In this article, we explore FIVA’s unique Automated Market Maker (AMM) and how it powers a yield derivative market on the TON blockchain. If you’re new to liquidity pools, we recommend starting with our liquidity pools article to learn the basics. For those familiar with the fundamentals, this article will dive deeper into how PT (Principal Token) and YT (Yield Token) trading unlocks new opportunities for yield management and liquidity provision.

How FIVA’s AMM Creates New Use Cases and Supports Yield Management

FIVA introduces a first-of-its-kind yield derivative market on TON using the concept of yield stripping. This creates a marketplace for trading PT and YT tokens, giving users more ways to manage their yield positions. With FIVA, strategies that were previously impossible in traditional DeFi protocols become accessible.

With FIVA’s AMM, users can:

• Long or short yield positions: If you believe a protocol’s yield will decrease, you can sell YT tokens to lock in your current yield — essentially “shorting” future yield. Conversely, if you expect the yield to increase, you can buy YT tokens, speculating on higher future returns without locking up the underlying asset. This creates a capital-efficient strategy with the potential for up to 20x leverage.

• Engage in arbitrage: The creation of a PT and YT market opens up arbitrage opportunities. If PT tokens are priced below their maturity value or YT tokens are undervalued relative to expected yield, traders can step in to correct these imbalances and profit from price discrepancies.

By providing a marketplace for PT and YT tokens, FIVA enables new ways to trade, manage, and speculate on yield, bringing innovative utilities to DeFi on the TON blockchain.

Design of FIVA’s AMM

FIVA’s AMM facilitates trades between three assets — SY (Standardized Yield Token), PT, and YT — within a single liquidity pool. This ensures capital efficiency and increases yield opportunities for liquidity providers. Below are the key features of FIVA’s AMM:

1. Swaps Between SY, PT, and YT

In FIVA’s AMM, liquidity providers contribute PT and SY tokens within the same pool, while YT tokens are traded through a phantom swap mechanism.

• Minting and redeeming PT and YT: Users can mint PT and YT tokens from SY, or redeem SY tokens by providing equal amounts of PT and YT. This allows for fluid movement between SY, PT, and YT tokens, ensuring concentrated liquidity and reducing fragmentation.

• Phantom AMM for YT swaps: When a user swaps SY for YT, the AMM borrows SY from the pool, mints PT and YT tokens, sends the YT to the user, and returns the PT to the pool to maintain balance.

Example: Suppose you swap SY-tsTON for YT-tsTON. The AMM borrows SY from the pool, mints PT and YT tokens, sends YT to you, and returns PT to the pool. This seamless process ensures all trades happen within the same pool, concentrating liquidity and enhancing trading efficiency.

2. No Impermanent Loss (IL)

A standout feature of FIVA’s AMM is the elimination of impermanent loss — a common problem in traditional DeFi AMMs. Here’s how FIVA achieves this:

• PT + YT = Underlying Asset Value: The value of PT and YT always sums to the value of the underlying asset. As maturity approaches, PT’s value converges with the underlying asset’s value, while YT’s value decreases as the yield is claimed.

• How it works: PT may initially trade at a discount (e.g., 0.9 TON for 1 PT-tsTON) since it represents only the principal. Over time, PT’s value converges with the underlying asset value (1 TON). Since the combined value of PT and YT always equals the asset’s value at maturity, liquidity providers avoid losses from token price fluctuations.

Example: If you provide liquidity in a PT-tsTON pool and hold your position until maturity, PT’s value will reach 1 TON. Meanwhile, YT decreases in value as yield is distributed. By holding until maturity, you eliminate the risk of impermanent loss, ensuring you receive the full value of the underlying asset.

3. Efficient Liquidity Concentration

FIVA’s AMM allows all trades between SY, PT, and YT to occur within a single liquidity pool, which enhances capital efficiency compared to traditional AMMs, where separate pools are needed for each asset.

With all trades happening in one pool, liquidity providers earn fees from both PT and YT swaps, maximizing their capital efficiency and minimizing slippage for traders.

Example: Suppose you provide liquidity to a tsTON pool. By contributing SY-tsTON and PT-tsTON tokens, you also benefit from YT trades occurring within the same pool. This results in more trading activity and increased fee income from a single liquidity position.

Trading Strategies and Opportunities

FIVA’s AMM unlocks a range of strategies for managing yield positions. Here are a few common approaches:

• Yield speculation: Buy YT tokens if you expect the yield to increase, and benefit from the rising yield. Alternatively, short YT tokens if you think the yield will decrease, locking in your current yield.

• Arbitrage: If YT is underpriced relative to expected future yield, buy YT tokens and sell them once the price corrects. Similarly, if PT tokens are undervalued, buy them and hold until maturity to benefit from their appreciation.

Capital Efficiency and Enhanced Fee Generation

FIVA’s AMM ensures greater capital efficiency for both liquidity providers and traders:

• For Liquidity Providers: Since YT swaps are executed within the same PT/SY pool, LPs earn fees from both PT and YT trades, effectively doubling their fee-earning potential from a single liquidity position.

• For Traders: Concentrated liquidity across all trades reduces slippage, ensuring better price certainty and smoother execution — especially important for managing larger yield positions without liquidity fragmentation.

Summary

FIVA’s AMM combines unique features to enhance liquidity provision and yield management. By allowing trades between SY, PT, and YT tokens within a single pool, the AMM ensures capital efficiency and optimal liquidity conditions for both traders and liquidity providers. The elimination of impermanent loss and the ability to manage yield separately from the principal make FIVA’s AMM a game-changer in DeFi on the TON blockchain.

These tools empower users to actively manage yield exposure, speculate on future yield, and maximize capital efficiency — all within a transparent and decentralized framework.

Looking Ahead

In future articles, we’ll explore other advanced strategies and use cases for FIVA. Stay tuned to learn more about how these tools can help you become more strategic with your yield management and liquidity provision.

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