add additional tests and address comments

Author: moosecat2

programs/drift/src/controller/amm.rs

@@ -193,24 +193,25 @@ pub fn update_spreads(
                 market.amm.max_base_asset_reserve,
             )?;
 
-        let mut signed_liquidity_ratio =
+        let signed_liquidity_ratio =
             liquidity_ratio.safe_mul(market.amm.get_protocol_owned_position()?.signum().cast()?)?;
 
         let deadband_pct = market.amm.get_reference_price_offset_deadband_pct()?;
-        if signed_liquidity_ratio.unsigned_abs() <= deadband_pct {
-            signed_liquidity_ratio = 0;
-        } else {
-            signed_liquidity_ratio = signed_liquidity_ratio.safe_sub(
-                deadband_pct
-                    .cast::<i128>()?
-                    .safe_mul(signed_liquidity_ratio.signum())?,
-            )?;
-        }
+        let liquidity_fraction_after_deadband =
+            if signed_liquidity_ratio.unsigned_abs() <= deadband_pct {
+                0
+            } else {
+                signed_liquidity_ratio.safe_sub(
+                    deadband_pct
+                        .cast::<i128>()?
+                        .safe_mul(signed_liquidity_ratio.signum())?,
+                )?
+            };
 
         amm_spread::calculate_reference_price_offset(
             reserve_price,
             market.amm.last_24h_avg_funding_rate,
-            signed_liquidity_ratio,
+            liquidity_fraction_after_deadband,
             market.amm.min_order_size,
             market
                 .amm

programs/drift/src/instructions/admin.rs

@@ -3461,6 +3461,24 @@ pub fn handle_update_perp_market_reference_price_offset_deadband_pct(
         reference_price_offset_deadband_pct
     );
 
+    let liquidity_ratio =
+        crate::math::amm_spread::calculate_inventory_liquidity_ratio_for_reference_price_offset(
+            perp_market.amm.base_asset_amount_with_amm,
+            perp_market.amm.base_asset_reserve,
+            perp_market.amm.min_base_asset_reserve,
+            perp_market.amm.max_base_asset_reserve,
+        )?;
+
+    let signed_liquidity_ratio = liquidity_ratio.safe_mul(
+        perp_market
+            .amm
+            .get_protocol_owned_position()?
+            .signum()
+            .cast()?,
+    )?;
+
+    msg!("current signed liquidity ratio: {}", signed_liquidity_ratio);
+
     perp_market.amm.reference_price_offset_deadband_pct = reference_price_offset_deadband_pct;
     Ok(())
 }

programs/drift/src/math/amm_spread.rs

@@ -199,8 +199,6 @@ pub fn calculate_inventory_liquidity_ratio_for_reference_price_offset(
     min_base_asset_reserve: u128,
     max_base_asset_reserve: u128,
 ) -> DriftResult<i128> {
-    // computes min(1, x/(1-x)) for 0 < x < 1
-
     // inventory scale
     let (max_bids, max_asks) = _calculate_market_open_bids_asks(
         base_asset_reserve,

programs/drift/src/math/amm_spread/tests.rs

@@ -219,15 +219,40 @@ mod test {
 
         let reserve_price = 4216 * 10000;
 
-        let max_ref_offset = market.amm.get_max_reference_price_offset().unwrap();
-        assert_eq!(max_ref_offset, 10000);
-        market.amm.base_asset_amount_with_amm = (AMM_RESERVE_PRECISION * 3 / 20) as i128;
+        market.amm.base_asset_amount_with_amm = (AMM_RESERVE_PRECISION * 7 / 20) as i128;
+        let inventory_ratio = calculate_inventory_liquidity_ratio_for_reference_price_offset(
+            market.amm.base_asset_amount_with_amm,
+            market.amm.base_asset_reserve,
+            market.amm.min_base_asset_reserve,
+            market.amm.max_base_asset_reserve,
+        )
+        .unwrap();
+        assert_eq!(inventory_ratio, 100000); // 10%
+
+        market.amm.reference_price_offset_deadband_pct = 10; // 10%
+
+        // If inventory exceeds threshold positive ref price offset
+        market.amm.base_asset_amount_with_amm = (AMM_RESERVE_PRECISION * 8 / 20) as i128;
+        let (_l, _s) = update_spreads(&mut market, reserve_price as u64, None).unwrap();
+        assert!(market.amm.reference_price_offset > 0);
+
+        // If inventory is small, goes to 0
+        market.amm.base_asset_amount_with_amm = (AMM_RESERVE_PRECISION * 6 / 20) as i128;
+        let (_l, _s) = update_spreads(&mut market, reserve_price as u64, None).unwrap();
+        assert_eq!(market.amm.reference_price_offset, 0);
+
+        // Same for short pos
+        // Make sure that the premium is also short
+        market.amm.last_24h_avg_funding_rate = -1;
+        market.amm.last_mark_price_twap_5min = 4216 * 10000 - 2 * 10000;
+        market.amm.last_mark_price_twap = 4216 * 10000 - 2 * 10000;
+        market.amm.base_asset_amount_with_amm = (AMM_RESERVE_PRECISION * 8 / 20) as i128 * -1;
         let (_l, _s) = update_spreads(&mut market, reserve_price as u64, None).unwrap();
-        assert_eq!(market.amm.reference_price_offset, 10);
+        println!("ref offset: {}", market.amm.reference_price_offset);
+        assert!(market.amm.reference_price_offset < 0);
 
