# Exponent Documentation Source: https://docs.exponent.finance/index

Exponent Docs

Use or build on Solana's leading interest-rate infrastructure to access fixed rates, trade interest rate derivatives, and integrate yield markets and strategies into your product.

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New to Exponent? Start with our user docs covering Exponent's products and concepts. Learn how to integrate or interact with the Exponent protocol and its programs. Exponent's audits, bug bounty, deployed programs, and security practices.
# Audits & Bug Bounty Source: https://docs.exponent.finance/user-documentation/audits-bug-bounty *** Exponent regularly allocates time and resources to third-party security audits to mitigate risks associated with smart contracts. Each major release or update is audited by at least two independent security firms. | Auditor | Scope | Completed | | ------------ | --------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | | Certora | exponent\_vault | Pending | | Sec3 | exponent\_tranching | [June 2026](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_tranching_report_june_sec3.pdf) | | Accretion | exponent\_tranching | [May 2026](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_tranching_audit_may_accretion.pdf) | | Adevar Labs | exponent\_vault - extension | [May 2026](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_vaults_audit_extension_adevar.pdf) | | OtterSec | exponent\_vault | [May 2026](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_vaults_audit_may_ottersec.pdf) | | Adevar Labs | exponent\_vault | [Apr 2026](https://github.com/exponent-finance/exponent-audits/blob/main/ExponentVaults_Audit_adevar.pdf) | | Sec3 | exponent\_clmm | [Apr 2026](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_clmm_report_sec3.pdf) | | Sec3 | exponent\_orderbook | [Jan 2026](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_orderbook_report_sec3.pdf) | | OtterSec | exponent\_clmm | [Jan 2026](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_clmm_audit_january_ottersec.pdf) | | Sec3 | exponent\_core | [Nov 2025](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_core_simplified_sec3.pdf) | | Offside Labs | exponent\_clmm | [Nov 2025](https://github.com/exponent-finance/exponent-audits/blob/main/Exponent_CLMM_Nov_2025_OffsideLabs.pdf) | | OtterSec | exponent\_orderbook | [Aug 2025](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_orderbook_audit_august_ottersec.pdf) | | Offside Labs | exponent\_orderbook | [Jul 2025](https://github.com/exponent-finance/exponent-audits/blob/main/Exponent_Orderbook_Aug_2025_OffsideLabs.pdf) | | Certora | exponent\_core | [Jun 2025](https://github.com/exponent-finance/exponent-audits/blob/main/Exponent_Core_Certora_Audit_June_2025.pdf) | | OtterSec | generic\_standard | [Mar 2025](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_generic_standard_audit_final.pdf) | | Offside Labs | generic\_standard | [Feb 2025](https://github.com/exponent-finance/exponent-audits/blob/main/Exponent-GenericStandard-Feb-2025-OffsideLabs.pdf) | | OtterSec | jito\_restaking\_standard | [Jan 2025](https://github.com/exponent-finance/exponent-audits/blob/add-jito-audits/jito_restaking_integration_ottersec_audit.pdf) | | Offside Labs | perena\_usd\*\_standard | [Jan 2025](https://github.com/exponent-finance/exponent-audits/blob/main/Exponent-PerenaStandard-Feb-2025-OffsideLabs.pdf) | | Offside Labs | jito\_restaking\_standard | [Dec 2024](https://github.com/exponent-finance/exponent-audits/blob/add-jito-audits/Exponent-JitoRestakingStandard-Dec-2024-OffsideLabs.pdf) | | Offside Labs | kamino\_lend\_standard | [Oct 2024](https://github.com/exponent-finance/exponent-audits/blob/main/Exponent-KaminoLendStandard-Oct-2024-OffsideLabs.pdf) | | Offside Labs | marginfi\_standard | [Oct 2024](https://github.com/exponent-finance/exponent-audits/blob/main/Exponent-marginfiStandard-Sep-2024-OffsideLabs.pdf) | | Offside Labs | exponent\_core | [Oct 2024](https://github.com/exponent-finance/exponent-audits/blob/main/Exponent-ExponentCore-Oct-2024-OffsideLabs.pdf) | | OtterSec | kamino\_lend\_standard | [Sep 2024](https://github.com/exponent-finance/exponent-audits/blob/main/kamino_lend_integration_ottersec_audit.pdf) | | OtterSec | marginfi\_standard | [Sep 2024](https://github.com/exponent-finance/exponent-audits/blob/main/marginifi_integration_ottersec_audit.pdf) | | OtterSec | exponent\_core | [Sep 2024](https://github.com/exponent-finance/exponent-audits/blob/main/exponent_core_admin_ottersec_audit.pdf) | *** ## Exponent Bug Bounty Program Exponent offers a bug bounty program with rewards of up to **\$300,000** for critical vulnerabilities. Our goal is to encourage security researchers to identify and responsibly disclose issues that could affect the security or integrity of the Exponent protocol and its users. We welcome submissions related to the core smart contracts, application logic, and integrations. If you believe you’ve discovered a vulnerability, please review the details below before submitting. ### Scope The bounty program covers the following areas: * Core **Exponent smart contracts** (PT/YT tokens, CLMM, market creation, strategy vault, etc.) * Economic mechanisms related to yield trading, swaps, liquidity provision * Backend infra and APIs that affect the safety or availability of the protocol * Frontend and app vulnerabilities with financial or user impact The primary focus is the **prevention of fund loss**, incorrect accounting, or protocol behavior that deviates from intended design. ### Rewards Bug bounty rewards depend on severity, impact, and reproducibility. Please see below for more details: | **Severity** | **Program** | **Application & Services** | | :----------- | ----------: | -------------------------: | | Critical | \$300,000 | \$50,000 | | High | \$100,000 | \$10,000 | | Medium | \$10,000 | \$5,000 | | Low | \$2,500 | \$500 | ### Out of Scope The following are excluded for bug bounty rewards: * Issues in third-party contracts or dependencies * Findings already disclosed in audits or public channels * UI/UX bugs without financial impact * Denial-of-service vectors fixable by upgrade and with no fund impact * Social engineering, phishing, or spam issues * Test contracts, scripts, and staging infra * Best practices, gas optimizations, or feature requests * SPL token compatibility edge cases without direct security impact * DNS or email intermittency and deliverability issues, including those caused by incorrect DKIM, SPF, or DMARC configurations ### Eligibility Requirements To qualify for a reward: * The vulnerability must be previously unknown and unreported. * You must not exploit the bug beyond what’s necessary to prove the finding. * No public disclosure before the fix is confirmed. **DO NOT POST** security issues on social media, discussion forums, or other public channels. * You must include sufficient detail to reproduce the issue (PoC, screenshots, logs, or clear steps). * You must not be a current or former team member, contractor, or auditor with access to the relevant code. * You must not reside in or be subject to OFAC-sanctioned jurisdictions. ### How to Submit * Send your report to: [**security@exponentlabs.xyz**](mailto:security@exponentlabs.xyz) * Please include: * Your contact details * Clear description of the vulnerability * Reproduction steps or PoC (code, screenshots, or logs) * You’ll receive an acknowledgment within **24-48h** * Eligible bounties are paid monthly in **USDC** on Solana # Brand Kit Source: https://docs.exponent.finance/user-documentation/brand-kit # Disclaimers Source: https://docs.exponent.finance/user-documentation/disclaimers **Last Updated: May 25, 2026** Exponent is a decentralized yield protocol that allows users to trade fixed and variable DeFi yields through smart contracts deployed on the Solana blockchain. It offers access to fixed-income DeFi products by splitting the yield of DeFi assets into fixed and variable components. This process enables users to secure predictable returns or speculate on variable yields. Exponent also includes additional product surfaces and infrastructure for onchain yield management, including interest-rate order books, concentrated liquidity markets, strategy vaults, and other tools for portfolio construction, hedging, and managed strategy access. These products may involve additional risks, including strategy risk, liquidity provider risk, pricing risk, governance risk, and risks arising from integrations with third-party protocols, assets, curators, managers, market makers, and external data sources. Exponent’s protocol involves risks, including but not limited to, losses from fluctuating token prices, smart contract failures, network issues, and slippage. Before using Exponent, you should review the protocol’s documentation to ensure you understand how Exponent works. Use of Exponent products may expose you to additional risks depending on the product surface used. For example, interest-rate markets may involve implied rate volatility, execution risk, liquidity risk, and maturity-related risks; liquidity provision may involve active market exposure, fee variability, and changes in asset composition over time; Strategy Vaults may involve curator, strategist, policy, governance, withdrawal, allocation, and underlying protocol risks; and any product relying on third-party protocols, external assets, or pricing inputs may be affected by failures, exploits, insolvencies, pricing errors, oracle issues, or other adverse events affecting those dependencies. Similar to how you access email protocols through multiple clients, Exponent can be accessed through a variety of web or mobile interfaces. Users are responsible for doing their own diligence on these interfaces to understand the fees, risks, and security measures they present. Where Strategy Vaults, curated strategies, or other managed products are made available, users remain solely responsible for evaluating the relevant manager, curator, vault configuration, policies, fee structure, supported protocols, withdrawal mechanics, and risk profile before depositing. Exponent does not guarantee the performance, profitability, safety, or suitability of any vault, strategy, curator, or third-party integration. **EXPONENT IS PROVIDED “AS IS,” AT YOUR OWN RISK, AND WITHOUT WARRANTIES OF ANY KIND.** **You assume all risks associated with using Exponent, and digital assets and decentralized systems generally, including but not limited to, that: (a) digital assets are highly volatile; (b) using digital assets is inherently risky due to both features of such assets and the potential unauthorized acts of third parties; (c) you may not have ready access to assets; and (d) you may lose some or all of your tokens or other assets. You agree that you will have no recourse against anyone else for any losses due to the use of Exponent. For example, these losses may arise from or relate to: (i) incorrect information; (ii) software or network failures; (iii) corrupted cryptocurrency wallet files; (iv) unauthorized access; (v) errors, mistakes, or inaccuracies; or (vi) third-party activities.