Nov 3, 2021
Timeswap Native Tokens
A deep dive into Timeswap’s native tokens and their significance
Timeswap relies on accurate accounting to keep the protocol in a healthy state. Part of this accounting is our suite of native tokens that act as receipts for every action conducted on Timeswap.
There are six tokens native to Timeswap pools: Bond (both principal and interest), Insurance (both principal and interest), and Liquidity tokens which are ERC-20 tokens, and the Collateralized Debt Token, which is an ERC-721 token, an NFT. This article will explain the utility of each of these four tokens and how they help us manage the protocol.
Before we do a deep dive into each native token, let’s have a look at the different pools in Timeswap’s liquidity pool & how the users interact with these pools.
X= Principal Pool is a virtual pool equal to the amount of assets in the pool that can be borrowed. It’s equal to the sum of the assets deposited by the lenders.
Y=Interest Rate Pool is a virtual pool that determines the interest amount per second of the pool.
Z= Collateral Factor Pool is a virtual pool that determines the collateral to be locked by the borrowers.
C=Collateral Pool and is equal to the amount of ERC-20 collateral tokens locked in the pool by borrowers.
A=Asset Pool and is equal to the amount of ERC-20 asset tokens locked in the pool. It is the sum of assets lent by lenders & the debt paid by the borrowers.
Bond Principal Token (BPT)
A Bond principal token is issued to lenders who deposit assets into the Principal pool.
BPTs are ERC-20 tokens issued to the lenders as a receipt for depositing their assets into the principal pool.
Bond tokens account for the principal owed after maturity to the lenders. After maturity of the pool, BPT can be redeemed for the exact amount of underlying asset in the Asset pool (as long as there is a sufficient amount of the underlying asset present in the pool). There is no need to maintain centralized accounting with this system, and lenders benefit from a trustless setup.
For example, consider a user who owns 30 Bond principal tokens of a DAI-WETH pool expiring on 30–12–2021. Assuming that there are sufficient assets in the principal pool after maturity, the user can swap his tokens for 30 DAI after 30–12–2021.
The name of the BPT adheres to the following convention:
TS-BND-PRI-Symbol of asset-Symbol of collateral-Maturity Time(in Unix time)
Bond Interest Token (BIT)
A Bond interest token is issued to lenders to account for the interest receivable for redeeming BIT.
To make sure that lenders have a unit of account for the interest receivable by them and to liberate the yield on their assets from the principal amount itself, BITs are issued. The owner of these BITs can then burn these tokens after the maturity of the pool to receive the interest due according to how many BITs they hold.
For example, suppose a user holds 20 BITs with a claim on a DAI-WETH pool expiring on 30–12–2021. After the maturity of the pool, the user can exercise their right to claim 20 DAI from the pool as interest payable to them.
The name of the BIT adheres to the following convention:
TS-BND-INT-Symbol of asset-Symbol of collateral-Maturity Time(in Unix time)
Insurance Principal Token (IPT)
An Insurance principal token is issued to lenders to hedge against the default risk of borrowers.
To protect lenders against defaulting borrowers, ERC-20 IPTs are issued in their favour as a receipt for availing of the insurance coverage mechanism in the protocol.
If for some reason, the BPTs fail to retrieve the equivalent amount lent out to the pool, the IPTs issued will make up for this by allowing the lender to claim insurance coverage on the collateral defaulted by the borrowers, equivalent to the shortfall not covered by BPT redemption. This way, lenders are safeguarded against any default risk.
For example, suppose a user owns 1 WETH insurance coverage of a DAI-WETH pool expiring on 30–12–2021. Supposedly, the user was not able to realise 10% of his bond principal token claim; this means the lender can now claim 0.1 WETH collateral.
The name of the IPT adheres to the following convention:
TS-INS-PRI-Symbol of asset-Symbol of collateral-Maturity Time (in Unix time)
Insurance Interest Token (IIT)
An Insurance interest token is issued to lenders to hedge against the default risk of borrowers.
To protect lenders against defaulting borrowers, ERC-20 IITs are issued in their favour as a receipt for availing of the insurance coverage mechanism in the protocol.
