# Core Concepts

#### Standardized Yield (SY) Tokens

SY tokens are standardized wrappers for yield-bearing assets. They provide a uniform interface for different yield-bearing tokens, making them compatible with the Echelon AMM.

**Key Properties:**

* SY maintains a 1:1 relationship with the underlying asset
* SY can be redeemed for the underlying asset at any time

**Example:** If you deposit 1,000 sUSDe, you receive 1,000 SY-sUSDe.

#### Principal Tokens (PT)

Principal Tokens represent the principal component of SY tokens. They can be redeemed 1:1 for SY tokens at maturity.

**Key Properties:**

* PT tokens have a fixed expiry date
* At expiry, 1 PT = 1 SY
* Before expiry, PT trades at a discount to SY (the discount represents the yield)
* PT holders lock in a fixed yield rate when they purchase PT

**Use Case:** Users who want to lock in a fixed yield rate can buy PT tokens. The implied APY is determined by the market price of PT relative to SY.

#### Yield Tokens (YT)

Yield Tokens represent the yield component of SY tokens. They accrue all yield generated by the underlying asset until maturity.

**Key Properties:**

* YT tokens have the same expiry date as their corresponding PT tokens
* YT holders receive all yield generated by the underlying SY tokens
* YT can be redeemed for accrued yield at any time
* At expiry, YT becomes worthless (all yield has been distributed)

**Use Case:** Users who want to maximize their yield exposure can buy YT tokens. This is a leveraged position on yield.

### Token Relationship

The relationship between SY, PT, and YT is:

```
SY = PT + YT
```

This means:

* When you deposit SY, you can split it into PT + YT
* When you hold PT + YT, you can combine them to redeem for SY
* The value of PT + YT always equals the value of SY

### Market AMM

Echelon uses a custom AMM (Automated Market Maker) to facilitate trading between PT and SY tokens. The AMM uses a logarithmic pricing model that has:

* **Dynamic Fees:** Adjusts swap fees based on how far the implied interest rate deviates from the anchor rate
* **Capital Efficiency:** Optimizes liquidity utilization through a scalar-based pricing model
* **Price Discovery:** Enables efficient price discovery for future yield rates

#### Key AMM Parameters

* **Scalar Root:** Controls the trade-off between capital efficiency and tradable interest rate range
* **Initial Anchor:** The reference implied rate used as a benchmark for fee calculations
* **Fee Rate:** Dynamic fee that increases as the market rate diverges from the anchor

### Liquidity Provision

Users can provide liquidity to Echelon markets by depositing both PT and SY tokens. In return, they receive LP (Liquidity Provider) tokens.

**Benefits:**

* Earn trading fees from swaps
* Participate in yield farming programs
* Maintain exposure to both PT and SY

### Yield Accrual

YT tokens accrue yield continuously. The yield accrual mechanism:

* Tracks yield using a PY (Principal + Yield) index
* The index increases over time as yield is generated
* YT holders can claim accrued yield at any time
* Yield is distributed proportionally to YT holders

### Market Expiry

When a market expires:

* PT tokens can be redeemed 1:1 for SY tokens
* YT tokens become worthless (all yield has been distributed)
* The market can no longer accept new trades
* Liquidity providers can withdraw their positions