** Such third-party activities, dependencies, or failures may include, without limitation, failures or adverse events involving external protocols, vault managers, curators, strategists, market makers, bridges, custodians, stablecoins, wrapped assets, token issuers, oracle providers, pricing providers, RPC providers, indexers, user interfaces, or other infrastructure and service providers that may interact with, support, or be used alongside Exponent. Although Exponent developed much of the initial code for Exponent, it does not provide, own, or control the protocol, which is run by smart contracts deployed on the Solana blockchain. No developer or entity involved in creating Exponent will be liable for any claims or damages associated with your use, inability to use, or interactions with other users of Exponent. This includes any direct, indirect, incidental, special, exemplary, punitive, or consequential damages, or losses of profits, digital assets, tokens, or anything else of value. To the extent Exponent surfaces vaults, markets, incentives, curator strategies, third-party opportunities, or other product configurations through an interface, such surfacing does not constitute a recommendation, endorsement, fiduciary relationship, investment advice, or representation that any such product, asset, market, vault, or strategy is appropriate, secure, or free of risk. By using Exponent, you acknowledge and accept all risks associated with decentralized finance, including potential losses of all deposited assets, yield fluctuations, software bugs, smart contract vulnerabilities, and security risks. Use of the protocol is entirely at your own risk, and any interaction with it will be without any warranties from Exponent. You further acknowledge and accept that Exponent v2 products may involve active portfolio management features, strategy execution, market-making activity, maturity handling, redemption flows, reward campaigns, and integrations with third-party systems, all of which may result in loss, delay, restricted access, inaccurate accounting, unfavorable execution, failed withdrawals, failed redemptions, reward ineligibility, or other unexpected outcomes. # Exponent 101 Source: https://docs.exponent.finance/user-documentation/exponent-101 *** Exponent is a leading yield platform on Solana, powered by a set of decentralized programs focused on serving onchain interest-rate assets and their participants. Built on a [yield-stripping](/user-documentation/yield-stripping-swap) model, it enables users to trade interest rates on their portfolio assets and actively manage their yield exposure. The platform is powered by a hybrid onchain liquidity engine, composed of an [interest-rate order book](/user-documentation/rate-order-book) and [concentrated liquidity market maker](/user-documentation/rate-clmm) (rCLMM) DEX, allowing it to support trading for a variety of yield assets and participants. For users who prefer a simpler approach to their portfolio construction, Exponent [Strategy Vaults](/user-documentation/strategy-vaults) provide passive access to Exponent's interest-rate swap strategies with vaults managed by professional asset managers and curators. ## Why Exponent? For a long time, DeFi was largely passive, offering yield products designed to minimize sophistication and active management: passive liquidity provision through constant product AMMs, passive lending and borrowing through pool-based credit protocols, passive staking returns, and more. As DeFi has matured, products have grown more complex and active management has become essential to generating returns with a proper risk-reward balance. With assets and onchain products becoming more sophisticated, yield participants need a platform with the tools to construct portfolios in DeFi and express their edge. Exponent is built to help market participants outperform market rates, while giving asset issuers the infrastructure to distribute their yield assets across a broader spectrum of yield participant profiles and needs. # Liquidity (Yield Trading) Source: https://docs.exponent.finance/user-documentation/liquidity *** Liquidity enables anyone to actively market-make Exponent’s interest-rate markets via liquidity pools and generate returns by capturing trading fees. Liquidity pools on Exponent use a **concentrated liquidity model (Rate CLMM)** purpose-built for interest rate assets. Liquidity providers select yield ranges to concentrate their capital, earning trading fees and yield from PT/YT swaps – similar to providing liquidity on Meteora DLMM or Uniswap v3, but optimized for yield assets with maturities. Unlike passive AMM pools, CLMM liquidity provision is **active** – providers choose where to deploy capital based on their view of where rates will trade. Learn more about the Rate CLMM mechanism [here](/user-documentation/rate-clmm). ## Open and Manage Positions 1. Visit the [Liquidity](https://app.exponent.finance/liquidity) page in the Exponent app. 2. Choose a yield market to provide liquidity for. 3. Select your **yield range** - the range of Implied APY rates you want to quote around. Tighter ranges earn more fees when rates trade within your range, but earn nothing when rates move outside it. 4. Choose your supply mode: * **Swap & Supply** - a portion of your deposit is swapped for PT on the market. Causes price impact. * **Mint & Supply** - your deposit mints PT directly with no price impact. YT is minted as a byproduct and sent to your wallet. 5. Enter the amount to deposit. 6. Review and execute. Monitor and adjust your position from the **Liquidity** page or your **Portfolio**. * **View active range** - see whether current rates are trading within your selected range * **View earned fees** - track and claim accumulated trading fees and yield * **Adjust range** - rebalance your position to a new yield range if rates have moved * **Add/reduce liquidity** - deposit more into your existing position or reduce your liquidity ## Risk Management Concentrated liquidity provision carries different risks than passive pools: * **Out-of-range risk** - if the Implied APY moves outside your selected range, your liquidity stops earning fees. You keep the position but earn nothing until rates return to your range or you rebalance. * **Impermanent loss** - because the pool pairs correlated assets (underlying + PT), IL is significantly lower than standard AMM pairs. At maturity, IL is effectively zero. Before maturity, IL depends on how much rates move relative to your range. * **Rebalancing costs** - adjusting your range incurs transaction fees and potential price impact. Frequent rebalancing can erode returns. * **Smart contract risk** - applies to Exponent's CLMM program and the underlying protocol. Mitigated by multiple independent audits. * **Liquidity risk** - thin markets may make it harder to exit large positions before maturity without slippage. ## Understanding Returns Liquidity providers returns on the Exponent Rate CLMM come from several sources: | Source | Description | | -------------- | --------------------------------------------------------------------------------------- | | Trading fees | Your share of fees from every PT/YT swap that executes within your range | | PT fixed yield | The PT component in your position accrues toward par at maturity | | Underlying APY | The underlying asset component continues earning its base yield (e.g., staking rewards) | | Farm emissions | Optional incentive rewards, when active for the market | Returns are **proportional to how much trading activity occurs within your range**. A tighter range earns more per unit of liquidity when rates stay in range, but risks earning nothing if rates move out. ## Active vs Passive Liquidity | | Active (Rate CLMM) | Passive (Strategy Vaults) | | --------------- | ------------------------------------ | --------------------------------------- | | Range selection | You choose the yield range | Vault manager handles positioning | | Management | Active - monitor and rebalance | Passive - deposit and earn | | Fee capture | Higher per unit when in range | Distributed across the vault's strategy | | Best for | Experienced LPs with a view on rates | Depositors who want hands-off exposure | If you prefer passive liquidity provision without managing ranges, consider depositing into a market-making [Strategy Vault](/user-documentation/strategy-vaults) instead. ## FAQ and Common Issues The current Implied APY is likely outside your selected range. Check whether rates are trading within your range on the Liquidity page. You can rebalance to a new range that covers current rates, or wait for rates to return. **Swap & Supply** swaps part of your deposit for PT on the open market, causing price impact. **Mint & Supply** uses your deposit to mint PT directly with zero price impact, but also mints YT as a byproduct sent to your wallet. Mint & Supply is generally better for larger deposits. Before maturity, your position value can fluctuate based on rate movements. At maturity, PT redeems at par and IL is effectively zero. The main risk is opportunity cost - if rates move significantly outside your range, you miss trading fees while holding an unproductive position. All PT in the pool redeems at par. You can withdraw the full underlying value with no price impact or impermanent loss. If you used Mint & Supply, YT is minted as a byproduct. You can hold YT for yield exposure, sell it on the market, or merge it with PT to recover the underlying. YT has value proportional to the remaining yield until maturity. # Exponent Documentation Source: https://docs.exponent.finance/user-documentation/overview *** Exponent is an onchain platform connecting yield asset issuers with the full spectrum of onchain participants for portfolio construction. Protocols and issuers list their yield assets on Exponent to expand how participants can access them, from fixed rates to leveraged yield exposure, reaching a broader range of users. Onchain yield participants use Exponent markets to actively construct portfolios around their rate views and risk profiles, seeking to outperform market rates. ## Get Familiar with Exponent Learn the basics about Exponent and yield trading. Access the best interest rate swap strategies in one-click. Learn about interest rate swaps, from PT/YT to market and limit orders. Learn how to profit from interest rate market movements with market-making. ## Security All the security audits done on Exponent. Exponent's smart-contracts. ## Integrate Exponent Looking to interact programmatically with Exponent's programs? See our [developers documentation](/developers/exponent-developer-docs). # Overview Source: https://docs.exponent.finance/user-documentation/overview-protocol-concepts *** This section covers the core protocol mechanisms that power Exponent's interest-rate swap infrastructure. Understanding these systems is useful for advanced users, integrators, and anyone evaluating how the protocol works at a technical level. ## Protocol Architecture Exponent is built on top of three protocol layers: Strip yield assets into Principal Tokens (PT) and Yield Tokens (YT) for a defined maturity. Handles minting, redemption, merging, and yield distribution. All other layers build on top of this. Two venues serve different market profiles: the Rate CLMM provides concentrated liquidity for long-tail and volatile markets, while the Rate Order Book enables precise quoting and large trades for high-volume markets. Both are purpose-built for interest rate swaps. Professional managers deploy interest-rate swap strategies across the issuance and exchange layers, governed by onchain policies. Strategy constraints are programmatically enforced, not discretionary. ## Flow Example A yield asset issuer (e.g. Protocol A with an LST) integrates its asset at the issuance layer, where it is stripped into PT-LST and YT-LST This market become tradable at the exchange layer for interest-rate swaps, where liquidity providers and traders exchange them on the Rate CLMM and/or Order Book Yield participants can manage their rate exposure through the PT/YT-LST yield market Liquidity providers actively market-make the market to earn fees from PT/YT-LST swaps At the product layer, a Strategy Vault might offer a high-yield fixed strategy by purchasing PT-LST on the CLMM or order book, then looping it on credit platforms to increase its fixed yield, earning higher returns for its depositors. Different users interact with different parts of the stack depending on their objective: * **Passive participants** may prefer **Strategy Vaults** * **Active traders and LPs** interact directly with **Yield Markets** * **Developers and integrators** can build across any layer through Exponent’s SDKs ## Deep Dives How yield assets are stripped into PT and YT and how interest rate swaps work. Concentrated liquidity market maker designed for interest rate instruments. Onchain order matching for large rate trades and professional market makers. Onchain-governed managed strategies built on Exponent's rate infrastructure. # Protocol Risks & Fees Source: https://docs.exponent.finance/user-documentation/protocol-risks-fees *** Like any DeFi protocol, using Exponent involves some risks for users. ### Smart contract risks Smart contracts powers blockchain applications like Exponent. While designed with security in mind, these self-executing programs can present risks: * Potential vulnerabilities despite security measures; * Integration risks with multiple protocols and yield-bearing assets; * Possible exploitation leading to loss of funds. **Transaction Immutability** * All blockchain transactions are permanent and cannot be reversed; * Errors in transactions cannot be undone; * Users must verify all transaction details before confirmation. ### Underlying protocols An important aspect of Exponent is that every product/market offered is derived from other protocols and assets. This means that when operating on Exponent, users bear counterparty risks and should ensure they understand these underlying protocols. As such, Exponent can be seen as a "marketplace" that provides access to derivative assets/markets of DeFi products. Exponent does not own or manage these third-party protocols and contracts and consequently is not responsible for any funds lost due to exploits in these third-party contracts. ### **Liquidity** Each market on Exponent has secondary liquidity, supplied by liquidity providers and/or market makers. Liquidity shortages could prevent Exponent users from operating effectively before maturity, impacting the ability to exit a trade, for example. However, regardless of liquidity conditions: * Yield traders will always receive their yield and emissions. * Principal Token holders can always redeem the underlying asset at maturity. ### Declining value risk when yield trading While not a protocol risk in itself, it is important for users to remember that trading stripped variable yields (Yield Tokens) with maturities means that upon expiry those positions become worthless – unlike underlying yield assets (e.g. SOL), which always retain a market price. Traders need to keep this in mind when opening a position. *** ## Protocol Fees Exponent charges fees across different product surfaces depending on the action being performed and the market being used. Fees may apply to trading, liquidity provision, and Strategy Vault participation. ### Trading Fees When trading on Exponent markets, users may pay protocol fees on swaps executed through the relevant market venue. These fees can vary depending on the liquidity venue used, such as the Rate Order Book or the Rate CLMM, and may also evolve depending on the market configuration. For fixed-maturity yield markets, fee behavior may change as maturity approaches. In some cases, protocol fees may decrease over time as the market nears expiry. ### Liquidity Fees Liquidity providers do not pay a separate protocol fee to deposit liquidity, but their positions are subject to the fee configuration of the market they provide liquidity to. Trading activity through that market generates fees, which are shared with active liquidity providers according to the market’s design. Depending on the venue and market, fee levels may be fixed or dynamic. ### Strategy Vault Fees Strategy Vaults may charge additional fees set by the vault manager. These can include: * Management fee: a fee charged for managing the vault over time * Performance fee: a fee charged on positive performance generated by the vault * Withdrawal fee: a fee charged when withdrawing from the vault, where applicable Vault-specific fees are displayed in the vault interface before deposit. Exponent do not take fees on top of Strategy Vaults. ### Third-Party Fees Some Exponent products and strategies interact with third-party protocols on Solana. In these cases, users may also be indirectly exposed to fees charged by those protocols, such as swap fees, borrow fees, lending fees, vault fees, or other execution-related costs. ### Network Fees Because Exponent runs on Solana, users must also pay standard network transaction fees when interacting with the protocol. These fees do not go to Exponent. ### Important Notes * Fees can differ across markets, maturities, and product surfaces. * Some campaigns may temporarily reduce or remove certain fees. * Always review the relevant market or vault interface before confirming a transaction. # Rate CLMM Source: https://docs.exponent.finance/user-documentation/rate-clmm Exponent’s **Rate CLMM** is a concentrated liquidity market maker built specifically for trading onchain interest-rate assets. Instead of concentrating liquidity around a token price, Exponent concentrates liquidity around **Implied APY ranges**. This makes the mechanism better suited for PT and YT markets, where the key variable is not just spot price, but the rate the market is pricing for the remaining life of the maturity. The result is a liquidity engine designed for yield markets: more capital efficient than passive AMMs, easier to quote around a rate view, and better aligned with how interest-rate products actually trade. ## Why a Rate CLMM? Traditional AMMs were not built for interest rate assets like PT and YT. Yield markets have a few unique characteristics: * they revolve around a **fixed maturity** * PT converges toward par over time * YT value decays as less future yield remains * the most meaningful variable is often **Implied APY**, not spot price alone The Rate CLMM adapts concentrated liquidity to these dynamics by letting LPs provide liquidity across a **chosen yield range**, rather than a generic or fixed rate range that limits active management and makes it harder to express differentiated strategies. ## How It Works The Rate CLMM holds liquidity for Exponent yield markets using a **PT/underlying pool**. Liquidity providers choose an **Implied APY range** where they want to quote capital. When the market trades inside that range, their liquidity becomes active and earns fees. When the market moves outside the range, the position stays open but stops earning fees until rates come back into range or the LP repositions. This is similar in spirit to concentrated liquidity systems like Uniswap v3 or Meteora DLMM, but adapted for interest-rate markets with maturities. ## Why PT and the Underlying? The CLMM is built around **PT and its underlying (SY)**, not PT and YT. That structure matters because: * **PT** represents the fixed-rate principal side of the market * **SY** represents the standardized underlying yield asset * the PT/SY pair provides a clean base for routing swaps and managing liquidity YT trades are still supported, but they are not held directly in the pool. Instead, Exponent uses atomic routing through flash swaps under the hood to convert between exposures when needed. For users, this keeps the experience simple while preserving a cleaner liquidity structure at the protocol level. ## Trading on the Rate CLMM The CLMM supports trading fixed-rate and yield exposure across Exponent markets. PT can be swapped directly against pool liquidity. This is typically the simplest route for users who want to: * lock a fixed rate by buying PT * exit fixed exposure by selling PT * trade around changes in Implied APY before maturity YT is also supported, but through Exponent's flash swap rather than as a direct pool asset. When users buy or sell YT, the protocol handles the necessary strip or merge flow atomically in the same transaction. This makes YT trading possible without fragmenting the pool into separate PT and YT liquidity venues. From the user perspective, YT trading still feels like a normal swap flow. ## Concentrated Liquidity by Yield Range The defining feature of the Rate CLMM is that LPs choose where they want to provide liquidity on the **rate curve**. A **narrower** range means: * more capital efficiency * more fee generation per unit of liquidity when the market stays in range * more active management required if rates move away A **wider** range means: * less precision * lower fee density * more tolerance for rate movement without needing to rebalance This gives LPs flexibility depending on how actively they want to manage positions and how strong their rate view is. ## Who Is It For? The Rate CLMM is useful for several types of participants: LPs can use the CLMM to: * quote around a target Implied APY range * earn fees from PT and YT swap flow * gain exposure to trading activity in a given maturity * actively manage liquidity as rates move over time Traders can use the CLMM for: * buying PT to lock fixed returns * selling PT to exit fixed positions * buying or selling YT through routed swaps * entering or exiting positions quickly against continuously available liquidity The CLMM also provides the base infrastructure for more structured liquidity strategies, including market-making through Exponent Strategy Vaults. ## Why Use the CLMM Instead of the Order Book? The CLMM and the Rate Order Book are complementary. | | Rate CLMM | Rate Order Book | | ------------------- | --------------------------------------- | ---------------------------------------- | | Liquidity model | Continuous concentrated liquidity | Discrete limit orders | | Best for | Fast swaps and active LP strategies | Precise execution at target rates | | User type | Traders and LPs | Active traders and passive order placers | | Capital deployment | Range-based | Order-by-order | | Market making style | Concentrated and continuously available | Resting offers at specific levels | In general, the CLMM is better suited for users who want **continuous liquidity** and for LPs who want to actively market-make around a view on rates. ## Returns for LPs LP returns on the Rate CLMM can come from several sources: * **trading fees** from swap activity routed through their active range * **PT fixed-rate convergence** inside the position * **underlying asset yield** on the SY side of the pool * **optional emissions or incentives**, when a market is incentivized How much an LP earns depends on: * how much trading happens * whether rates stay inside the chosen range * how efficiently the position is managed over time A position that is out of range may still hold value, but it does not actively earn swap fees until it is back in range. ## Rate Markets Evolve Over Time Because Exponent markets have maturities, the shape of a good liquidity range can change over the life of the market. * rate expectations may move more * wider ranges can make more sense * trading may be more directional * PT moves closer to par * remaining yield uncertainty declines * the useful quoting range may narrow This is one reason the Rate CLMM is powerful for interest-rate markets: liquidity can adapt to where the market expects rates to trade at each stage of the maturity. ## Risks and Considerations Using the Rate CLMM comes with several considerations: * **Out-of-range risk** – positions stop earning swap fees when the market leaves the selected APY range * **Active management risk** – concentrated liquidity often requires monitoring and rebalancing * **Impermanent loss / inventory drift** – the asset mix in a position changes as the market moves * **Liquidity risk** – thinner pools can lead to wider execution for larger trades * **Smart contract risk** – applies to the CLMM, Exponent core logic, and the underlying protocol Compared with traditional AMMs, Exponent’s CLMM is built around correlated yield assets, which helps make the structure more efficient for this use case. Still, LPing is an active strategy and should be treated as such. ## FAQ and Common Issues The Exponent Rate CLMM is organized around **Implied APY ranges**, not just a standard spot-price grid. Your position remains open, but it stops earning swap fees until rates move back into your range or you rebalance the position. No. The core pool is built around PT and SY. YT trades are handled through Exponent’s internal routing and strip/merge logic. No. Traders can also use it to swap into PT or route YT trades through available liquidity. LPs use it to provide concentrated liquidity and earn fees. A normal CLMM concentrates liquidity around spot price. Exponent’s Rate CLMM concentrates liquidity around **yield ranges**, which is more natural for interest-rate assets with