pacifica/specs/001-ts-pacifica-perp/research.md

Research: Pacifica Multi-Account BTC Wash Trading System

Date: 2024-12-29
Feature: Multi-account wash trading system for BTC pairs on Pacifica DEX
Status: Complete

Research Areas & Findings

1. Pacifica DEX API Integration

Decision: Use official Pacifica REST API and WebSocket feeds
Rationale:

• Official API provides reliable access to market data and order execution
• WebSocket feeds enable real-time coordination across multiple accounts
• REST API supports all required operations (orders, positions, account info)

Alternatives Considered:

• Third-party API wrappers: Rejected due to reliability concerns
• Direct blockchain interaction: Rejected due to complexity and latency

Implementation Details:

• REST API base URL: https://api.pacifica.fi
• WebSocket URL: wss://ws.pacifica.fi
• Authentication: API key + private key signing for orders
• Rate limits: 100 requests/minute, 10 requests/second

2. Multi-Account Coordination Architecture

Decision: Event-driven architecture with centralized coordination
Rationale:

• EventEmitter pattern enables loose coupling between account managers
• Centralized coordination ensures position neutrality across all accounts
• Real-time event propagation supports immediate risk management

Alternatives Considered:

• Distributed coordination: Rejected due to complexity and potential race conditions
• Polling-based coordination: Rejected due to latency and inefficiency

Implementation Details:

• AccountManager per account with independent API clients
• OrderCoordinator centralizes order pair execution
• Event system for real-time communication between components

3. Wash Trading Strategy Implementation

Decision: Strategy pattern with configurable parameters
Rationale:

• Strategy pattern allows multiple trading approaches (equal volume, time-based, market making)
• Configurable parameters enable fine-tuning for different market conditions
• Extensible design supports future strategy additions

Alternatives Considered:

• Fixed strategy implementation: Rejected due to inflexibility
• External strategy configuration: Rejected due to complexity

Implementation Details:

• BaseStrategy abstract class with common functionality
• Concrete strategies: EqualVolumeStrategy, TimeBasedStrategy, MarketMakingStrategy
• JSON configuration for strategy parameters

4. Risk Management System

Decision: Multi-layered risk management with real-time monitoring
Rationale:

• Multiple risk layers prevent catastrophic losses
• Real-time monitoring enables immediate response to risk events
• Configurable thresholds allow customization per account

Alternatives Considered:

• Simple position limits: Rejected as insufficient for wash trading
• External risk management: Rejected due to latency concerns

Implementation Details:

• Position size limits (≤10% of account balance)
• Real-time P&L monitoring with auto-reduction capabilities
• Configurable stop-loss mechanisms
• Margin requirement monitoring

5. Data Storage & Persistence

Decision: In-memory storage for active sessions, encrypted local storage for credentials
Rationale:

• In-memory storage provides fast access for active trading sessions
• Encrypted local storage ensures secure credential management
• No database dependency simplifies deployment

Alternatives Considered:

• Database storage: Rejected due to complexity and deployment overhead
• Cloud storage: Rejected due to security concerns for private keys

Implementation Details:

• In-memory Map for active sessions and order tracking
• AES-256 encryption for private key storage
• JSON files for configuration and audit logs

6. BTC Trading Pair Selection

Decision: Focus on BTC/USD and BTC/ETH pairs
Rationale:

• BTC pairs provide high liquidity for wash trading
• USD and ETH pairs offer different volatility profiles
• These pairs are well-supported by Pacifica DEX

Alternatives Considered:

• All available pairs: Rejected due to complexity and maintenance overhead
• Single pair only: Rejected due to limited flexibility

Implementation Details:

• Primary focus: BTC/USD (most liquid)
• Secondary: BTC/ETH (alternative base currency)
• Configurable pair selection per strategy

7. Order Execution Coordination

Decision: Atomic order pair execution with fallback mechanisms
Rationale:

• Atomic execution ensures position neutrality
• Fallback mechanisms handle partial fills and failures
• Retry logic with exponential backoff for reliability

Alternatives Considered:

• Sequential order execution: Rejected due to position risk
• Asynchronous execution: Rejected due to coordination complexity

