DepegSentinel – Dynamic Fee & Depeg Resolver Hook for DEXs

Overview

DepegSentinel is a Uniswap V4 hook designed to automatically safeguard pegged and liquid token pools from depegging events. Whether it’s stablecoins like USDC/USDT, liquid staking tokens like stETH/WETH, or protocol-native assets like kHYPE/HYPE, DepegSentinel ensures pools maintain a healthy peg by dynamically adjusting fees based on real-time market data.

Unlike static fee models, DepegSentinel actively monitors price feeds and modifies trading costs to penalize behaviors that worsen a depeg and incentivize trades that help restore the peg.

Problem It Solves

• Pegged assets can diverge from their intended value due to large trades, liquidity shocks, or market stress.
• Current DEX pools rely on static fees, which don’t account for real-time risk during depeg events.
• Traders that worsen the peg unintentionally or intentionally can cause cascading liquidity issues and losses for LPs.
• Protocols need a way to automatically penalize destabilizing trades and reward stabilizing trades without manual intervention.

Example

• USDC depeg events in the past have caused temporary losses for LPs.
• A recent Hyperliquid pool (kHYPE/HYPE) lost ~80% of its peg in one event.
• Manual intervention or reactive mechanisms are too slow to protect liquidity.

Core Functionality

DepegSentinel operates as a hook attached to Uniswap V4 pools, performing the following:

Real-Time Price Monitoring

• Integrates with Pyth Network to fetch live market prices for pegged assets.
• Tracks deviations from the ideal 1:1 peg or expected ratio for liquid staking tokens.

Dynamic Fee Adjustment

• If a trade worsens the peg:
  Fees for the trader increase dynamically, discouraging destabilizing trades.
• If a trade helps restore the peg:
  Fees are reduced, incentivizing stabilizing behavior.

Automatic LP Protection

• Reduces impermanent loss for liquidity providers during volatile depeg events.
• Ensures pool prices remain closer to the target peg without requiring manual intervention.

Seamless DEX Integration

• Fully compatible with Uniswap V4 hooks, leveraging BEFORE_SWAP and AFTER_SWAP triggers.
• Supports multi-asset pools, including stablecoin-stablecoin, liquid staking token pools, and protocol-native token pairs.

Customizable

• Thresholds for depeg sensitivity can be configured.
• Supports multiple price sources, dynamic fee caps, and hook-specific logic per pool.

Benefits

• Automatic Depeg Resolution: Reduces the risk of LP losses due to sudden peg divergence.
• Trader Incentives Aligned: Encourages actions that stabilize the pool.
• Seamless Integration: Works natively with Uniswap V4 without major contract rewrites.
• Dynamic Risk Management: Pool fees adapt in real-time to market conditions.
• Cross-Asset Compatibility: Works for stablecoins, liquid staking derivatives, and protocol-specific tokens.

Use Cases

• Stablecoin Pools: USDC/USDT, DAI/USDC, USDT/DAI
• Liquid Staking Pools: stETH/WETH, rETH/ETH
• Protocol Asset Pools: kHYPE/HYPE, other project-specific tokens
• Depeg Protection for Multi-Asset AMMs: Pools vulnerable to market shocks or liquidity withdrawals

Why It’s Innovative

• Traditional AMMs rely on fixed fees or manual risk management.
• DepegSentinel introduces a feedback loop that automatically penalizes destabilizing trades and rewards stabilizing trades.
• It’s the first hook that directly ties trader behavior to peg stability, using reliable on-chain price oracles.

How It Works (Technical Flow)

Trade Initiation

• Trader submits a swap on the pool.

Before Swap Hook (BEFORE_SWAP)

• DepegSentinel reads the current pool price and market peg from Pyth.
• Calculates the expected deviation if the trade executes.

Fee Computation (_getFee)

• If trade worsens the peg, fee increases proportionally to deviation.
• If trade improves the peg, fee is reduced, rewarding stabilizing behavior.

Why It’s Innovative

• Traditional AMMs rely on fixed fees or manual risk management.
• DepegSentinel introduces a feedback loop that automatically penalizes destabilizing trades and rewards stabilizing trades.
• It’s the first hook that directly ties trader behavior to peg stability, using reliable on-chain price oracles.