maturity. # Rate Order Book Source: https://docs.exponent.finance/user-documentation/rate-order-book *** Exponent’s **Rate Order Book** is a fully onchain limit order book for trading fixed-rate and yield exposure through an **Implied APY**. Rather than quoting an asset price like a traditional exchange, Exponent quotes interest-rate assets directly in annualized yield terms. This allows users to place bids and asks around the rate they want to lock, pay, or receive until maturity. The Rate Order Book is designed for participants who want **precise execution**, **explicit limit pricing**, and **deeper control over entry and exit levels** when trading PT and YT. ## Why a Rate Order Book? Interest-rate assets are not best understood through spot prices alone. On Exponent, PT and YT represent two sides of a yield market with a fixed maturity. What traders usually care about is not just “what is the token worth right now?”, but rather: * what **fixed rate** can be locked today * what **forward yield** the market is implying * whether that rate is attractive relative to expected realized yield By quoting orders in **Implied APY**, the Rate Order Book makes yield markets easier to reason about for active participants. ## How It Works The Exponent Rate Order Book matches participants who want to buy or sell yield exposure at a specific rate. Users can post limit orders for: * **YT directly**, for pure yield trading * **PT virtually**, using the same underlying liquidity This is possible because PT and YT are mathematically linked through the underlying yield-stripping market. Internally, the order book shares liquidity across both exposures, allowing users to access fixed-rate and variable-yield trading through one unified venue. ### What gets traded? There are two main exposures on Exponent: * **PT (Principal Token)** – the fixed-rate side of the market. PT trades at a discount and converges to par at maturity. * **YT (Yield Token)** – the variable-yield side of the market. YT gives exposure to the yield generated by the underlying asset until maturity. The Rate Order Book lets users trade either side, while pricing everything through the market’s **Implied APY**. ## PT and YT Share Liquidity One of the core design features of the Exponent Rate Order Book is that **PT and YT do not need separate liquidity silos**. All orders are internally represented around YT-side liquidity. When a user wants to trade PT, Exponent automatically handles the required strip or merge logic under the hood through Exponent Core's [yield stripping](/user-documentation/yield-stripping-swap). This means: * **buying PT** can route through YT-side liquidity * **selling PT** can also route through the same book * liquidity is more unified and capital efficient than having isolated PT and YT books For users, the experience remains simple: choose the side of the market to trade and the rate you want. ## Limit Orders and Market Orders The Rate Order Book supports both passive and active execution styles: Limit orders let users specify the Implied APY they are willing to trade at. This is useful when: * targeting a specific fixed rate * waiting for a better entry on YT * providing passive liquidity to the market * managing execution on larger positions Orders rest onchain until they are filled, expire, or are removed. Market orders execute immediately against available liquidity on the book. This is useful when: * entering or exiting quickly matters more than price precision * the market already offers a rate that looks attractive * a user wants immediate exposure without waiting for a counterparty ## Why Use the Order Book Instead of the CLMM? The Rate Order Book and the Rate CLMM serve different trading needs. | | Rate Order Book | Rate CLMM | | ------------------- | ----------------------------------------- | -------------------------------------------- | | Execution style | Limit-based, discrete price levels | Continuous liquidity across a rate range | | Best for | Precise entries and exits | Fast routing and passive two-sided liquidity | | User type | Active traders, larger orders, rate views | Traders and LPs seeking continuous liquidity | | Pricing control | Exact rate targeting | Execution within available pool range | | Liquidity provision | Passive orders resting on the book | Active LP positions in chosen APY ranges | In practice, the order book is often more attractive for users who want **clean limit execution** around a target rate, while the CLMM is better for **continuous market making and tighter always-on liquidity**. ## Who Is It For? The Rate Order Book is especially useful for: * **fixed-rate buyers** who want to lock a minimum target return * **yield traders** who want to buy or sell YT at a precise implied yield * **larger participants** who want more control over slippage and execution * **market makers** who prefer quoting passively at specific levels rather than managing a CLMM range ## Before and After Maturity Like all Exponent yield markets, the Rate Order Book operates around a **fixed maturity date**: * PT and YT can trade freely * orders are quoted in Implied APY * rates move based on supply and demand * the trading window for that market ends * PT converges to par * YT no longer has future yield remaining * open trading activity on that maturity stops Because of this, order book trading is most relevant during the life of the market, when future yield is still uncertain and rates are still being discovered. ## Risks and Considerations Using the Rate Order Book involves a few important considerations: * **Execution risk** – limit orders may not fill if the market never reaches your target rate * **Partial fills** – depending on liquidity, an order may fill only partially * **Market risk** – Implied APY can move quickly as participants reprice future yield expectations * **Liquidity risk** – some maturities may have thinner depth than others, especially for larger trades * **Smart contract risk** – applies to the order book, core protocol logic, and underlying yield source For PT positions, holding until maturity removes most interim mark-to-market uncertainty. For YT positions, outcomes remain dependent on realized yield and time remaining. ## FAQ and Common Issues Orders are quoted in **Implied APY**, not in a simple token spot price. This makes interest-rate trades easier to reason about in terms of the yield being locked or paid. Yes. The Exponent Rate Order Book supports both PT and YT exposure, with PT routing handled through the same underlying liquidity. Your order only fills if the market reaches your quoted rate and another participant matches it. If the market trades away from your level, your order can remain open until expiry or manual removal. They serve different purposes. The order book is better for precise pricing and active execution. The CLMM is better for continuous liquidity and concentrated market making. Trading for that maturity effectively ends. Unfilled orders stop being useful, and PT/YT settle according to the market’s maturity mechanics. # Risk-Tranching Source: https://docs.exponent.finance/user-documentation/risk-tranching *** Risk-Tranching is Exponent’s primitive for splitting onchain yield assets into two different risk-return profiles. A Risk-Tranching market creates: * a **Senior tranche**, for users who want a more protected form of exposure * a **Junior tranche**, for users willing to take first-loss risk in exchange for higher expected returns At a high level, the product does three things: 1. splits one underlying asset into a Senior and Junior side 2. prices the risk transfer between them through a market curve 3. defines how losses, recovery, and settlement are handled onchain ## Core Structure Each market is built around one underlying asset. Users deposit into either: * **Senior LP** * **Junior LP** Each deposit mints LP shares for the selected tranche. LP shares represent a proportional claim on that tranche’s **effective NAV**, not only on the raw amount deposited. This means new deposits are priced against the current state of the tranche. ### LP share example If the Junior tranche has: * 1,000 LP shares - \$1,200 effective NAV and a new user deposits \$120, that user receives: * `120 / 1200 × 1000 = 100` LP shares Total Junior LP supply then becomes 1,100 shares. If the tranche NAV has gone up, new users receive fewer shares for the same deposit. If the tranche NAV has gone down, share value reflects that loss. ## What Senior and Junior Economically Represent The tranches sit in different places in the loss waterfall. Senior is the protected side of the market. Senior gives up part of the underlying asset’s upside in exchange for Junior capital sitting beneath it as protection. Junior is the first-loss side of the market. It absorbs losses first and receives a higher expected return profile for doing so. That return comes from two sources: * Junior’s own exposure to the underlying asset * the **risk premium** paid by Senior ## Coverage and Utilization The two most important variables in a Risk-Tranching market are **coverage** and **coverage utilization**. ### Coverage Coverage refers to how much Junior capital is available to protect Senior. In normal terms: * higher coverage = stronger protection for Senior * lower coverage = thinner Junior protection ### Coverage utilization The program tracks this through **coverage utilization**. A simple way to think about it is: `coverage utilization = required junior coverage / actual junior effective NAV` Where: * **100% utilization** means the market is exactly at its minimum required protection level * **below 100%** means the market has more protection than the minimum * **above 100%** means the market is under-covered So: * lower utilization = healthier market * higher utilization = tighter market * above 100% = protection has fallen below the minimum required level ## Minimum Coverage and Target Coverage Each market is configured with a **Minimum Coverage** and a **Target Coverage**. Minimum Coverage is the minimum first-loss buffer Junior must provide beneath Senior. If a market has: `Minimum Coverage = 20%` then Junior is expected to provide at least a 20% protection layer beneath Senior in normal conditions. Target Coverage is the preferred operating protection level of the market. It usually sits above the minimum, so the market is not designed to operate permanently at the edge of its protection floor. If: `Minimum Coverage = 20%` - `Target Utilization = 90%` then: `Target Coverage = Minimum Coverage / 0.90 = 22.22%` This means the market is calibrated to operate around **22.22% Junior coverage** in normal conditions, while still leaving some room before hitting the hard floor. ## How the Yield Split Works Risk-Tranching markets do not use a fixed Senior / Junior yield split. Instead, the split is determined by a **return curve** that depends on utilization: * when Junior protection is abundant, Junior should earn a lower premium * when Junior protection becomes tight, Junior becomes more valuable and should earn a higher premium The market prices protection dynamically. ## Return Curve Types Exponent supports multiple ways to define how the Junior share changes across utilization. In a point curve, the market defines explicit utilization points and an explicit Junior share at each point. For example: * 0% utilization → Junior gets 20% * 50% utilization → Junior gets 35% * 100% utilization → Junior gets 65% The curve then interpolates between those points. This makes the market easier to read and easier to calibrate upfront. An automated shift curve starts from a defined curve shape, but allows the curve to shift upward or downward over time if utilization stays persistently away from target. This makes the market more adaptive, but also harder to reason about than a fixed point curve. For most markets, fixed point curves are generally easier to explain and monitor. ## How the Risk Premium Is Determined The risk premium is the yield Senior gives up to Junior in exchange for protection. In simple terms: `Risk premium = underlying yield - senior yield` That premium is transferred to Junior, subject to the market curve and any protocol spread. ### Example If the underlying asset yields `11.84%`and Senior earns `6.60%`then the gross premium transferred away from Senior is: `11.84% - 6.60% = 5.24%` That premium is transferred from Senior to Junior, but because Junior is usually a smaller capital base than Senior, the effect on Junior APY is amplified. In practice, this is what gives Junior its leveraged return profile relative to the underlying asset. ## How Gains and Losses Are Recognized Risk-Tranching markets do not estimate NAV continuously in the background. Instead they rely on an approved NAV or pricing source for the underlying asset. When the market is synced through an onchain instruction, it compares: * the latest underlying NAV * the last recorded market state and applies the difference. This means positive NAV changes are recognized as gains, while negative NAV changes are recognized as losses. These effects are applied **on sync**, not continuously every second. In practice, sync happens through actions such as: deposit; withdrawal; market update; parameter update. ## Loss Waterfall Losses are not shared equally between both tranches. They are transferred in order. 1. **Junior absorbs losses first**
If the underlying asset suffers a negative NAV event, Junior is the first tranche to absorb that loss. 2. **Senior is affected only after Junior is exhausted**
