How It Works

Step by Step:

Step 1: Deposit Your Asset → Get SY

You deposit in your yield-bearing token (say 1000 sUSDe). Echelon wraps it into SY-sUSDe under the hood.

At this point, nothing has changed. 1000 sUSDe = 1000 SY-sUSDe.

Step 2: The Split → PT + YT

You can split your SY into PT + YT:

• PT (Principal Token): At expiry, 1 PT = 1 SY, guaranteed.

• YT (Yield Token): Gets all yield until expiry.

The key: PT + YT equals SY. This relationship is enforced by the protocol.

Step 3: Trade on the Market

Now you have options:

Option A: Sell PT, Keep YT

• You get cash now (by selling PT)

• You keep all the yield (YT)

Option B: Keep PT, Sell YT

• You lock in a fixed yield rate (by holding PT)

• You get cash now (by selling YT)

• At expiry, PT becomes SY and you're done

Option C: Sell Both

• You get cash for both PT and YT

• You're completely out of the position

• No yield, no principal claim

Option D: Buy More

• Want more yield exposure? Buy YT

• Want to lock in more fixed yield? Buy PT

• Mix and match as you see fit

The Market:

Echelon markets are where PT and SY trade. The price of PT relative to SY determines the implied APY - the yield rate that PT buyers are locking in.

Example:

• 1 SY = $100

• 1 PT = $105 (for a 1-year expiry)

• Implied APY ≈ 5% (you're paying $100 to get $105 in a year)

The market is an AMM (Automated Market Maker) that:

• Uses a logarithmic pricing curve

• Adjusts fees based on how far rates deviate from "normal"

• Provides liquidity so you can always trade

Market Expiry

Every market has an expiry date. When that date hits:

• PT holders: Redeem 1 PT → 1 SY. Your fixed yield is realized.

• YT holders: YT becomes worthless (all yield has been distributed).

• Market closes: Trading is disabled

The closer you get to expiry, the closer PT price gets to SY price (because there's less time for yield to accrue).

Yield Accrual: How YT Gets Paid

YT tokens accrue yield continuously. The protocol tracks this with a PY index that increases over time.

How it works:

1. Underlying asset generates yield

2. PY index increases

3. YT holders can claim their share of the yield

4. Yield is distributed proportionally

You can claim yield anytime before expiry. No need to wait.

Liquidity: The Market Makers

Liquidity providers add PT + SY to markets and get LP tokens in return. They earn:

• Trading fees from every swap

• Farming rewards if they stake their LP tokens

The more liquidity, the better the trading experience (less slippage, tighter spreads).

Putting It All Together

Here's a complete flow:

1. Alice deposits 1000 sUSDe → Gets 1000 SY-sUSDe

2. Alice splits SY → Gets 1000 PT + 1000 YT (example split)

3. Alice sells PT → Gets ~950 SY worth of value (example)

4. Alice holds YT → Collects all yield from the 1000 sUSDe

5. At expiry → Alice's YT is worthless (yield distributed), but she already sold PT for cash

Result: Alice got cash upfront (from selling PT) + all the yield (from YT). She effectively leveraged her position.

Or:

1. Bob buys 1000 PT for 950 SY

2. Bob holds PT until expiry

3. At expiry → Bob redeems 1000 PT → 1000 SY

Result: Bob locked in a ~5% APY (paid 950, got 1000 in a year).