee:          num.DecimalFromFloat(0.00025),
 		}
+
 		mktCfg.TradableInstrument.RiskModel = &types.TradableInstrumentLogNormalRiskModel{
 			LogNormalRiskModel: &types.LogNormalRiskModel{
 				RiskAversionParameter: num.DecimalFromFloat(0.001),
@@ -335,11 +332,9 @@ func TestAmend(t *testing.T) {
 		mktCfg := getMarket(defaultPriceMonitorSettings, &types.AuctionDuration{
 			Duration: 10000,
 		})
-		mktCfg.Fees = &types.Fees{
-			Factors: &types.FeeFactors{
-				InfrastructureFee: num.DecimalFromFloat(0.0005),
-				MakerFee:          num.DecimalFromFloat(0.00025),
-			},
+		mktCfg.Fees.Factors = &types.FeeFactors{
+			InfrastructureFee: num.DecimalFromFloat(0.0005),
+			MakerFee:          num.DecimalFromFloat(0.00025),
 		}
 		mktCfg.TradableInstrument.RiskModel = &types.TradableInstrumentLogNormalRiskModel{
 			LogNormalRiskModel: &types.LogNormalRiskModel{

core/execution/future/market.go

@@ -2352,8 +2352,22 @@ func (m *Market) handleRiskEvts(ctx context.Context, margins []events.Risk) []*t
 // updateLiquidityFee computes the current LiquidityProvision fee and updates
 // the fee engine.
 func (m *Market) updateLiquidityFee(ctx context.Context) {
-	stake := m.getTargetStake()
-	fee := m.liquidityEngine.ProvisionsPerParty().FeeForTarget(stake)
+	var fee num.Decimal
+	provisions := m.liquidityEngine.ProvisionsPerParty()
+
+	switch m.mkt.Fees.LiquidityFeeSettings.Method {
+	case types.LiquidityFeeMethodConstant:
+		if len(provisions) != 0 {
+			fee = m.mkt.Fees.LiquidityFeeSettings.FeeConstant
+		}
+	case types.LiquidityFeeMethodMarginalCost:
+		fee = provisions.FeeForTarget(m.getTargetStake())
+	case types.LiquidityFeeMethodWeightedAverage:
+		fee = provisions.FeeForWeightedAverage()
+	default:
+		m.log.Panic("unknown liquidity fee method")
+	}
+
 	if !fee.Equals(m.getLiquidityFee()) {
 		m.fee.SetLiquidityFee(fee)
 		m.setLiquidityFee(fee)

core/execution/future/market_snapshot.go

@@ -38,6 +38,7 @@ import (
 	"code.vegaprotocol.io/vega/core/risk"
 	"code.vegaprotocol.io/vega/core/settlement"
 	"code.vegaprotocol.io/vega/core/types"
+	vgcontext "code.vegaprotocol.io/vega/libs/context"
 	"code.vegaprotocol.io/vega/libs/num"
 	"code.vegaprotocol.io/vega/libs/ptr"
 	"code.vegaprotocol.io/vega/logging"
@@ -65,6 +66,15 @@ func NewMarketFromSnapshot(
 	volumeDiscountService fee.VolumeDiscountService,
 ) (*Market, error) {
 	mkt := em.Market
+
+	if vgcontext.InProgressUpgradeFrom(ctx, "v0.73.2") {
+		// protocol upgrade from v0.73.2, lets populate the new liquidity-fee-settings with a default marginal-cost method
+		log.Info("migrating liquidity fee settings for existing market", logging.String("mid", mkt.ID))
+		mkt.Fees.LiquidityFeeSettings = &types.LiquidityFeeSettings{
+			Method: types.LiquidityFeeMethodMarginalCost,
+		}
+	}
+
 	positionFactor := num.DecimalFromFloat(10).Pow(num.DecimalFromInt64(mkt.PositionDecimalPlaces))
 	if len(em.Market.ID) == 0 {
 		return nil, common.ErrEmptyMarketID

core/execution/future/market_snapshot_test.go

@@ -60,7 +60,7 @@ func TestRestoreSettledMarket(t *testing.T) {
 	oracleEngine.EXPECT().Subscribe(gomock.Any(), gomock.Any(), gomock.Any()).Times(1).Return(spec.SubscriptionID(1), unsubscribe, nil)
 	oracleEngine.EXPECT().Subscribe(gomock.Any(), gomock.Any(), gomock.Any()).Times(1).Return(spec.SubscriptionID(2), unsubscribe, nil)
 
-	snap, err := newMarketFromSnapshot(t, ctrl, em, oracleEngine)
+	snap, err := newMarketFromSnapshot(t, context.Background(), ctrl, em, oracleEngine)
 	require.NoError(t, err)
 	require.NotEmpty(t, snap)
 
@@ -88,7 +88,7 @@ func TestRestoreTerminatedMarket(t *testing.T) {
 	oracleEngine.EXPECT().Subscribe(gomock.Any(), gomock.Any(), gomock.Any()).Times(1).Return(spec.SubscriptionID(1), unsubscribe, nil)
 	oracleEngine.EXPECT().Subscribe(gomock.Any(), gomock.Any(), gomock.Any()).Times(1).Return(spec.SubscriptionID(2), unsubscribe, nil)
 