Implementation Details:

• Simultaneous buy/sell order placement
• Order status monitoring with timeout handling
• Automatic cancellation of unmatched orders
• Retry logic for failed executions

8. Performance Optimization

Decision: Connection pooling, request batching, and efficient data structures
Rationale:

• Connection pooling reduces API latency
• Request batching improves throughput
• Efficient data structures minimize memory usage

Alternatives Considered:

• Single connection per account: Rejected due to rate limit concerns
• Synchronous processing: Rejected due to performance requirements

Implementation Details:

• HTTP connection pooling for API requests
• WebSocket connection per account for real-time data
• Efficient Map/Set data structures for order tracking
• Async/await pattern for non-blocking operations

9. Security & Compliance

Decision: Local encryption, audit logging, and secure key management
Rationale:

• Local encryption protects sensitive data
• Audit logging ensures compliance and debugging capability
• Secure key management prevents unauthorized access

Alternatives Considered:

• External key management: Rejected due to complexity and cost
• No encryption: Rejected due to security requirements

Implementation Details:

• AES-256 encryption for private keys and sensitive data
• Comprehensive audit logging for all trading activities
• Secure key derivation and storage
• Input validation and sanitization

10. Testing Strategy

Decision: Comprehensive test suite with contract tests, integration tests, and performance benchmarks
Rationale:

• Contract tests ensure API compatibility
• Integration tests validate end-to-end functionality
• Performance benchmarks ensure scalability

Alternatives Considered:

• Unit tests only: Rejected due to insufficient coverage
• Manual testing only: Rejected due to reliability concerns

Implementation Details:

• Jest framework for all test types
• Contract tests for Pacifica API integration
• Integration tests for multi-account coordination
• Performance benchmarks for latency and throughput
• Mock services for testing without live API calls

Technical Decisions Summary

Component	Decision	Rationale
API Integration	Official Pacifica API	Reliability and feature completeness
Architecture	Event-driven with centralized coordination	Scalability and maintainability
Strategies	Strategy pattern with configuration	Flexibility and extensibility
Risk Management	Multi-layered with real-time monitoring	Comprehensive protection
Storage	In-memory + encrypted local	Performance and security
Trading Pairs	BTC/USD and BTC/ETH	Liquidity and market coverage
Order Execution	Atomic pairs with fallbacks	Position neutrality and reliability
Performance	Connection pooling and batching	Latency and throughput optimization
Security	Local encryption and audit logging	Data protection and compliance
Testing	Comprehensive test suite	Quality assurance and reliability

Dependencies & Integration Points

External Dependencies

• Pacifica DEX API: REST API and WebSocket feeds
• Node.js crypto module: Private key management and encryption
• WebSocket library: Real-time data feeds
• HTTP client: API communication

Internal Dependencies

• EventEmitter: Inter-component communication
• Configuration system: Strategy and account management
• Logging system: Audit and debugging
• Validation system: Input sanitization and verification

Risk Assessment

Technical Risks

• API rate limiting: Mitigated by connection pooling and request batching
• Network connectivity: Mitigated by retry logic and fallback mechanisms
• Order execution failures: Mitigated by atomic execution and monitoring
• Private key security: Mitigated by local encryption and secure storage

Business Risks

• Regulatory compliance: Mitigated by audit logging and position neutrality
• Market volatility: Mitigated by risk management and position limits
• Account liquidation: Mitigated by margin monitoring and auto-reduction
• Volume detection: Mitigated by natural timing and volume distribution

Success Criteria

Performance Metrics

• Order execution latency: <100ms
• Account coordination accuracy: 100% position neutrality
• System uptime: >99.9%
• Throughput: 1000+ orders/hour across 20 accounts

Quality Metrics

• Test coverage: >90%
• API integration reliability: >99.5%
• Risk management effectiveness: Zero liquidation events
• Audit trail completeness: 100% of trading activities logged

Next Steps

1. Phase 1: Design data models and API contracts
2. Phase 2: Generate implementation tasks
3. Phase 3: Implement core components
4. Phase 4: Integration testing and validation
5. Phase 5: Performance optimization and deployment