# 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 --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.echelon.market/echelon/fixed-yield/core-concepts.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.