If the loss is larger than the available Junior protection, Senior begins taking loss as well. This means the protection Senior really has depends on the amount of Junior effective NAV available at the time of the event. ### Loss Example at 22% coverage * If the market has 22% effective Junior coverage, * and the underlying asset suffers a 15% NAV loss: then Junior absorbs the full 15% loss first, leaving 7% coverage. Senior remains whole, but the market is now much tighter. * If the underlying instead suffers a 25% NAV loss: then Junior absorbs the first 22%, and Senior takes the remaining 3% loss. ## Recovery Period Not every covered loss should necessarily be settled immediately. If Junior has covered a Senior-side loss, Senior remains whole, and the market is still below its settlement threshold, the market can enter a **Recovery Period**. The Recovery Period is designed to handle losses that may be temporary rather than permanent. During the Recovery Period: * Senior stops receiving yield * Senior withdrawals are paused * Junior may recover some or all of the covered loss if the underlying NAV rebounds This is meant to avoid crystallizing temporary losses too quickly. ## Settlement Threshold If the market moves beyond its configured settlement threshold, the Recovery Period is skipped and the market moves directly into settlement. This is intended for more severe losses, and in that event: * Junior is settled to protect Senior * the loss is realized * the market returns to a normal state after settlement ### Settlement threshold formula The settlement threshold is not configured independently. It is derived from: * **Minimum Coverage** * **Settlement Utilization** If: * `Minimum Coverage = 20%` * `Settlement Utilization = 110%` then settlement begins once effective coverage falls below: `20% / 1.10 = 18.18%` So the market can tolerate some deterioration below the minimum before forcing immediate settlement. ## Example: Settlement threshold * If the market starts at 22% coverage * and the underlying asset suffers a 3% NAV loss then remaining coverage becomes: `22% - 3% = 19%` This is below the 20% minimum, but still above the 18.18% settlement threshold, so the market enters the Recovery Period to assess if the loss is long-term or temporary. * If the underlying instead suffers a 5% NAV loss then remaining coverage becomes: `22% - 5% = 17%` This is below the settlement threshold, so the market skips the Recovery Period and moves directly into settlement. ## Senior and Junior Exit Constraints The two tranches do not always have the same exit behavior. | Tranche | In normal conditions | Key constraint | During the Recovery Period | | ---------- | ---------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | | **Senior** | Senior can always be exited during normal market conditions | Senior is not constrained by protection requirements in normal conditions, but can withdrawals can temporarily be paused during the Recovery Period | Senior withdrawals are paused | | **Junior** | Junior exits are directly constrained by the market’s protection level | Junior withdrawals can be restricted if exiting would leave the market with too little protection | Junior can decide to exit while the market recovers | # Programs & Security Source: https://docs.exponent.finance/user-documentation/security *** ## Core Programs | Program | What it Does | Address | | ---------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------------- | | **Exponent Core** | Strip yield assets for yield trading, merge back, manage yield distributions | `ExponentnaRg3CQbW6dqQNZKXp7gtZ9DGMp1cwC4HAS7` | | **Exponent CLMM** | Concentrated liquidity AMM — buy/sell PT and YT, provide liquidity | `XPC1MM4dYACDfykNuXYZ5una2DsMDWL24CrYubCvarC` | | **Exponent Orderbook** | Limit order book — post offers at specific APY levels, market orders | `XPBookgQTN2p8Yw1C2La35XkPMmZTCEYH77AdReVvK1` | | **Exponent Strategy Vaults** | Vault layer on top of Exponent markets and bluechip DeFi venues | `sVau1tXvayVWfotzm9Ahcv2qfnnfRWttt78BCnNC6dD` | | **Exponent Risk-Tranching** | Split yield assets into senior and junior tranches for risk management | `XPTrnchoawiUc9iYJrpfchS8vgr8Y5X2QGBdHPXukty` | ## Interface Programs Each interface program handles wrapping/unwrapping for a specific yield source. | Program | Address | | ------------------- | --------------------------------------------- | | Generic | `XP1BRLn8eCYSygrd8er5P4GKdzqKbC3DLoSsS5UYVZy` | | Kamino | `XPK1ndTK1xrgRg99ifvdPP1exrx8D1mRXTuxBkkroCx` | | marginfi | `XPMfipyhcbq3DBvgvxkbZY7GekwmGNJLMD3wdiCkBc7` | | Jito Restaking | `XPJitopeUEhMZVF72CvswnwrS2U2akQvk5s26aEfWv2` | | Perena (deprecated) | `XPerenaJPyvnjseLCn7rgzxFEum6zX1k89C13SPTyGZ` | ## Security Practices Exponent takes protocol security seriously because it directly impacts users and the integrity of the protocol. Before any program or product is released on mainnet, Exponent’s core contributors put it through extensive internal testing and external review. In practice, security work often accounts for a significant share of the development effort. All major product launches and program upgrades also undergo third-party security reviews. Find Exponent’s audits [here](/user-documentation/audits-bug-bounty). Hundreds of scenarios are tested to verify program behavior, catch regressions early, and make upgrades safer. Programs are tested under extreme conditions such as high volume, liquidity shocks, and rapid yield changes. Penetration-style and integration-level testing help validate both instruction safety and cross-component behavior. Onchain activity is monitored to detect suspicious behavior and respond quickly to anomalies. Inflow and outflow limits add guardrails that can help contain damage in the unlikely event of a compromise. Sensitive admin actions are governed through a multisig rather than a single key. ## How Do These Measures Work Unit tests simulate regular user activities to ensure the programs function as intended. They help catch and resolve bugs early, with the Exponent core contributors running hundreds of scenarios against each piece of code. This also makes future updates safer, as unit tests quickly reveal if changes in one part of the system affect others. Stress tests push the protocol's programs under extreme conditions to evaluate how they behaves during critical scenarios, including high transaction volume, sudden liquidity shifts, or rapid changes in implied yields. Exponent employs various types of security tests to assess the robustness and soundness of its programs: * *Penetration* tests simulate potential malicious interactions with Exponent’s smart contracts/programs, verifying that the instructions fail when inputs deviate from the expected parameters. This ensures the protocol can withstand attack vectors and prevents unauthorized actions or unexpected behaviors. - *Integration* tests evaluate the flow and economics of Exponent’s programs by simulating multiple scenarios across components. They ensure that interactions within the protocol work correctly and that aspects like yield calculations, token minting, and trading flows remain accurate under diverse conditions. Exponent constantly monitors onchain activity on the protocol to detect suspicious or anomalous behavior from potential attackers. This allows the core contributing team to proactively crush malicious attacks before they become serious. While testing, monitoring, and security audits provide robust protection, no protocol can be completely bulletproof. To add an additional layer of security for users, Exponent implements inflow and outflow limits for each yield market (mint, redeem, liquidity, claiming yield). They act as guardrails in the unlikely event of a compromise, preventing an attacker from draining the protocol or manipulating a market. These limits are calculated based on historical outflows and are designed not to interfere with regular user activity. Like many DeFi protocols on Solana, Exponent has mutable code and adjustable protocol parameters (e.g. program upgrades, fee settings, new markets). Rather than relying on a single private key, which poses a security risk as its compromise could directly impact user funds and protocol integrity, Exponent’s admin parameters are governed by a multisig of multiple core contributors. This also mitigates risk of insider attacks. For its multisig setup, Exponent uses Squads, the leading multisig infrastructure on Solana, which is formally verified and secures over \$10B in value. # Strategy Vaults Source: https://docs.exponent.finance/user-documentation/strategy-vault-concepts *** This page details the protocol architecture of Strategy Vaults. For a user guide on depositing and withdrawing, see [Using Strategy Vaults](/user-documentation/strategy-vaults). ## Architecture An Exponent Strategy Vault is an onchain program that holds depositor assets and executes yield strategies across Exponent's rate markets and integrated protocols. Each vault consists of: | Component | Description | | ----------------- | ---------------------------------------------------------------------- | | Vault program | Smart contract managing deposits, withdrawals, and position accounting | | Manager | A whitelisted address authorized to execute strategy operations | | Onchain policies | Squads smart account constraints defining the vault's risk envelope | | Vault share token | SPL token representing proportional ownership of the vault's AUM | ## Onchain Policy Governance Vault managers operate within strict onchain constraints enforced by policies via Squads smart accounts. These policies are not guidelines, they are programmatic rules that the smart contract enforces at execution time. The manager cannot submit transactions that violate the defined policies. Configurable policy parameters include: | Policy | Function | | ------------------ | ----------------------------------------------------------------------------------- | | Asset whitelist | Restricts vault holdings to specified assets only (e.g. only JitoSOL, mSOL, JupSOL) | | Protocol whitelist | Limits interactions to approved protocols (e.g. Exponent order book only) | | Timelock | Requires a waiting period (typically 7 days) for any parameter modification | This architecture separates the risk envelope (defined by policies) from strategy execution (performed by the manager). Depositors evaluate the policies and constraints, not the manager's discretion. ## Vault Index and Share Pricing Vault share tokens represent a proportional claim on total AUM. The vault index tracks the value of all positions held: * Market value of PT and YT positions * Unrealized PnL from open order book quotes * Accrued yield and trading fees * Value of underlying assets held * Pending