Liquidation Waterfall

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/** Dependency-free reference calculations for D25-F02. */
export type JsonObject = Record<string, any>;

function finite(value: unknown, name: string, minimum?: number, maximum?: number): number {
  if (typeof value !== "number" || !Number.isFinite(value)) throw new Error(`${name} must be a finite number`);
  if (minimum !== undefined && value < minimum) throw new Error(`${name} must be at least ${minimum}`);
  if (maximum !== undefined && value > maximum) throw new Error(`${name} must be at most ${maximum}`);
  return value;
}

function rounded(value: any, digits = 10): any {
  if (typeof value === "number") return Number(value.toFixed(digits));
  if (Array.isArray(value)) return value.map(item => rounded(item, digits));
  if (value && typeof value === "object") return Object.fromEntries(Object.entries(value).map(([key, item]) => [key, rounded(item, digits)]));
  return value;
}

export function impermanentLoss(data: JsonObject, config: JsonObject): JsonObject {
  const initialValue = finite(data.initial_pool_value, "initial_pool_value", 1e-9);
  const ratio = finite(data.price_ratio, "price_ratio", 1e-9);
  const feeFraction = finite(config.fee_return_fraction ?? 0, "fee_return_fraction", 0);
  const holdValue = initialValue * (1 + ratio) / 2;
  const poolValue = initialValue * Math.sqrt(ratio);
  const relativeValue = poolValue / holdValue;
  const fees = initialValue * feeFraction;
  const trace = Array.from({ length: 241 }, (_, index) => {
    const logRatio = Math.log(0.2) + index * (Math.log(5) - Math.log(0.2)) / 240;
    const r = Math.exp(logRatio);
    const hv = initialValue * (1 + r) / 2;
    const pv = initialValue * Math.sqrt(r);
    return { price_ratio: r, impermanent_loss: pv / hv - 1, hold_value: hv, pool_value: pv, net_pool_value: pv + fees };
  });
  return rounded({
    initial_pool_value: initialValue,
    price_ratio: ratio,
    hold_value: holdValue,
    pool_value_excluding_fees: poolValue,
    impermanent_loss_fraction: relativeValue - 1,
    impermanent_loss_amount: poolValue - holdValue,
    fee_income: fees,
    net_pool_value: poolValue + fees,
    net_vs_hold_fraction: (poolValue + fees) / holdValue - 1,
    trace,
  });
}

export function feeApr(data: JsonObject, config: JsonObject): JsonObject {
  if (!Array.isArray(data.rows) || data.rows.length === 0) throw new Error("rows must be a non-empty list");
  const annualization = finite(config.annualization_days ?? 365, "annualization_days", 1e-9);
  const protocolShare = finite(config.protocol_fee_share ?? 0, "protocol_fee_share", 0, 1);
  const basis = config.capital_basis ?? "time_weighted";
  if (!["time_weighted", "ending"].includes(basis)) throw new Error("capital_basis must be time_weighted or ending");
  let elapsed = 0, capitalTime = 0, cumulative = 0, cumulativeVolume = 0;
  const trace: JsonObject[] = [];
  data.rows.forEach((row: JsonObject, index: number) => {
    const duration = finite(row.duration_days ?? 1, `rows[${index}].duration_days`, 1e-9);
    const volume = finite(row.volume, `rows[${index}].volume`, 0);
    const feeRate = finite(row.fee_rate, `rows[${index}].fee_rate`, 0, 1);
    const share = finite(row.lp_share, `rows[${index}].lp_share`, 0, 1);
    const capital = finite(row.lp_capital, `rows[${index}].lp_capital`, 1e-9);
    const fees = volume * feeRate * share * (1 - protocolShare);
    elapsed += duration; capitalTime += capital * duration; cumulative += fees; cumulativeVolume += volume;
    const denominator = basis === "time_weighted" ? capitalTime / elapsed : capital;
    trace.push({
      index, timestamp: row.timestamp, volume, lp_capital: capital, daily_fee_income: fees,
      cumulative_fee_income: cumulative, running_apr: cumulative / denominator * annualization / elapsed,
    });
  });
  const averageCapital = capitalTime / elapsed;
  const denominator = basis === "time_weighted" ? averageCapital : finite(data.rows.at(-1).lp_capital, "ending lp_capital", 1e-9);
  return rounded({
    elapsed_days: elapsed,
    gross_volume: cumulativeVolume,
    lp_fee_income: cumulative,
    time_weighted_average_capital: averageCapital,
    capital_denominator: denominator,
    capital_basis: basis,
    protocol_fee_share: protocolShare,
    simple_fee_apr: cumulative / denominator * annualization / elapsed,
    period_fee_return: cumulative / denominator,
    annualization_days: annualization,
    trace,
  });
}