If for some reason, the BITs fail to retrieve the equivalent amount lent out to the pool, the IITs issued will make up for this by allowing the lender to claim insurance coverage on the collateral defaulted by the borrowers, equivalent to the shortfall not covered by BIT redemption. This way, lenders are safeguarded against any default risk.
For example, suppose a user owns 1 WETH insurance coverage of a DAI-WETH pool expiring on 30–12–2021. Supposedly, the user was not able to realise 10% of his bond interest token claim; this means the lender can now claim 0.1 WETH collateral.
The name of the IIT adheres to the following convention:
TS-INS-INT-Symbol of asset-Symbol of collateral-Maturity Time (in Unix time)
P.S. As a lender, you have the flexibility to decide your own risk/reward profile by adjusting your Bond/Insurance token ratio on the Timeswap UI. The more bond tokens you avail(higher APR), the lower your insurance tokens(hedge) will be and vice versa.
Collateralized Debt Token (CDT)
A Collateralized Debt Token is issued to borrowers who deposit collateral and borrow assets from the pool.
Issued to borrowers, this CDT is an ERC-721 token, which is the standard format for NFTs. Every time someone borrows an asset, they are issued a CDT as a receipt for the debt they owe.
The CDT is also a redeemable token. The borrower has to pay back the debt before maturity to withdraw the collateral locked. If the borrower fails to pay the debt, the collateral is forfeited and distributed to the lenders.
For example, there is a user who owns a Collateralized Debt token of a DAI-WETH pool expiring on 12–30–2021 with 0.2 WETH locked as collateral against a debt of 300 DAI. If the user repays 300 DAI debt before 12–30–2021, the user can burn their collateralized debt tokens to withdraw the 0.2 WETH locked as collateral.
A nifty feature of being an NFT is that the CDT can be viewed on OpenSea, and we have a handy link in the Dashboard section of the site to do exactly that. Since it’s an NFT, you can trade it as well. We recommend that you do check it out; it is art in its own right.
The name of the CDT adheres to the following convention:
TS-CDT-Symbol of asset-Symbol of collateral-Maturity Time (in Unix time)
Liquidity Token (LT)
A Liquidity token is issued to the liquidity providers of the pool who add both assets & collateral.
Liquidity providers receive ERC-20 LTs as proof of their asset & collateral deposits into the pool. After maturity, these LTs provide a proportional claim over all the assets in the Principal pool & Collateral locked pool after the settlement process for lenders is accounted for.
This token functions similar to LP tokens anywhere else in DeFi, with LPs being able to withdraw their liquidity after the pool has matured. LPs, in return receive the transaction fees being paid by the lenders & borrowers.
For example, there is a DAI-WETH pool expiring on 30–12–2021 and a user has 10% of all the LTs from the pool. After accounting for all transactions and settlements, the pool is left with 1000 DAI and 2 ETH. The user will then receive 100 DAI and 0.2 ETH from the pool.
The name of the LT adheres to the following convention:
TS-LIQ-Symbol of asset-Symbol of collateral-Maturity Time (in Unix time)
Significance of Timeswap Native Tokens
Lender: As a lender, you’re allowed to claim your assets only after the maturity of the pool. However, as a lender, if you want to exit your position before maturity, you can freely sell your positions in secondary markets and exit your position since all of the tokens received by lenders are ERC-20s. Alternatively, lenders can choose to partially exit tokens to better manage their yield.
Borrower: As a borrower, the CDT being an NFT allows you to down-sell your loan to a secondary party on Opensea. This allows one to create a secondary market for the loans as well.
Liquidity Provider: As the LT tokens are also ERC-20s, LPs can down-sell their position in the secondary market and exit their position before the maturity of the pool, thereby allowing deeper liquidity for the pools and free movement of capital in and out of the pools.
If you went through all of the above, you have completed a crash course in understanding the role native tokens play on Timeswap; congratulations! If you still have further questions, hop on to our Discord. We have a community that loves to learn together and help out every Time Traveler!