withdrawals When depositing, shares are minted at the current index. When withdrawing, shares are burned at the current index. This ensures fair pricing for entries and exits relative to the vault's actual asset value. ## Withdrawal Queue Vault withdrawals follow a queue mechanism to protect remaining depositors from adverse selection: Depositor requests withdrawal, specifying shares to redeem. Manager unwinds positions to generate the underlying asset for the withdrawal. Depositor claims the underlying asset. The queue exists because vault positions (open order book quotes, active LP positions) may need to be unwound before assets can be returned. Immediate withdrawals could force unfavorable position exits that reduce value for remaining depositors. ## Governance and Proposals Vault parameters can be modified through a timelocked proposal system: 1. Manager or governance participant proposes an action (e.g. adding a new whitelisted asset, changing a policy parameter) 2. The proposal enters the timelock period (typically 7 days) 3. Stakeholders can evaluate the proposal during the timelock — depositors can exit if they disagree 4. After the timelock expires, the proposal can be executed This provides full transparency and exit opportunity before any material change takes effect. ## Security Overview The full audit coverage for the vault infrastructure: | Component | Auditors | | ------------------------------------------ | ------------------------------------- | | Exponent Vault Program | Adevar Labs, OtterSec, Certora | | Squads Smart Accounts (policy enforcement) | OtterSec, Offside Labs, Certora | | Exponent Core & related programs | OtterSec, Offside Labs, Certora, Sec3 | All the Exponent audit reports are publicly available at [github.com/exponent-finance/exponent-audits](https://github.com/exponent-finance/exponent-audits). # Strategy Vaults Source: https://docs.exponent.finance/user-documentation/strategy-vaults *** Strategy Vaults are managed yield strategies built on top of Exponent's interest rate markets and/or combined with leading protocols on Solana. They allow users to deposit assets and gain exposure to professional interest-rate swap strategies without manually managing interest-rate instrument positions (e.g. PT/YT) and their maturities. ## How Strategy Vaults Work Each vault is operated by a professional manager (e.g. an asset management firm or trading desk) who deploys capital across Exponent markets according to a defined mandate. The manager can combine interest rate swaps with other DeFi protocols like lending on Kamino or Loopscale. Strategy Vault characteristics: * **Non-custodial** - users deposits stay onchain, governed by programs, and withdrawal at anytime * **Transparent** - all positions and allocations are visible onchain * **Policy-governed** - strategy constraints are enforced via onchain policies, not trust. The code becomes the term sheet. * **One-click access** - deposit your assets and the vault's strategy handles the rest ## Example Types of Strategies Vaults can execute a range of strategies depending on their mandate: * **Market-making strategies** allocate to whitelisted assets, strip them into PT and YT, and quote both sides of the order book or market-make on the CLMM to earn spread. * **Fixed-yield strategies** target fixed returns by buying PT across maturities, similar to a bond ladder strategy, as well as using credit protocols for leveraged fixed returns. * **Hedged strategies** use Exponent's interest rate swaps for rate hedging to reduce exposure to yield movements. ## Strategy Vault vs. Manual Interest-rate Swap Strategy In practice, Strategy Vaults are better suited for users seeking simplicity and delegated strategy execution, while manual strategies are better suited for advanced participants looking to express a more customized view. | Feature | Strategy Vaults | Manual Strategy | | ---------------------- | ------------------- | -------------------------- | | **Capital management** | Curator-managed | User-managed | | **Risk customization** | Predefined strategy | Fully customizable | | **Return potential** | Moderate | Potentially higher | | **UX** | Simple and passive | Requires active management | | **Suitable for** | Most users | Active / power users | Strategy Vaults offer a more passive way to access interest-rate swap strategies on Exponent, with capital deployed by a curator within a predefined strategy framework. Manual interest-rate swap strategies, by contrast, give users full control over position construction, risk, and execution, but require more active management and a deeper understanding of the underlying markets. ## Depositing Into a Strategy Vault Browse available vaults on the Exponent app. Each vault shows its strategy description, asset and protocol exposures, historical performance, manager, and current APY. Deposit the vault's accepted asset (e.g. SOL). The vault manager automatically allocates your deposit according to the vault's strategy. Returns accrue based on the vault's strategy performance. You can monitor your position value at any time. Request a withdrawal. Depending on the vault, withdrawals may be instant or subject to a processing period as the manager unwinds positions. ## Safety and Risks Considerations Strategy Vaults are not risk-free. Key risks include: * **Smart contract risk** Strategy Vaults depend on the vault program, Exponent’s underlying contracts, and any integrated external protocols. A bug, exploit, or unexpected edge case in any of these layers could affect vault assets or operations. * **Strategy performance risk** Vault performance depends on the strategy being executed. A vault may underperform passive alternatives, but it can also generate losses depending on the positions it takes, how markets move, and how the strategy interacts with external protocols. * **Manager execution risk** While onchain policies constrain what a vault manager can do, performance still depends on how well the strategy is executed. This can include trade selection, timing, rebalancing, liquidity deployment, and risk management within the vault’s allowed policy set. All vault operations are constrained by onchain policies. Any parameter change goes through a timelock (e.g. 7 day) defined by the vault manager. The vault cannot operate outside its defined constraints. # Terms of Use Source: https://docs.exponent.finance/user-documentation/terms **Terms of Use Last Updated: May 25, 2026** ### **Summary** Please read this agreement carefully before using our website and services (collectively, the "Site"). Below is a brief summary of the key points covered in these Terms: * **Who Can Use the Site:** You must be at least 18 years old and not be located in or associated with any "Prohibited Localities" or be a "Restricted Person." Use of VPNs or other methods to bypass location restrictions is prohibited. * **Non-Custodial Nature:** Exponent is a non-custodial interface that aggregates publicly available information and facilitates interaction with decentralized finance protocols. Exponent does not control user funds or manage private keys. * **Risks Involved:** The use of decentralized finance carries significant risks, including technical vulnerabilities, regulatory uncertainty, tax implications, strategy risk, market risk, integration risk, and potential losses arising from liquidity provision, strategy vaults, third-party protocols, and interest-rate market activity. * **Permitted Uses:** The Site is intended for informational purposes only and must not be used for illegal activities, fraud, or market manipulation. Users are required to comply with all applicable laws. * **Sanctions Compliance:** You must not be a "Sanctioned Person" as defined herein, nor can you use the Site on behalf of such persons or entities. * **Dispute Resolution:** By using this Site, you agree to resolve disputes through binding arbitration, and you waive the right to participate in class actions. * **No Professional Advice:** Information provided by the Site is not professional, legal, tax, or investment advice. * **Liability Limitation:** Exponent is not responsible for losses incurred due to the use of the Site. This summary is for reference purposes only. Please read the full Terms below, as it constitutes a legally binding agreement between you and Exponent. ### **IMPORTANT NOTICE REGARDING ARBITRATION:** WHEN YOU AGREE TO THESE TERMS YOU ARE AGREEING (WITH LIMITED EXCEPTIONS) TO RESOLVE ANY DISPUTE BETWEEN YOU AND EXPONENT THROUGH BINDING, INDIVIDUAL ARBITRATION RATHER THAN IN COURT. YOU WAIVE YOUR RIGHT TO PARTICIPATE IN CLASS ACTIONS OR ARBITRATIONS. PLEASE REVIEW THE DISPUTE RESOLUTION SECTION CAREFULLY. By accessing and using the Exponent website, its subdomains, any information available within the site (collectively the "Website"), or related information made available by Exponent Labs ("we", "us", "our", or "Exponent"), you agree to be bound by these Terms of Use. If you do not agree to the Terms of Use, do not use the Website. Exponent Labs reserves the right, at its sole discretion, to amend, change, modify, add, or remove portions of these Terms of Use at any time. We may change these Terms of Use from time to time by notifying you of such changes by any reasonable means, including posting revised Terms of Use through the Website. Your continued use of the Website following the published updates to the Terms will mean that you accept and agree to the changes. Users are encouraged to regularly review the Terms of Use prior to using the Website to verify the current terms and their willingness to be bound by said terms. For any questions or issues, please contact us at [legal@exponentlabs.xyz](mailto:legal@exponentlabs.xyz). *** ### **1. Site Overview** ### **1.1 About the Site** The Site aggregates and publishes publicly available information about the Protocol and its smart contracts, including without limitation information regarding tokens made available by third-party protocols, implied or express fair market prices of tokens, transaction records on the blockchain relating to the Protocol, and information relating to Exponent v2 product surfaces such as interest-rate markets, order books, liquidity venues, strategy vaults, reward campaigns, and other protocol-related features. 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Any disputes arising under these Terms of Use shall be settled in individual binding arbitration. By entering into these Terms of Use, you waive your right to a trial by jury, participation in a class action lawsuit, and class arbitration. ### **8.2 Class Action Waiver** Users waive the right to participate in class actions against Exponent. *** ### **9. 