export function healthFactor(data: JsonObject, config: JsonObject): JsonObject {
  if (!Array.isArray(data.collateral) || data.collateral.length === 0 || !Array.isArray(data.debts))
    throw new Error("collateral must be non-empty and debts must be a list");
  const cm = finite(config.collateral_price_multiplier ?? 1, "collateral_price_multiplier", 0);
  const dm = finite(config.debt_price_multiplier ?? 1, "debt_price_multiplier", 0);
  let collateralValue = 0, adjusted = 0, debtValue = 0;
  const collateralLedger = data.collateral.map((asset: JsonObject, index: number) => {
    const quantity = finite(asset.quantity, `collateral[${index}].quantity`, 0);
    const price = finite(asset.price, `collateral[${index}].price`, 0) * cm;
    const threshold = finite(asset.liquidation_threshold, `collateral[${index}].liquidation_threshold`, 0, 1);
    const eligible = asset.eligible ?? true;
    const value = quantity * price;
    const contribution = eligible ? value * threshold : 0;
    collateralValue += value; adjusted += contribution;
    return { asset: asset.asset ?? `C${index}`, value, threshold, eligible, adjusted_contribution: contribution };
  });
  const debtLedger = data.debts.map((asset: JsonObject, index: number) => {
    const quantity = finite(asset.quantity, `debts[${index}].quantity`, 0);
    const price = finite(asset.price, `debts[${index}].price`, 0) * dm;
    const value = quantity * price; debtValue += value;
    return { asset: asset.asset ?? `D${index}`, value };
  });
  const hf = debtValue === 0 ? null : adjusted / debtValue;
  const state = hf === null ? "no-debt" : hf < 1 ? "liquidatable" : hf === 1 ? "at-threshold" : "above-threshold";
  const trace = Array.from({ length: 241 }, (_, index) => {
    const multiplier = 0.4 + index / 240;
    const stressed = adjusted * multiplier;
    return { collateral_price_multiplier: multiplier, health_factor: debtValue === 0 ? null : stressed / debtValue, adjusted_collateral_value: stressed };
  });
  return rounded({
    total_collateral_value: collateralValue,
    threshold_adjusted_collateral_value: adjusted,
    total_debt_value: debtValue,
    weighted_average_liquidation_threshold: collateralValue === 0 ? 0 : adjusted / collateralValue,
    health_factor: hf,
    buffer_value: hf === null ? null : adjusted - debtValue,
    state, collateral_ledger: collateralLedger, debt_ledger: debtLedger, trace,
  });
}

export function liquidationPrice(data: JsonObject, config: JsonObject): JsonObject {
  if (!Array.isArray(data.collateral) || data.collateral.length === 0 || !Array.isArray(data.debts) || !data.selected_asset)
    throw new Error("collateral, debts, and selected_asset are required");
  const debtMultiplier = finite(config.debt_multiplier ?? 1, "debt_multiplier", 0);
  const shift = finite(config.threshold_shift ?? 0, "threshold_shift", -1, 1);
  let debtValue = 0;
  data.debts.forEach((asset: JsonObject, index: number) => {
    debtValue += finite(asset.quantity, `debts[${index}].quantity`, 0) * finite(asset.price, `debts[${index}].price`, 0);
  });
  debtValue *= debtMultiplier;
  let otherAdjusted = 0;
  let chosen: JsonObject | null = null;
  data.collateral.forEach((asset: JsonObject, index: number) => {
    const quantity = finite(asset.quantity, `collateral[${index}].quantity`, 0);
    const price = finite(asset.price, `collateral[${index}].price`, 0);
    const threshold = finite(asset.liquidation_threshold, `collateral[${index}].liquidation_threshold`, 0, 1);
    if (asset.asset === data.selected_asset) chosen = { quantity, current_price: price, threshold: Math.max(0, Math.min(1, threshold + shift)) };
    else if (asset.eligible ?? true) otherAdjusted += quantity * price * threshold;
  });
  if (chosen === null) throw new Error("selected_asset is not present in collateral");
  const c = chosen as JsonObject;
  const denominator = c.quantity * c.threshold;
  const required = denominator <= 0 ? null : Math.max(0, (debtValue - otherAdjusted) / denominator);
  const reason = denominator <= 0 ? "selected collateral has zero quantity or zero effective liquidation threshold" : required === 0 ? "other collateral alone covers debt" : "finite break-even price";
  const currentAdjusted = c.quantity * c.current_price * c.threshold;
  const currentHf = debtValue === 0 ? null : (otherAdjusted + currentAdjusted) / debtValue;
  const trace = Array.from({ length: 241 }, (_, index) => {
    const price_multiplier = 0.4 + index / 240;
    const selected_price = c.current_price * price_multiplier;
    const health_factor = debtValue === 0 ? null : (otherAdjusted + c.quantity * selected_price * c.threshold) / debtValue;
    return { price_multiplier, selected_price, health_factor };
  });
  return rounded({
    selected_asset: data.selected_asset,
    selected_quantity: c.quantity,
    current_selected_price: c.current_price,
    effective_selected_liquidation_threshold: c.threshold,
    total_debt_value: debtValue,
    other_adjusted_collateral_value: otherAdjusted,
    liquidation_price: required,
    distance_to_liquidation_fraction: required === null || c.current_price === 0 ? null : (c.current_price - required) / c.current_price,
    current_health_factor: currentHf,
    reason, trace,
  });
}

