Leveraged Yield Trading

Leveraged Yield Trading = Margin YT Trading

RateX offers YT/ST trading pairs. When traders expect the implied yield to rise in the future, they swap ST for YT. Conversely, if they anticipate a decline in the implied yield, they swap YT for ST. Within RateX’s leveraged trading framework, traders only need to provide margin, borrowing ST or YT from the protocol and swapping them in the AMM pool to achieve leveraged long or short YT positions.

Example:

Under the JitoSOL-2512 contract, assume the price of YT-JitoSOL-2512 is 0.1 ST, equivalent to 0.1 SOL:

Long Yield: A trader selects a leverage multiplier, such as 10x. The trader deposits 1 SOL as margin, and the protocol mints and lends 10 ST to the trader. The trader then swaps the 10 ST in the AMM for 100 YT, achieving a leveraged YT position by depositing 1 SOL to acquire 100 YT.

Trader's Long Position = Asset + Liability + Margin = 100YT+ (-10ST)+ 1 SOL

Short Yield: A trader selects a leverage multiplier, such as 10x. The trader deposits 1 SOL as margin, and the protocol mints and lends 100 YT to the trader. The trader then swaps the 100 YT in the AMM for 10 ST, achieving a leveraged short YT position by depositing 1 SOL to short 100 YT.

Trader's Short Position = Asset + Liability + Margin = 10ST+ (-100YT)+ 1 SOL

Price Cage Mechanism

The value of YT is typically quite low and approaches zero as it nears expiration. Close to maturity, YT prices can be manipulated in margin trading. To mitigate this, Ratex imposes a Ceiling and Floor Price for YT in margin trading, set at ±10% of the 24-hour TWAP price. The YT price cannot breach this range until the TWAP updates.