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Contact Information** For questions regarding these Terms, contact [legal@exponentlabs.xyz](mailto:legal@exponentlabs.xyz). # Tranching Markets Source: https://docs.exponent.finance/user-documentation/tranching-markets *** Tranching markets let participants choose the level of risk they want to take when allocating to onchain yield assets, whether they want access to yield in a protected form or are willing to take on more risk for higher expected returns. This enables onchain yield products to support different capital profiles, rather than forcing every holder into the same exposure. ## How It Works Each Exponent tranching market is derived from an underlying yield asset (e.g. ONyc) and split into two tranche assets: * **Senior** Exposure (e.g. srONyc) – a more protected side of the market, designed for users who want a lower return profile in exchange for principal protection * **Junior** Exposure (e.g. jrONyc) – the first-loss side of the market, designed for users willing to take more risk for higher expected returns In simple terms, Junior provides the protection layer for Senior. That means Senior gives up part of the underlying yield in exchange for protection, while Junior earns that risk premium in exchange for absorbing losses first. If the underlying suffers losses, Junior absorbs them first before any loss is transferred to Senior. ## Key Concepts **Underlying Asset**: Each tranching market is built around one underlying yield asset. Both tranches ultimately depend on the performance of that underlying asset. **Senior Tranche**: The Senior tranche is designed for users who want access to the underlying yield in a more protected form. It earns a lower, more stable return profile than Junior because Junior capital sits beneath it as protection. **Junior Tranche**: The Junior tranche is designed for users willing to take first-loss risk. It earns a higher expected return because it provides the protection layer that makes the Senior tranche possible. **Coverage**: Coverage refers to how much Junior capital is available to protect Senior. Higher coverage means Senior is more strongly protected. Lower coverage means the market is tighter and Junior protection is becoming more valuable. **Risk Premium**: Senior pays a yield premium to Junior in exchange for being protected first. The amount of premium paid depends on the market’s current coverage conditions. ## Market-driven Risk Split Exponent tranching markets work on a utilization-driven model, where APY pricing is based on supply and demand between the Junior and Senior tranches. Senior pays a yield premium to Junior in exchange for lower yield and protection against first losses in the underlying, with that protection provided by Junior capital. The program tracks how utilized Junior capital is relative to the minimum protection the market must maintain at all times. A target protection level close to that minimum is then set for a fully utilized market, while lower utilization leaves more room for deposits and withdrawals. Tranche APYs move along a yield curve defined at market creation, working similarly to a lending utilization curve, where pricing becomes more sensitive as the market becomes more heavily used on either the Senior or Junior side. In practice: * When Junior capital is abundant or Senior demand is scarce, Junior earns a smaller premium * When Junior protection becomes tighter or Senior capital is abundant, Junior earns a higher premium This helps keep the market balanced between both sides. ## Understanding Senior and Junior The Senior tranche is better suited for users who want a more protected way to access the underlying asset’s yield. * Lower expected return than the underlying and Junior * Protected first by Junior capital * Better suited for users with a more conservative risk profile * Can still take loss if Junior minimum protection/coverage is fully exhausted The Junior tranche is better suited for users willing to take first-loss risk in exchange for a higher expected return. * Higher expected return than the underlying and Senior * Absorbs losses first * Earns a risk premium paid by Senior * Better suited for users seeking a higher-risk, higher-return profile ## Losses, Recovery, and Settlement Tranching markets do not simply split yield. They also define how losses are transferred when the underlying asset moves down. If the underlying suffers a negative loss event: 1. **Junior absorbs losses first** 2. **Senior remains protected until Junior protection is exhausted** 3. If the loss is small enough and may recover, the market can enter a **Recovery Period** 4. If the loss is more severe, the market can skip the Recovery Period and move directly into settlement ### Recovery Period The Recovery Period is designed to protect Junior holders after a negative underlying NAV event by giving the market time to determine whether the loss is temporary or should be recognized as permanent. During this period, the Senior tranche stops receiving yield, and Senior withdrawals are paused until Junior recovers or the period ends. Junior holders can withdraw during the recovery phase if they wish to. This period allows the market to avoid settling short-term losses too quickly and helps junior holders recoup temporary losses, while still protecting Senior from taking first losses. ### Settlement Threshold If the market moves beyond its configured settlement threshold, the Recovery Period is skipped and the market moves directly into settlement. This is intended for more severe losses, rather than short-term losses that may recover. ## Understanding Risks and Returns Tranching markets create two different return profiles around the same asset, but neither side is risk-free. * **Senior holders** are protected first, but can still face loss if Junior is exhausted * **Junior holders** earn a higher premium, but absorb losses first * **Both tranches** ultimately depend on the underlying asset’s NAV * **Both tranches** can face liquidity constraints depending on the market state * **Senior withdrawals** are paused during the Recovery Period * **Junior withdrawals** can be restricted if exiting would leave the market with a protection below the market's minimum coverage Tranching changes how risk is distributed, not whether risk exists. Senior is more protected than Junior, but both depend on the underlying asset and the market’s protection structure. ## FAQ and Common Issues srONyc is the Senior tranche, designed for users who want ONyc exposure in a more protected form. jrONyc is the Junior tranche, designed for users willing to take first-loss risk in exchange for higher expected returns. Senior earns a lower, more stable share of yield while benefiting from Junior capital sitting beneath it as protection. Junior earns a higher premium because it absorbs losses first. The coverage ratio shows how much Junior capital is available to protect Senior. A higher coverage ratio means Senior is more strongly protected. A lower coverage ratio means more of Junior capital is already being used to back Senior, so the market becomes tighter and Junior earns a higher premium. Losses are transferred through the market in order. Junior absorbs losses first, and Senior is only affected once Junior protection is exhausted. If the loss is small enough and may recover, the market can enter an Recovery Period before settling it permanently. If the loss is more severe, the market can skip the Recovery Period and move directly into settlement. The risk premium is determined by the market’s utilization curve. As more of Junior capital is used to provide protection, Junior becomes more valuable to the market and earns a higher premium. When Junior protection is more abundant, the premium paid to Junior is lower. Yes. The coverage ratio changes as users deposit, withdraw, and as the underlying asset gains or loses value. That means the market’s protection level is not static. It moves over time based on both capital flows and underlying performance. The Senior tranche earns a lower, more protected share of the market’s yield. Its APY depends on the market curve and the current balance between Senior and Junior capital. In normal conditions, it is designed to be lower-volatility than the raw underlying because Junior absorbs losses first. Its yield is still affected by the underlying asset's performance. The Junior tranche earns the residual yield of the market plus the risk premium paid by Senior. Its APY is higher because Junior provides the protection layer beneath Senior and absorbs losses first. As Junior protection becomes tighter, the premium paid to Junior increases. The Junior tranche is the first-loss side of the market. If the underlying asset experiences a negative NAV event, Junior absorbs that loss first and can lose a meaningful part, or all, of its value before Senior is affected. In return, Junior earns a higher expected return profile than Senior. Not always. Exit conditions depend on the market state and the tranche you hold. Junior withdrawals can be restricted if exiting would leave the market with too little protection. Senior is generally more liquid in normal conditions, but cannot exit during the Recovery Period. In practice, both tranches can face redemption constraints depending on market conditions. # Yield Markets Source: https://docs.exponent.finance/user-documentation/yield-markets *** Yield markets enable participants to **trade interest rates onchain** by buying or selling Principal Tokens (PT) and Yield Tokens (YT). By trading on Exponent's yield markets, users can lock fixed rates, take leveraged yield positions, or hedge existing yield exposure across SOL staking, lending, RWA, and stablecoin markets. Learn more about the mechanics behind yield stripping and interest rate trading [here](/user-documentation/yield-stripping-swap). ## How It Works Each Exponent yield market is derived from an underlying yield asset (e.g. JitoSOL) and split into their principal and yield components to let users choose their side of the trade. Through these markets users can swap variable rates for: * **Principal** Exposure (e.g. PT-JitoSOL) – essentially locking a fixed rate until maturity in exchange for foregoing the underlying variable yield. * **Yield** Exposure (e.g. YT-JitoSOL) – all the yield generated by the underlying market, essentially paying for guaranteed streams of variable yield. ## Key Concepts **Yield Stripping**: Exponent interest rate swap instruments are derivatives stripped from an underlying asset. When separated, each gives a specific exposure to the underlying, either principal or yield. This allows the secondary market to trade them and determine their implied rate, which represents the market’s expectation of the future realized rate. **Market-driven Rate**: Exponent markets are market driven by an **Implied Rate**, which defines the principal or yield exposure users get when trading: * PT-JitoSOL buyers pay for an Implied Rate they want to **lock** to hedge against the underlying * YT-JitoSOL traders pay for an Implied Rate they plan to **outperform** with the yield generated by the underlying exposure Because the combined value of YT and PT represents the underlying, trading one side of the market (e.g. PT-JitoSOL for fixed yield) affects the other inversely. Buying PT pushes the YT price down, and vice versa. **Maturity**: Yield markets are traded over a fixed time period. The maturity defines when that yield period ends and when the yield derivative assets settle back to the underlying asset. ## Trading Rates on Exponent Exponent yield markets can be traded on their individual maturity page. Users can select which exposure they want to trade: * **Income**: for Principal Token (PT) swaps * **Farm**: for Yield Token (YT) swaps Trade Principal Tokens at a discount to lock in a fixed return, redeemable at par at maturity regardless of where variable rates move. * Guaranteed fixed yield. 1 PT redeems for 1 unit of the underlying asset at maturity, with the return embedded in the purchase discount * Best if one expects variable rates to decline or wants predictable, passive returns without active management * PT is essentially a bet that locking today's implied rate is better than taking the variable yield over the remaining maturity Trade Yield Tokens at an Implied APY to get leveraged exposure to the underlying variable yield and protocol points with minimal capital. * Guaranteed stream of yields. 