export function liquidationWaterfall(data: JsonObject, config: JsonObject): JsonObject {
  const debt = finite(data.debt_value, "debt_value", 0);
  const collateral = finite(data.collateral_sale_proceeds, "collateral_sale_proceeds", 0);
  const reserve = finite(data.protocol_reserve, "protocol_reserve", 0);
  const insurance = finite(data.insurance_fund, "insurance_fund", 0);
  const backstop = finite(data.backstop_capacity, "backstop_capacity", 0);
  const recoveryRate = finite(config.collateral_recovery_rate ?? 1, "collateral_recovery_rate", 0, 1);
  const enabled = config.backstop_enabled ?? true;
  const capacities: Array<[string, number]> = [
    ["collateral-recovery", collateral * recoveryRate],
    ["protocol-reserve", reserve],
    ["insurance-fund", insurance],
    ["backstop", enabled ? backstop : 0],
  ];
  let remaining = debt, cumulative = 0;
  const ledger = capacities.map(([layer, capacity]) => {
    const absorbed = Math.min(remaining, capacity); remaining -= absorbed; cumulative += absorbed;
    return { layer, available_capacity: capacity, absorbed, remaining_debt: remaining, cumulative_absorbed: cumulative };
  });
  ledger.push({ layer: "uncovered-bad-debt", available_capacity: null as any, absorbed: remaining, remaining_debt: 0, cumulative_absorbed: cumulative + remaining });
  const stressTrace = Array.from({ length: 241 }, (_, index) => {
    const collateral_proceeds_multiplier = index * 1.2 / 240;
    const stressed = collateral * recoveryRate * collateral_proceeds_multiplier;
    const capacity = stressed + reserve + insurance + (enabled ? backstop : 0);
    return { collateral_proceeds_multiplier, covered_debt: Math.min(debt, capacity), uncovered_bad_debt: Math.max(0, debt - capacity) };
  });
  return rounded({
    debt_value: debt,
    effective_collateral_proceeds: collateral * recoveryRate,
    total_buffer_capacity: reserve + insurance + (enabled ? backstop : 0),
    covered_debt: debt - remaining,
    uncovered_bad_debt: remaining,
    coverage_fraction: debt === 0 ? 1 : (debt - remaining) / debt,
    backstop_enabled: enabled,
    ledger,
    trace: stressTrace,
  });
}

export function runTopic(kind: string, data: JsonObject, config: JsonObject): JsonObject {
  if (!data || typeof data !== "object" || !config || typeof config !== "object") throw new Error("data and config must be objects");
  const functions: Record<string, (d: JsonObject, c: JsonObject) => JsonObject> = {
    impermanent_loss: impermanentLoss,
    fee_apr: feeApr,
    health_factor: healthFactor,
    liquidation_price: liquidationPrice,
    waterfall: liquidationWaterfall,
  };
  if (!functions[kind]) throw new Error(`unknown topic kind: ${kind}`);
  return functions[kind](data, config);
}