Sense Finance x Rari Capital
Sense Partners with Rari to improve price discovery of PTs & YTs
2022.03.10 Edit: Zeros & Claims rebranded to Principal Tokens (PTs) & Yield Tokens (YTs) https://bit.ly/3t2EcJ2
Following the recent announcement of Sense, we’re proud to announce our partnership with Rari Capital. With technical guidance from the Rari team, we’re building a permissive onboarding factory atop Fuse to permit PT & YT borrowing/lending upon launch of the Sense Protocol. Integration with a lending facility allows users to create unique borrowing & lending positions with their assets, and contribute to improved price discovery in Sense’s interest rate markets.
This post gives a refresher on Sense, introduces the integration, and describes its downstream effects. Let’s dive in.
A primer on PTs & YTs
The Sense Protocol will allow users to hedge interest rate volatility and trade future yields on existing yield-bearing assets.
To do this, Sense enables users to decompose yield-bearing assets into their principal and yield components and package them behind two fixed-term maturing assets, a PT, and a YT. At their maturity, the principal is returned to the PT holders, whereas the YT holders collect any yield accrued on the principal. In essence, the PT holders are “lending” their principal to YT holders to invest in the yield-generating activity that the yield-bearing asset represents. In turn, YT holders pay a fixed interest rate upfront as a fee for the “loan” — in practice, this fixed interest rate is “paid” to PT holders through a discount on the PT market price.
From the Sense Protocol Litepaper, the following use cases exist:
- Fixed-rate lending — Buying PTs and holding until maturity
- Future yield trading — Buying PTs/YTs to short/long its implied rate
The result is a simple yet powerful enhancement to yield-bearing assets. It allows two parties to exchange interest rate risk with the convenience of purchasing PTs & YTs from the free market.
To some, purchasing PTs & YTs is just the first step towards a more flexible capital management strategy. They’ll naturally want to use PTs & YTs as money legos in other parts of DeFi via lending/borrowing or utilizing them as collateral.
Putting PTs & YTs to production
Leveraging the permissive infrastructure of Fuse, the Sense Protocol will directly own a public Fuse pool for the borrowing/lending of all PTs, YTs, and their associated yield-bearing assets.
The Sense’s Pool unlocks the following use cases:
- Borrow PTs & YTs to short their implied rates
- Earn extra yield by lending PTs and YTs
- Amplify exposure with PT and YT collateral
Leaning into Sense’s permissive design philosophy, the Sense Pool automatically onboards new PTs and YTs upon series initialization.
The Sense Pool consolidates all markets in a single pool, so users can borrow one PT/YT against another PT/YT of a different yield-bearing asset, thereby generating a novel risk-return profile. As a result, they can leverage Fuse’s markets to profit from market inefficiencies or open complex hedges against unique exposures.
The downstream effects of permissive borrowing/lending are massive. Users can express their views on rates more precisely, and their actions directly contribute to superior price discovery and efficiency across the Sense ecosystem. Moreover, the passive participant can opt to lend and earn extra yield. It’s a win-win for everyone.
As Sense Protocol and the integration go through multiple audits ahead of launch, we see a significant opportunity for users to become more familiar with Sense’s features and supercharge their yield positions. Borrowing and lending PTs & YTs is only just the beginning.
Over the coming weeks, we’ll be releasing new versions of the Sense Portal, announcing new features of the protocol, and inviting community members to join our upcoming private testnet. If you’re interested in joining the beta, please fill out this form.
If you are a part of the Rari or Sense communities and are interested in building atop this integration, please reach out on our social media channels below!
About Rari Capital
Rari Capital is a fully decentralized finance protocol that enables users to earn yield on their tokens. The Fuse protocol is a fully permissionless lending/borrowing system that allows anyone to create their own custom environments to earn and expand further on their crypto holdings.
Learn more about Rari Capital here: https://rari.capital
About Sense Finance
Sense Finance is an open-source software development company, building tools, products, and infrastructure for the DeFi ecosystem. It’s building the Sense Protocol, a decentralized fixed-income protocol on Ethereum.
Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. This post reflects the current opinions of the authors and is not made on behalf of Sense Finance or its affiliates and does not necessarily reflect the opinions of Sense Finance, its affiliates or individuals associated with Sense Finance. The opinions reflected herein are subject to change without being updated.