MM0 Accounting Specification

Version: 0.1 (Stage 0) · Implementation: src/accounting/accounting.ts

The goal is P&L that can't mislead. Gross LP fees are never presented as profit.

1. Holdings

H_base  = vault base  + Σ base inside positions
H_quote = vault quote + Σ quote inside positions + gas budget (valued in quote)
U       = uncollected fees (base, quote), claimable but not yet claimed
P       = reference price (independent oracle; venue TWAP flagged LOW confidence when no oracle exists)
NAV     = H_base · P + H_quote + U_base · P + U_quote

2. Flows and units (time-weighted returns)

Deposits and withdrawals mint and burn units at the current unit price:

on deposit of value V:   units += V / unitPrice        contributed += V
on withdrawal of V:      units −= V / unitPrice        contributed −= V
unitPrice = NAV / units          return(t0,t1) = unitPrice(t1) / unitPrice(t0) − 1

Capital additions never look like returns (test: deposits do not count as returns).

A parallel unitized HODL benchmark is kept: deposits buy benchmark units at the benchmark's unit price, whose holdings are the deposited assets left untouched. Two families of risk metrics follow:

• absolute: drawdown = 1 − unitPrice / max(unitPrice), daily loss from the UTC-day-start unit price
• market-making: rel = unitPrice / hodlUnitPrice, mmDrawdown = 1 − rel / max(rel), mmDailyLoss from the day-start rel

Mandate loss limits apply to the market-making family. Both families are reported.

3. Fill inference and cost basis

Between updates, any change in holdings not explained by known non-trade events is a fill:

• known events: deposit / withdrawal, fee collection (claimed fees enter holdings at mark value), transaction cost (debited from gas)
• ΔB = H_base − H_base⁻, ΔQ = H_quote − H_quote⁻ after removing known events
• ΔB > 0 (bought base): avgCost ← (avgCost · B⁻ − ΔQ) / B
• ΔB < 0 (sold base): realized += ΔQ − avgCost · |ΔB|

LP fills, MM0 inventory swaps, and venue haircuts (exploits) all flow through this rule. A haircut appears as a sale for negative proceeds, which is a realized loss.

4. The identity (checked every tick)

NAV − contributed = realizedTrading + feesCollected + U·P − txCosts + unrealized
unrealized = H_base · (P − avgCost)

A residual > 1e-6·NAV trips VAULT_INVARIANT → HALT. A property test runs this across 500 random steps with fills, fees, costs and a mid-stream deposit.

5. Vault reconciliation (checked every tick)

Expected vault balances are derived only from deposits, executed receipts' vaultDelta, and tx costs. Any difference from actual token-account balances means something moved funds outside MM0's action path. That trips VAULT_INVARIANT → HALT (stress: vault-tamper).

6. Reported metrics

7. Performance attribution

Net MM P&L = Fees  +  Inventory P&L (realized + unrealized trading)  −  Costs
Inventory P&L = HODL P&L + Divergence

So: Net = HODL P&L + Fees + Divergence − Costs. The maker page shows this split.

8. Performance fee definition (if ever charged)

perf_t = max(0, (unitPrice_t − HWM_unit) · units − (HODLunit_t − HODLunit_HWM) · units)

That is, the value created beyond holding the deposited inventory, flow-adjusted and net of every cost, above a high-water mark. It is never charged on gross fees.

9. Valuation policy

• Mark at the independent reference price. With no oracle (bootstrap), mark at the venue TWAP and label the valuation LOW confidence on every surface.
• Uncollected fees are included in NAV (claimable) and shown separately.
• Gas (SOL) is valued in quote at the reference SOL price (Stage 3). The simulator uses a quote-denominated gas account.
• Position rent deposits (Solana) are tracked as recoverable assets, not costs (Stage 3).