In order to create yield markets for DeFi products, Exponent needs to tokenize them in form of another. The Liquid Yield Token standard is used to tokenize deposits of DeFi positions into Liquid Yield Tokens (LYTs) so they can be used across DeFi applications. Each yield market has its own LYT implementation, but they all follow the same standard.

In Exponent’s case, LYTs are used for creating yield assets that give exposure to fixed and volatile yield of tokenized DeFi positions/products. They are used across several Exponent core products:

  • Exponent Prism: To create yield derivative assets (Income Tokens and yield shares),
  • Exponent Time-Dynamic AMM: They serve as the pair asset for any pool of their respective market.

Liquid Yield Tokens (LYTs) are shares of deposits in an underlying DeFi product, directly reflecting a 1:1 backing with each unit of deposited capital. As yield accumulates and the deposit’s value increases, LYTs grow in value. This is similar to tokenized staked accounts/pools, more often referred to as Liquid Staked Tokens (LSTs), which grow in value as more yield from staking inflation, MEV rewards, and priority fees get distributed to the staking account.

Tokenized asset deposits are not a new concept in DeFi — Compound has been a pioneer on that front with cTokens, which are tokenized receipts of deposits in Compound’s lending protocol, and other protocols on Solana have built such standard for their own products such as Solend’s cTokens for lending deposits or Kamino’s kTokens for liquidity positions.

But while primarily used for Exponent’s yield markets, LYTs can also be used by other protocols across the Solana ecosystem, such as AMMs, lending protocols, restaking protocols, or as the base of other derivatives.

Exponent 101 — Core ArchitectureExponent Prism - Yield Stripping Mechanism