RateX AMM
RateX AMM: Optimized for Yield Trading
RateX's Automated Market Maker (AMM) is a custom-designed solution specifically tailored to the unique characteristics of yield trading. It leverages two key mechanisms - concentrated liquidity and a time-decay mechanism - to enhance capital efficiency for Liquidity Providers (LPs) and reflect the changing value of Yield Tokens (YTs).
Concentrated Liquidity for Enhanced Capital Efficiency
The RateX AMM builds upon the foundation of the constant product formula (x * y = k) and utilizes a similar concentrated liquidity approach as Uniswap V3. This approach empowers LPs to:
Maximize Returns: Focus their capital within specific yield ranges corresponding to anticipated areas of high trading activity, potentially boosting their profitability.
Flexible Risk Management: Choose price ranges that align with their risk tolerance. By concentrating liquidity within narrower ranges, LPs can earn a higher share of trading fees generated within those ranges, but also expose themselves to greater price fluctuations.
This flexibility allows LPs to participate in the yield token ecosystem more strategically and efficiently.
Time-Decay Mechanism
Yield Tokens represent the right to a portion of future yield generated by the underlying asset. However, their intrinsic value gradually decreases over time within a yield settlement period. To reflect this change, the RateX AMM incorporates a unique time-decay mechanism.
Here's how it works:
Actual Yield Confirmation: After a yield settlement period concludes, the actual Annual Percentage Yield (APY) of the underlying asset is determined.
Automatic Adjustment: The AMM automatically adjusts the quantities of STs and YTs within the pool to reflect the decreased intrinsic value of YTs due to the passage of time. Importantly, this adjustment ensures that the implied yield of YTs remains consistent with the closing yield of the last yield settlement period.
The adjusted STs are then removed to the Reserve Vault of each LP, effectively returning excess capital that reflects the decreased value of their YTs.
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