> ## Documentation Index
> Fetch the complete documentation index at: https://docs.exponent.finance/llms.txt
> Use this file to discover all available pages before exploring further.
# Liquidity (Yield Trading)
***
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.