1 YT = the yield generated by 1 PT, whatever the price of YT is * Best if one believe the current implied APY is undervalued and the underlying APY will realize at a higher rate at maturity * YT is essentially a bet that the total yield distributed by maturity will exceed the cost of buying YT ## Instant vs. Limit Orders Users can trade yield markets on Exponent in two main ways: **instant orders** and **limit orders**. **Instant orders** execute immediately against available liquidity, either through the **Rate CLMM** or available liquidity on the **Rate Order Book**, depending on the market and routing path. They are best suited for users who want immediate execution. **Limit orders** are placed on the **Rate Order Book** and only execute if the market reaches the user’s specified implied rate. They are better suited for users who want tighter control over execution. | Feature | Instant Order | Limit Order | | -------------- | ------------------------------------------------ | ------------------------------------------------------ | | Execution | Executes immediately against available liquidity | Executes only if the market reaches the specified rate | | Speed | Immediate | Not guaranteed | | Pricing | Takes the best available execution at the time | User sets the execution level | | Venues | Rate CLMM or Rate Order Book | Rate Order Book only | | Best for | Fast entry or exit | Precise entries, exits, or passive order placement | | Slippage risk | Higher if liquidity is thin | No rate uncertainty, but may remain unfilled | | Fill certainty | Higher, assuming sufficient liquidity | Lower, depends on market conditions | Instant orders prioritize execution, while limit orders prioritize rate control. ## Understanding Risks and Returns Yield market positions carry different risk profiles depending on the instrument: * **PT holders** face opportunity cost risk. If variable rates spike above your locked fixed rate, you miss the upside. Your principal return at maturity is unaffected. * **YT holders** face directional risk. YT value decays as maturity approaches. If realized yield falls below the Implied APY at purchase, you receive less than your initial investment. * **Price fluctuation before maturity** - both PT and YT prices move based on changes in Implied APY. Selling before maturity exposes you to market risk. Holding PT to maturity eliminates this. * **Liquidity risk** - markets with low liquidity may have wide spreads. Large positions may experience slippage when exiting before maturity. At maturity, PT redeems at par regardless of liquidity. **YT returns** depend on: * The **realized yield** of the underlying asset until maturity * The **Implied APY** at the time of purchase (your cost basis) * Any **protocol incentives or emissions** distributed to YT holders * **Time remaining** - YT value decays toward zero at maturity A YT position is profitable when the total yield received exceeds the cost of acquiring the YT. **PT returns** are deterministic at entry. The fixed yield equals the spread between the purchase price and par value, annualized over the remaining maturity. Full yield is realized only at maturity. Early exit returns the current market price, which may be higher or lower. ## FAQ and Common Issues You receive the current market price, which may be higher or lower than your entry price. The fixed rate is only fully realized at maturity. If implied rates have moved in your favor (rates dropped), your PT may be worth more than you paid. If held to maturity, PT redeems at par - you receive your full fixed return. Before maturity, the market value can fluctuate. You can only realize a loss by selling before maturity at a lower price than you entered. YT decays in value over time as less future yield remains. Your total return includes both the market value of YT and any yield already collected. Check your total yield claimed alongside the current YT value for the full picture. The Implied APY is the market's consensus forward rate - what participants collectively expect the yield to average until maturity. It moves based on supply and demand for PT and YT. It is not the same as the underlying protocol's current APY. Buy PT if you want predictable returns or believe rates will decline. Buy YT if you believe realized yields will exceed what the market currently prices. # Yield Stripping & Swap Source: https://docs.exponent.finance/user-documentation/yield-stripping-swap *** Yield stripping is Exponent's core issuance mechanism. It strips an onchain yield asset into its principal and variable yield components for a defined maturity, creating two independently tradable instruments. This is analogous to how [US Treasury STRIPS](https://treasurydirect.gov/marketable-securities/strips/) separate a bond into its principal repayment and individual coupon payments. ## How Stripping Works When a yield asset is listing as an Exponent market: 1. An initial asset is locked in an Exponent's yield stripping vault for the market's maturity period 2. The protocol mints **1 PT (Principal Token)** — a claim on the deposited principal, redeemable 1:1 at maturity 3. The protocol mints **1 YT (Yield Token)** — a claim on all variable yield generated by that principal until maturity The fundamental accounting identity always holds: > **1 Underlying = 1 PT + 1 YT** For every unit of underlying asset stripped, the depositor receives exactly 1 PT and 1 YT. This identity enables the reverse operation (merging) and keeps pricing across instruments consistent. ## Stripping Example A user deposits 100 JitoSOL into the JitoSOL-31JUL25 market: | Input | Output | | ----------- | ---------------------------------------------------------------------------- | | 100 JitoSOL | 100 PT-JitoSOL-31JUL25 (redeemable for 100 SOL worth of JitoSOL at maturity) | | | 100 YT-JitoSOL-31JUL25 (collecting all staking yield until July 31, 2025) | The depositor can then sell one component and retain the other, sell both to different participants, or provide both as liquidity. ## Merging Merging is the inverse of stripping. A holder with equal amounts of PT and YT from the same market can combine them to recover the underlying asset at any time before maturity, with no cost beyond transaction fees. This arbitrage mechanism keeps PT + YT prices aligned with the underlying asset's value: * If PT + YT trades **below** the underlying, arbitrageurs merge for a profit * If PT + YT trades **above** the underlying, arbitrageurs strip for a profit ## Interest Rate Swap In practice, most participants interact with yield stripping indirectly through Exponent's trading interfaces rather than manually stripping and merging. **Underlying → PT (floating to fixed)** The participant gives up variable yield and receives a fixed return embedded in the PT discount. This is the onchain equivalent of a pay-floating, receive-fixed interest rate swap. **Underlying → YT (acquiring yield exposure)** The participant pays a premium to receive leveraged exposure to future variable yield. This is the onchain equivalent of acquiring a yield forward. These swaps execute on Exponent's Rate CLMM and Rate Order Book, where liquidity providers facilitate rate trading. ## Implied Rate Every Exponent market has an Implied Rate — the market-driven pricing of expected future yield until maturity. It is determined by supply and demand for PT and YT. The Implied Rate is a forward rate. It represents the market's consensus expectation and is not the same as the underlying protocol's current APY. | Action | Effect on Implied Rate | | ------------------------------------- | ---------------------- | | Buying PT (demand for fixed rates) | Implied Rate decreases | | Buying YT (demand for yield exposure) | Implied Rate increases | Because PT + YT = Underlying, trading one side always affects the other inversely. ## Flash Swaps Exponent’s trading infrastructure is primarily built around **PT** and the underlying yield asset, while **YT** is created through Exponent Core's stripping mechanism via 'Flash Swaps'. Rather than fragmenting liquidity for Exponent's interest rate instruments across separate venues or forcing users through multiple manual steps, Exponent can atomically strip or merge within the same transaction to complete the desired trade. In practice, flash swaps make YT trading feel like a normal swap flow, while the protocol handles the yield-stripping logic under the hood. ### How Flash Swaps Work Because the core accounting identity always holds: **1 Underlying = 1 PT + 1 YT** Exponent can use temporary access to one side of the market to complete a trade and settle the full position by the end of the transaction. This enables flows such as: * **Buying YT** by sourcing the required PT and underlying liquidity, then atomically stripping to deliver YT to the user * **Selling YT** by combining YT with PT through an atomic merge path, then routing the resulting underlying or PT into available liquidity * **Routing YT trades through PT-based liquidity** on the Rate CLMM or available liquidity on the Rate Order Book The user sees a direct YT trade, while the protocol handles the strip or merge logic internally. ### Why Flash Swaps Matter Flash swaps are important for three reasons: * **Better liquidity efficiency** — YT trading can use the same underlying market structure rather than depending on isolated YT-only liquidity * **Cleaner user experience** — users do not need to manually strip before buying or selling YT * **Consistent pricing** — YT pricing remains tied to PT and the underlying through the same core accounting identity This is especially important for the **Rate CLMM**, where liquidity is structured around **PT** and the underlying yield asset rather than around **PT** and **YT** directly. It is also relevant for **Rate Order Book** routing, where YT exposure can be traded through the same core yield market structure. Flash swaps are therefore a core primitive between **yield stripping as the issuance layer** and **YT trading as part of the exchange layer**. ## Post-Maturity Behavior | Instrument | Post-maturity | | ---------- | ---------------------------------------------------------------------------------- | | PT | Redeemable 1:1 for the underlying asset. No deadline to redeem. | | YT | Ceases to accrue yield. Uncollected yield remains claimable. Market value is zero. | ## Yield Routing and Emissions For yield sources that distribute rewards beyond the base yield (e.g. protocol points, airdrops, emission tokens), Exponent routes all such rewards to YT holders. * **PT holders** receive none of these additional incentives — they have been priced into the PT discount by the market as part of the fixed rate * **YT holders** receive the full variable yield including all rewards * The value of these rewards is reflected in YT pricing through the Implied Rate, priced by the market This routing is handled automatically by the protocol. YT holders can claim accrued yield at any time. # Yield Trading Explained Source: https://docs.exponent.finance/user-documentation/yield-trading-explained *** Yield trading is the practice of taking directional positions on the future yield of an asset. Instead of simply earning whatever rate a protocol pays, yield participants actively decide whether to lock in a fixed return or bet that rates will be higher than what the market expects. Exponent makes this possible through yield stripping - a mechanism that separates a yield asset into two tradable components for a defined maturity: **Principal Token (PT)** - represents the deposited principal, redeemable 1:1 at maturity. PT trades at a discount to its redemption value, and that discount is the fixed rate. Buying PT is the equivalent of swapping a variable rate for a fixed one. **Yield Token (YT)** - represents all the variable yield generated by the principal until maturity. Buying YT gives leveraged exposure to future yield at a fraction of the notional cost. 1 YT collects the yield earned by 1 unit of principal. This creates a two-sided market: * **Rate lockers** buy PT when they believe current implied rates are attractive or expect yields to decline. Their return is fixed at entry and realized at maturity. * **Rate speculators** buy YT when they believe realized yields will exceed what the market currently prices. Their return depends on whether the actual yield outperforms their cost basis. ## Get Started Exponent [**Strategy Vaults**](/user-documentation/strategy-vaults) offer a simpler way to access yield trading through one-click strategies managed within predefined onchain constraints, making them better suited for users who want exposure without needing to actively manage positions or understand the full mechanics of the market. More advanced participants can interact with [**Yield Markets**](/user-documentation/yield-markets) directly to trade PT and YT themselves, manage rate exposure more precisely, or [market-make](/user-documentation/liquidity) those markets to earn fees and express a more customized strategy. Access one-click yield trading strategies through managed vaults designed for a simpler and more passive experience. Trade PT and YT directly, manage fixed and variable rate exposure, and interact more actively with Exponent markets.