YieldSpaceTV — our next generation AMM, is live!
We are excited to launch the next generation of our YieldSpace automated market maker (AMM), which we call YieldSpaceTV. This new version of our AMM is designed to improve the capital efficiency of liquidity provider (LP) positions by placing assets into money market protocols when they are not being used.
We are introducing this new market starting with our new December maturity series on mainnet and Arbitrum. All mainnet liquidity providers from our June maturity series have be rolled over to December automatically, with no user intervention necessary! For Arbitrum liquidity providers, we have launched new liquidity strategies and will have to distribute tokens to affected users. We are looking to complete this within the next two weeks.
Read below to understand the full motivations for this upgrade and why it’s a game-changer in the fixed-rate markets.
YieldSpace Background
YieldSpace AMMs were designed for trading of fyTokens, which are ERC-20 tokens that are analogous to zero-coupon bonds and are redeemable for an underlying asset on a specific future date. YieldSpace utilizes a “constant power sum invariant,” which incorporates time to maturity into pricing and permits users to trade based on interest rate — rather than price.
fyTokens, which power Yield Protocol’s borrowing and lending, are fungible and trade at a floating price, which means the interest rates of the underlying assets are determined by the market.
Versions 1 and 2 of YieldSpace were audited and used in production in Yield Protocol since 2021 with no issues. Many other fixed-rate protocols in DeFi use a variation of YieldSpace, such as Element Finance, Sense Finance, and more.
The original whitepaper explaining the YieldSpace AMM design can be found here.
YieldSpaceTV
After successful development and use of YieldSpace for over a year, Yield Protocol started to research and design YieldSpaceTV, with the principal goal of increasing capital efficiency, thus increasing returns for liquidity providers. The “TV” in YieldSpaceTV stands for tokenized vaults.
The principal problem for LPs in the original YieldSpace AMM is the lack of capital efficiency as most of the capital sits stagnant. YieldSpaceTV was designed to allow the base asset in the market to be used in a money market protocol (Aave, Compound, Euler) or a yield-bearing source (Yearn Vaults) to earn yield, and to be withdrawn on demand to facilitate a trade, therefore maximizing returns for liquidity providers (“LPs”). This allows for fixed-rate protocols to gain more liquidity from users, professional market makers, and potentially institutions due to increased returns. The original research for the design is documented here.
YieldSpaceTV also includes a native interest rate oracle based on the Uniswap V2 TWAP oracle design. This interest rate oracle provides a time-weighted average interest rate that can be used by other protocols or users.
YieldSpaceTV has been in research and development since the latter part of 2021. Building it is the culmination of work of several engineers over years. It has been audited by ABDK Consulting.
December Maturity Series
With the launch of the new December maturity series for USDC, DAI, Frax, and ETH, users are “automatically upgraded” from YieldSpace to YieldSpaceTV. We’re partnering with Euler Finance to deploy YieldSpaceTV base assets in their money markets to earn additional yield for LPs. No user intervention is necessary.
Call for Collaboration
We believe the research and engineering we’ve put into YieldSpaceTV can be a great common building block for other DeFi protocols working on fixed-rate markets. For example, we’ve put in a proposal to Element Finance for their next generation AMM work. The main benefits of collaboration between protocols are:
Time-to-Market — YieldSpaceTV is audited and in production, and an integration with your existing codebase could mean saving a lot of time instead of building your own version and going through an audit. Liquidity providers will gain the immediate benefit of improved capital efficiency.
Interoperability and Composability — Adopting a common “backend” for trading of fixed yield tokens will increase interoperability and composability with each other and additional third-party protocols that want to integrate. A common use case would be fixed yield tokens as collateral on other lending platforms. This is the ethos of the DeFi ecosystem — allowing financial protocols to be built on top of each other like money legos. As DeFi is currently dominated by variable rate protocols, fixed-rate protocols working together can “increase the size of the pie” and potentially attract more liquidity to the space.
We are committed to building open source software, and collaborating with the ecosystem to create a better financial future for everyone.
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