Yield Curve
The protocol currently uses a piecewise linear curve to let the market determine the current fixed rate yield. The market demand/supply is indicated by the ratio between Total Yield
and Idle Yield
(see Yield Manager).
At any point in time, Total Yield
is tracked by
The best of the fixed term yield the protocol can offer, is the current yield. The worst the protocol can offer is 0 yield.
Now let's consider the boundary case. When Idle Yield / Total Yield = 1
, this means all yield is idle, i.e. there are a lot of LP2 (supply) but no LP1 (demand). In this case, new LP1 should get a good deal, so the right end of the curve is at the current yield.
On the other end, when hen Idle Yield / Total Yield = 0
, this means no yield is idle, i.e there are a lot of LP1 already (insufficient supply for the demand). In this case, new LP1 should shouldn't get a good deal, so the left end of the curve is at 0.
The curve in between is trying to let the market (demand vs supply) converges to a fixed yield rate.
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