Use Cases

Using FIVA

FIVA App provides access to the range of new DeFi use cases, allowing yield trading and execution of various yield strategies. Users can deposit yield-bearing assets into FIVA and mint two distinct tokens: Principal Tokens (PT), representing the principal of the yield-bearing asset, and Yield Tokens (YT), which give the holder the right to all yield generated by the asset. Both PT and YT can be traded within the FIVA marketplace.

Yield Splitting in FIVA

In traditional finance, FIVA’s approach mirrors bond stripping, where the principal and interest components of bonds are separated. In this analogy, PT functions similarly to a zero-coupon bond, while YT acts like the detached interest coupons.

Yield Strategies

Buying PT​

If you anticipate that the yield of an asset will decline, you might want to secure or hedge your yield exposure. You can do this by purchasing PT. Since PT guarantees the return of the underlying asset at maturity, buying PT effectively locks in your yield at the current FIVA Yield. In essence, by purchasing PT, you are fixing your return rate based on the current market conditions.

For example, if you purchase PT-stTON with a maturity of one year at a 5% FIVA Yield, you will receive 1.05 TON for every TON invested after maturity and redemption.

Buying YT​

Conversely, if you expect the yield of an asset to rise, buying YT allows you to capitalize on the increasing yield. By purchasing YT, you are gaining direct exposure to the yield component of the asset. The returns are influenced by changes in the underlying APY, providing a way to potentially profit from yield fluctuations.

Moreover, buying YT is more capital efficient than purchasing the underlying asset itself. This means you can acquire a larger quantity of YT for the same amount of capital, amplifying your exposure to the asset’s yield. For example, if YT is priced at 5% of the underlying asset, any increase in yield would result in a 20x return on your YT investment, as you can buy 20 times more YT than the underlying asset.

Providing Liquidity

If you believe that the yield of an asset is unlikely to experience major fluctuations, you can provide liquidity in FIVA’s pools to earn additional returns from swap fees and rewards. FIVA’s unique design minimizes the risk of Impermanent Loss (IL) that typically arises from price fluctuations in yield protocols.

Since PT and YT are closely linked to the price of the underlying asset (PT + YT = underlying), the primary IL risk in FIVA comes from changes in the demand for PT and YT rather than the underlying asset itself. If you provide liquidity up until the maturity date, IL risk is capped and minimized, as both PT and YT have the same value at maturity. This makes liquidity provision an effective hedge against your PT or YT positions.