Advanced DeFi: Flash Loans, Liquidations, Yield Farming

Advanced DeFi protocols enable complex financial operations on-chain.

Flash Loans

Flash loans allow borrowing without collateral, but must be repaid in the same transaction.

Implementation

RUST
Copy
struct FlashLoanPool {
    reserves: u64,
    fee_percentage: u8, // e.g., 9 = 0.09%
}

struct FlashLoan {
    amount: u64,
    token: String,
    borrower: String,
    callback: String, // Function to call
}

impl FlashLoanPool {
    fn flash_loan(
        &mut self,
        amount: u64,
        borrower: &str,
        callback_data: Vec<u8>,
    ) -> Result<(), String> {
        // Check sufficient reserves
        if amount > self.reserves {
            return Err(String::from("Insufficient reserves"));
        }
        
        // Transfer funds to borrower
        self.reserves -= amount;
        // In real implementation: transfer tokens
        
        // Execute callback (borrower's logic)
        self.execute_callback(borrower, callback_data)?;
        
        // Calculate repayment (amount + fee)
        let fee = (amount * self.fee_percentage as u64) / 10000;
        let repayment = amount + fee;
        
        // Verify repayment
        // In real implementation: check balance increased by repayment
        if !self.verify_repayment(borrower, repayment) {
            return Err(String::from("Flash loan not repaid"));
        }
        
        // Add repayment to reserves
        self.reserves += repayment;
        
        Ok(())
    }
    
    fn execute_callback(&self, borrower: &str, data: Vec<u8>) -> Result<(), String> {
        // Execute borrower's contract function
        // This is where they use the loan
        Ok(())
    }
    
    fn verify_repayment(&self, borrower: &str, required: u64) -> bool {
        // Check borrower's balance increased by required amount
        // Simplified
        true
    }
}

Use Cases

• Arbitrage: Exploit price differences
• Collateral Swaps: Swap collateral in one transaction
• Liquidation: Liquidate and repay in one transaction
• Debt Refinancing: Repay old loan, take new loan

Liquidations

Liquidations occur when collateral value falls below required threshold.

Implementation

RUST
Copy
struct Position {
    borrower: String,
    collateral_amount: u64,
    collateral_token: String,
    debt_amount: u64,
    debt_token: String,
    collateralization_ratio: u64, // e.g., 15000 = 150%
}

struct LiquidationEngine {
    min_collateralization: u64, // e.g., 15000 = 150%
    liquidation_bonus: u8,      // e.g., 5 = 5% bonus
    price_oracle: PriceOracle,
}

impl LiquidationEngine {
    fn check_liquidation(&self, position: &Position) -> bool {
        let collateral_value = self.price_oracle.get_value(
            &position.collateral_token,
            position.collateral_amount
        );
        
        let debt_value = self.price_oracle.get_value(
            &position.debt_token,
            position.debt_amount
        );
        
        // Calculate collateralization ratio
        let ratio = if debt_value > 0 {
            (collateral_value * 10000) / debt_value
        } else {
            u64::MAX
        };
        
        // Liquidatable if below minimum
        ratio < self.min_collateralization
    }
    
    fn liquidate(
        &mut self,
        position: &mut Position,
        liquidator: &str,
        repay_amount: u64,
    ) -> Result<u64, String> {
        if !self.check_liquidation(position) {
            return Err(String::from("Position not liquidatable"));
        }
        
        if repay_amount > position.debt_amount {
            return Err(String::from("Repay amount exceeds debt"));
        }
        
        // Calculate collateral to seize (with bonus)
        let collateral_value = self.price_oracle.get_value(
            &position.collateral_token,
            position.collateral_amount
        );
        
        let debt_value = self.price_oracle.get_value(
            &position.debt_token,
            repay_amount
        );
        
        let bonus = (debt_value * self.liquidation_bonus as u64) / 100;
        let collateral_to_seize_value = debt_value + bonus;
        
        let collateral_to_seize = (collateral_to_seize_value * position.collateral_amount) / collateral_value;
        
        // Update position
        position.debt_amount -= repay_amount;
        position.collateral_amount -= collateral_to_seize;
        
        // Transfer collateral to liquidator
        // Transfer repaid debt to protocol
        
        Ok(collateral_to_seize)
    }
}

Yield Farming

Yield farming involves providing liquidity to earn rewards.

Implementation

RUST
Copy
struct YieldFarm {
    staking_token: String,
    reward_token: String,
    total_staked: u64,
    reward_per_block: u64,
    last_update_block: u64,
    acc_reward_per_share: u128, // Accumulated rewards per share
}

struct UserStake {
    amount: u64,
    reward_debt: u128, // Rewards already accounted for
}

impl YieldFarm {
    fn stake(&mut self, user: &str, amount: u64, user_stakes: &mut HashMap<String, UserStake>) {
        self.update_pool();
        
        let user_stake = user_stakes.entry(user.to_string()).or_insert(UserStake {
            amount: 0,
            reward_debt: 0,
        });
        
        // Calculate pending rewards
        let pending = self.calculate_pending_rewards(user_stake);
        
        // Update stake
        user_stake.amount += amount;
        user_stake.reward_debt = (user_stake.amount as u128 * self.acc_reward_per_share) / 1e12;
        
        self.total_staked += amount;
    }
    
    fn update_pool(&mut self) {
        let current_block = 1000; // Simplified
        
        if self.total_staked > 0 {
            let blocks_elapsed = current_block - self.last_update_block;
            let reward = blocks_elapsed * self.reward_per_block;
            
            self.acc_reward_per_share += (reward as u128 * 1e12) / self.total_staked as u128;
        }
        
        self.last_update_block = current_block;
    }
    
    fn calculate_pending_rewards(&self, user_stake: &UserStake) -> u64 {
        if self.total_staked == 0 {
            return 0;
        }
        
        let user_reward = (user_stake.amount as u128 * self.acc_reward_per_share) / 1e12;
        let pending = user_reward.saturating_sub(user_stake.reward_debt);
        
        pending as u64
    }
}

Options and Derivatives

Call Option

RUST
Copy
struct CallOption {
    strike_price: u64,
    expiration: u64,
    premium: u64,
    underlying: String,
}

impl CallOption {
    fn exercise(&self, current_price: u64, block_number: u64) -> Option<u64> {
        if block_number > self.expiration {
            return None; // Expired
        }
        
        if current_price > self.strike_price {
            // In the money
            Some(current_price - self.strike_price)
        } else {
            None // Out of the money
        }
    }
}

Stablecoin Mechanisms

Algorithmic Stablecoin

RUST
Copy
struct AlgorithmicStablecoin {
    target_price: u64, // e.g., $1.00
    supply: u64,
    collateral_ratio: u64, // e.g., 150% = 15000
}

impl AlgorithmicStablecoin {
    fn rebase(&mut self, current_price: u64) {
        if current_price > self.target_price {
            // Price too high: increase supply (inflation)
            let increase = (self.supply * (current_price - self.target_price)) / self.target_price;
            self.supply += increase;
        } else if current_price < self.target_price {
            // Price too low: decrease supply (deflation)
            let decrease = (self.supply * (self.target_price - current_price)) / self.target_price;
            self.supply = self.supply.saturating_sub(decrease);
        }
    }
}

Real-World Examples

• Aave: Flash loans, liquidations
• Compound: Lending with liquidations
• Yearn Finance: Yield farming aggregator
• MakerDAO: DAI stablecoin
• dYdX: Options and perpetuals