# PRP-55: DeFi Protocol Simulation
## Context & Motivation
**Integration Goal**: Simulate DeFi protocol mechanics (AMMs, lending, yield farming) in market data.
**User Requirement**: Generate data reflecting automated market makers and lending protocol dynamics.
**Technical Challenge**: Model complex DeFi mechanics including impermanent loss and liquidations.
## Requirements
### DeFi Protocols
1. **AMM Pools**: Uniswap-style x*y=k
2. **Lending Markets**: Compound/Aave mechanics
3. **Yield Farming**: Liquidity mining rewards
4. **Liquidations**: Collateral liquidation events
### Protocol Mechanics
1. **Impermanent Loss**: LP position dynamics
2. **Interest Rates**: Utilization-based rates
3. **Slippage Models**: Large trade impacts
4. **MEV Opportunities**: Arbitrage and liquidations
## Implementation Blueprint
### Phase 1: AMM Modeling
1. Create `src/crypto/defi.rs`
2. Implement constant product AMM
3. Add liquidity pool dynamics
4. Calculate impermanent loss
### Phase 2: Lending Protocol
1. Model utilization rates
2. Add collateral ratios
3. Implement liquidations
4. Create interest accrual
### Phase 3: Advanced DeFi
1. Add yield farming
2. Model MEV extraction
3. Create protocol risks
4. Implement composability
## Success Criteria
### Validation Gates
```bash
# Test DeFi mechanics
cargo test amm_pools
cargo test lending_protocol
# Validate calculations
cargo test impermanent_loss
```
### Implementation Metrics
- [ ] AMM pricing formula correct
- [ ] Impermanent loss accurate
- [ ] Liquidation mechanics working
- [ ] Interest rates following model
## Dependencies & References
**Prerequisites**:
- Complete PRP-54 (Crypto Generator)
- Understanding of DeFi protocols
**Protocol Documentation**:
- Uniswap V2/V3 whitepapers
- Compound/Aave documentation
- Curve finance mechanics
- MEV research papers
**Key Formulas**:
- Constant Product: x * y = k
- Impermanent Loss calculation
- Utilization Rate: U = Borrowed/Supplied
- Interest Model: R = Base + U * Slope
## Implementation Tasks
### Phase 1: AMM (3-4 hours)
1. Implement pools
2. Add swap logic
3. Calculate IL
4. Test pricing
### Phase 2: Lending (3-4 hours)
1. Model markets
2. Add liquidations
3. Calculate rates
4. Test mechanics
### Phase 3: Advanced (2-3 hours)
1. Add farming
2. Model MEV
3. Create risks
4. Document usage
## Risk Mitigation
- Validate against real protocols
- Handle edge cases (empty pools)
- Model protocol risks appropriately
- Provide parameter templates
## Success Score
**5/10** - Complex DeFi mechanics requiring deep protocol understanding and careful modeling.