-	snap, err := newMarketFromSnapshot(t, ctrl, em, oracleEngine)
+	snap, err := newMarketFromSnapshot(t, context.Background(), ctrl, em, oracleEngine)
 	require.NoError(t, err)
 	require.NotEmpty(t, snap)
 
@@ -117,15 +117,47 @@ func TestRestoreNilLastTradedPrice(t *testing.T) {
 	oracleEngine.EXPECT().Subscribe(gomock.Any(), gomock.Any(), gomock.Any()).Times(1).Return(spec.SubscriptionID(1), unsubscribe, nil)
 	oracleEngine.EXPECT().Subscribe(gomock.Any(), gomock.Any(), gomock.Any()).Times(1).Return(spec.SubscriptionID(2), unsubscribe, nil)
 
-	snap, err := newMarketFromSnapshot(t, ctrl, em, oracleEngine)
+	snap, err := newMarketFromSnapshot(t, context.Background(), ctrl, em, oracleEngine)
 	require.NoError(t, err)
 	require.NotEmpty(t, snap)
 
-	em2 := tm.market.GetState()
+	em2 := snap.GetState()
 	assert.Nil(t, em2.LastTradedPrice)
 	assert.Nil(t, em2.CurrentMarkPrice)
 }
 
+func TestRestoreMarketUpgradeV0_73_2(t *testing.T) {
+	now := time.Unix(10, 0)
+	tm := getTestMarket(t, now, nil, nil)
+	defer tm.ctrl.Finish()
+
+	em := tm.market.GetState()
+	assert.Nil(t, em.LastTradedPrice)
+	assert.Nil(t, em.CurrentMarkPrice)
+
+	ctrl := gomock.NewController(t)
+	defer ctrl.Finish()
+	oracleEngine := mocks.NewMockOracleEngine(ctrl)
+
+	unsubscribe := func(_ context.Context, id spec.SubscriptionID) {
+	}
+	oracleEngine.EXPECT().Subscribe(gomock.Any(), gomock.Any(), gomock.Any()).Times(1).Return(spec.SubscriptionID(1), unsubscribe, nil)
+	oracleEngine.EXPECT().Subscribe(gomock.Any(), gomock.Any(), gomock.Any()).Times(1).Return(spec.SubscriptionID(2), unsubscribe, nil)
+
+	// set the liquidity fee settings to nil, like if we can come from an older version
+	em.Market.Fees.LiquidityFeeSettings = nil
+
+	// and set in the context the information that says we are upgrading
+	ctx := vegacontext.WithSnapshotInfo(context.Background(), "v0.73.2", true)
+	snap, err := newMarketFromSnapshot(t, ctx, ctrl, em, oracleEngine)
+	require.NoError(t, err)
+	require.NotEmpty(t, snap)
+
+	em2 := snap.GetState()
+	require.NotNil(t, em2.Market.Fees.LiquidityFeeSettings)
+	assert.Equal(t, em2.Market.Fees.LiquidityFeeSettings.Method, types.LiquidityFeeMethodMarginalCost)
+}
+
 func getTerminatedMarket(t *testing.T) *testMarket {
 	t.Helper()
 	pubKeys := []*dstypes.Signer{
@@ -171,7 +203,7 @@ func getSettledMarket(t *testing.T) *testMarket {
 }
 
 // newMarketFromSnapshot is a wrapper for NewMarketFromSnapshot with a lot of defaults handled.
-func newMarketFromSnapshot(t *testing.T, ctrl *gomock.Controller, em *types.ExecMarket, oracleEngine products.OracleEngine) (*future.Market, error) {
+func newMarketFromSnapshot(t *testing.T, ctx context.Context, ctrl *gomock.Controller, em *types.ExecMarket, oracleEngine products.OracleEngine) (*future.Market, error) {
 	t.Helper()
 	var (
 		riskConfig       = risk.NewDefaultConfig()
@@ -207,7 +239,7 @@ func newMarketFromSnapshot(t *testing.T, ctrl *gomock.Controller, em *types.Exec
 	volumeDiscount.EXPECT().VolumeDiscountFactorForParty(gomock.Any()).Return(num.DecimalZero()).AnyTimes()
 	referralDiscountReward.EXPECT().GetReferrer(gomock.Any()).Return(types.PartyID(""), errors.New("not a referrer")).AnyTimes()
 
-	return future.NewMarketFromSnapshot(context.Background(), log, em, riskConfig, positionConfig, settlementConfig, matchingConfig,
+	return future.NewMarketFromSnapshot(ctx, log, em, riskConfig, positionConfig, settlementConfig, matchingConfig,
 		feeConfig, liquidityConfig, collateralEngine, oracleEngine, timeService, broker, stubs.NewStateVar(), cfgAsset, marketActivityTracker,
 		peggedOrderCounterForTest, referralDiscountReward, volumeDiscount)
 }