-        // If base asset amount with amm is small, reference price offset is 0
-        market.amm.reference_price_offset_deadband_pct = 10;
-        market.amm.base_asset_amount_with_amm = (AMM_RESERVE_PRECISION * 3 / 20) as i128;
+        // Same for short pos
+        market.amm.base_asset_amount_with_amm = (AMM_RESERVE_PRECISION * 6 / 20) as i128 * -1;
         let (_l, _s) = update_spreads(&mut market, reserve_price as u64, None).unwrap();
         assert_eq!(market.amm.reference_price_offset, 0);
     }

sdk/src/math/amm.ts

@@ -402,12 +402,12 @@ export function calculateInventoryLiquidityRatioForReferencePriceOffset(
 		maxBaseAssetReserve
 	);
 
-	const minSideLiquidity = openBids.abs().add(openAsks.abs()).div(TWO);
+	const avgSideLiquidity = openBids.abs().add(openAsks.abs()).div(TWO);
 
 	const inventoryScaleBN = BN.min(
 		baseAssetAmountWithAmm
 			.mul(PERCENTAGE_PRECISION)
-			.div(BN.max(minSideLiquidity, ONE))
+			.div(BN.max(avgSideLiquidity, ONE))
 			.abs(),
 		PERCENTAGE_PRECISION
 	);
@@ -683,13 +683,13 @@ export function calculateSpreadBN(
 		shortSpread = Math.max(
 			shortSpread,
 			lastOracleReservePriceSpreadPct.abs().toNumber() +
-				shortVolSpread.toNumber()
+			shortVolSpread.toNumber()
 		);
 	} else if (lastOracleReservePriceSpreadPct.lt(ZERO)) {
 		longSpread = Math.max(
 			longSpread,
 			lastOracleReservePriceSpreadPct.abs().toNumber() +
-				longVolSpread.toNumber()
+			longVolSpread.toNumber()
 		);
 	}
 	spreadTerms.longSpreadwPS = longSpread;
@@ -777,7 +777,7 @@ export function calculateSpreadBN(
 				maxRetreat,
 				Math.floor(
 					(baseSpread * netRevenueSinceLastFunding.abs().toNumber()) /
-						DEFAULT_REVENUE_SINCE_LAST_FUNDING_SPREAD_RETREAT.abs().toNumber()
+					DEFAULT_REVENUE_SINCE_LAST_FUNDING_SPREAD_RETREAT.abs().toNumber()
 				)
 			);
 		}
@@ -1035,7 +1035,7 @@ export function calculateSpreadReserves(
 		maxOffset = Math.max(
 			amm.maxSpread / 2,
 			(PERCENTAGE_PRECISION.toNumber() / 10000) *
-				(amm.curveUpdateIntensity - 100)
+			(amm.curveUpdateIntensity - 100)
 		);
 
 		const liquidityFraction =
@@ -1052,8 +1052,8 @@ export function calculateSpreadReserves(
 		let liquidityFractionAfterDeadband = liquidityFractionSigned;
 		const deadbandPct = amm.referencePriceOffsetDeadbandPct
 			? PERCENTAGE_PRECISION.mul(
-					new BN(amm.referencePriceOffsetDeadbandPct as number)
-			  ).divn(100)
+				new BN(amm.referencePriceOffsetDeadbandPct as number)
+			).divn(100)
 			: ZERO;
 		if (!liquidityFractionAfterDeadband.eq(ZERO) && deadbandPct.gt(ZERO)) {
 			const abs = liquidityFractionAfterDeadband.abs();