Liquidity — Capture Trading Fees

Exponent Liquidity Vaults

Liquidity enables anyone to capture trading fees from Exponent yield markets and amplify yield sources like lending through Liquidity Vaults.

Exponent’s Liquidity Vaults maintain some exposure to the underlying yield of their market (e.g. the lending yield of marginfi USDC) while providing market-making liquidity for Exponent’s volatile and fixed yield markets, generating additional yield through trading fees.

Since Income Tokens and yield shares have an intrinsic time factor in their value and don’t behave like traditional volatile assets (e.g. SOL), providing liquidity for them in a classic AMM would encounter many inefficiencies such as significant impermanent loss at maturity. Exponent has built a novel Time-Dynamic AMM optimized for these duration assets with maturities. This AMM is sensitive to assets with maturities, dynamically concentrating liquidity as assets approach maturity for optimal price execution.

To offer an optimal experience for both traders and liquidity providers, Exponent’s AMM pools have been designed with:

• minimal price divergence,

• principal investment protection,

• and no time-dependent impermanent loss typically associated with assets with maturities.

Thus, when supplying liquidity, an AMM pool consists of both Liquid Yield Tokens (e.g. kUSDC, tokenized USDC deposits in Kamino ) and Income Tokens (e.g. kUSDC-26JAN25). Both tokens grow in value over time while their price divergence remains relatively stable prior to maturity due to their shared underlying asset and high price correlation. This design helps liquidity providers avoid significant impermanent loss from price divergence.

Additionally, to ensure optimal liquidity concentration of the assets in the pool, Exponent’s AMM features a time-dynamic liquidity curve, concentrating liquidity around the expected yield range of a specific market as assets approach maturity while accounting for yield accrued over time. This approach offers passive liquidity provision, sparing providers from manually adjusting their positions and enhancing capital efficiency for yield trading to capture the most fees — since the AMM’s time-sensitive component handles this.

Boosted Yields

The composition of Liquidity Vaults gives liquidity providers exposure to a single asset price, while capturing multiple types of yield: from underlying yield, to fixed yield, and trading fees.

This bundle of yields often offers a superior yield compared to the underlying source alone, enabling users to amplify their exposure to yield sources. For example, providing liquidity for marginfi USDC markets would typically yield more than simply lending USDC on marginfi, as providers supply assets to the underlying protocol while reusing this capital within the liquidity pool, which earns trading fees.

Beyond powering Exponent yield markets, Liquidity Vaults also serve as issuance points for yield market assets, using the liquidity from providers to mint Income Tokens and yield shares and compose the AMM pools.