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:
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
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