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Applied Income Tokens: Can You Earn Regardless of the Market?

Anon, I know, I feel you.

The markets are boring, BTC has been sideways for a few months...

And you want to earn yield on your assets and don't know what to do in such a low yield environment.

Let me show you how @Timeless_Fi can help you earn regardless of the market πŸ§΅πŸ‘‡

Savvy investors who manage their risk (instead of yoloing πŸ’©coins), have a preference for fixed income products.


- Diversify risk - Collect regular interest payments

DAOs, however, don't currently have an easy way to access such instruments

There are already a few products in the market that resemble zero-coupon bonds and vaulted structure products... so how could an ERC20-based product improve time-based vaults offering? πŸ€”πŸ‘‡

A few reasons:

1. Time-based vaults cause liquidity fragmentation across different vaults and protocols 2. Time forces hedging around unlock periods 3. Most tokens are incompatible and cannot be integrated to other protocols (ePTokens in Element, PT in APWine, OT in Pendle...)

Welcome to @Timeless_Fi perpetual yield tokens

There are 3 kinds:

- PYT tokens -> guarantee a perpetual and unlimited claim on the yield of the underlying token - NYT tokens -> guarantee the inverse of the value of the PYT. - xPYT -> Autocompounded PYT

In other words,

- NYTs appreciate when rates go down - PYTs appreciate when rates go up

Which basically means that:

- you can short yield rates selling NYTs - you can long yield rates buying PYTs

As you can see, @Timeless_Fi ERC20 tokens improve liquidity and protocol composability by allowing users to:

- Hedge against yield reductions - Boost yield rates upon expected increases

For example, how do you hedge a borrowing/lending position?

- If lending -> buy NYTs to hedge against a drop in lending rate - If borrowing ->buy PYTs to hedge against an increase in borrowing rates

What about earning yield with leverage? - Just buy PYT tokens to leverage up on the amount of principal you are already earning yield on

What's the price you are paying for assuming that risk? - Exposure to price fluctuations in PYTs

What about liquidity?

- @Timeless_Fi AMM is optimized for trading PYTs and NYTs - LPs keep earning yield from their PYTs - Arbitrage opportunities minimize the losses of LPs

Ok, so how does it work? - Just deposit a yield-bearing asset in the protocol and, in exchange, you will receive two tokens in return, each of which will represent a PYT and a NYT.

So you bought, but now what? - The value of both of these tokens will change, but their sum is always guaranteed to be 1.

- PYT tokens must always be worth more than NYT. (price PYT > 0.5)

As yield rates fluctuate on-chain, so will the prices of PYT and NYT.

Traders can choose to either buy or sell one or the other, effectively taking either a long o a short position on yield rates.

Ok, but why should PYT be priced higher than NYTs? - PYT generates yield an returns cash flow to its holders - NYT gives nothing to holders.

Let's take a look at a practical example using a USDC vault.

- USDC-PYT will be worth between 0.5 and 1 - USDC-NYT will be worth between 0 and 0.5

- PYT will start earning yield, which makes it less volatile and sensitive to yield rate changes.

- NYT will absorb rate changes volatility, which makes it more capital efficient for going short rates.

Said differently, why would you PYT?

- The downside risk of holding PYT is bounded. Worst case is PYT goes to 0.5 and, as PYT earns yields, the downside risk decreases until eventually it is zero (since you will be in profit regardless of profit and earn yield in perpetuity)

Let me show you:

-Price of PYT = 0.55 - Yield = 1% a day ------------------------ Your risk becomes zero after 5 days 12 hours, after which you would earn ~ 1.8 yield forever (1/0.55)

What if the price is 1? Well, in that case it makes no sense to buy PYT

- You could just earn higher yield in whatever vault @Timeless_Fi is using to earn that yield - By buying PYT at 1 you only have exposure to the downside

- Similarly, if you see NYT at 0, buy them all because you have free money

And there is a lot more coming soon!

Convex for Uniswap? πŸ€”

What do you say? @boredGenius

Timeless Finance on TwitterTimeless Finance on Twitter
This post is based on this twitter thread.


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