Trading Asset Tokens and ISS Tokens

Trading within the ISSUAA ecosystem involves both ISSUAA asset tokens and the ISS token. Here's an in-depth explanation of how trading works:

1. Marketplace Structure: The ISSUAA marketplace functions as an automated-market-maker (AMM) market, with functionality similar to Uniswap V2, utilizing parts of its code. Each market pair is centered around a liquidity pool composed of USD stablecoins and ISSUAA asset tokens. For each underlying asset (e.g., ETH or BTC) there are two separate market pools - one for the long token and one for the short token.

2. Price Determination: The price of an asset in USD stablecoins is determined by the formula:

$price = \frac{\sum USD stable coins} { \sum assetTokens } = \frac{X}{Y}$

3. Constant Product Invariant: ISSUAA market pools operate based on a constant product invariant, which means that the product of the number of tokens on each side of the pool remains constant during trading operations (buying/selling). The formula for this is:

$XY=k$

4. Pricing Adjustment: To maintain the constant product invariant, ISSUAA market prices dynamically adjust to ensure that the product of the pool's resulting balances closely matches the product calculated before the trade. This adjustment is based on the current balance of the pool's source asset $X$ and the balance of the target asset $Y$:

$$X Y = k =(X + A_{\text{in}})(Y - B_{\text{out}}) \\$$

To ascertain the appropriate value of $B_{\text{out}}$ given the trader's offered asset $A_{in}$:

$$B_{\text{out}} = \frac{XA_{\text{in}}}{Y+A_{\text{in}}}$$

The ISSUAA market can execute trades using only the current pool balances and the incoming token quantity. The market price is determined by encoding the ratio of the pool's target tokens to the source asset, commonly referred to as the pool ratio. The spread, which represents the difference between the executed trade and the anticipated trade, can be calculated as follows:

$$\text{spread} = \max\bigg(\frac{YA_{\text{in}}}{X+A_{\text{in}}} - \frac{YA_{\text{in}}}{X}, 0\bigg)$$

As a pool accumulates significant liquidity from providers, the spread naturally diminishes, enabling the pool to execute trades much closer to its reported price of $\frac{Y}{X}$.

5. Liquidity Provider Commission: To compensate liquidity providers, the ISSUAA market imposes a Liquidity Provider (LP) Commission on each trade. This fee is then allocated back to the pool, serving as a reward for LP token holders. It can only be accessed by burning LP tokens and redeeming a portion of the pool. On ISSUAA, each liquidity pool is subject to a fixed LP commission fee of 0.25%. This fee is assessed on the trader and is received in the form of asset tokens, ISS, or USD stable coins, depending on the trade's direction.

6. Governance Token Commission: In addition to the LP commission, a trading fee of 0.05% is applied. These funds are earmarked for the purchase of ISS tokens on the internal ISSUAA market. This linkage between the ISS token and the cash flows generated by the ISSUAA protocol ensures a dynamic connection between the token and the platform's financial activities.