As yield-bearing assets (YBS) get institutionalised, LP demand will surge. But there’s a problem: current AMMs weren’t built for them. Because YBS accrue value over time (like @aave’s aTokens via rising exchange rates), LPs face a unique risk → yield-derived impermanent loss. As a matter of fact, most YBS accrue value overtime equivalent to the 'aToken' from @aave governed by an increasing exchange rate. This makes the underlying yield-wrapped asset appreciating over time i.e. wstETH. So here's the problem: Naive LP-ing in a yield-bearing <> base asset pair inevitably bleeds value over time. Why? Because as yield accrues unevenly, arbitragers extract the upside while leaving LPs holding more of the weaker asset + less of the appreciating one. In effect, LPs become the undertakers of yield-derived IL. ------ A Basic Outline 101: Here's an example using sUSDe/USDT pool: 1. Start: 1M sUSDe + 1M USDT *sUSDe accrues yield → climbs to $1.2 2. Arbitrage drains sUSDe → LP ends with fewer sUSDe, more USDT Result: LP is worse off than if they just held as a result of inevitable yield-derived IL. Furthermore, this is made worse in conc. LP as it's easier to end up in a single-sided non-active LP position as price swings. So what’s the fix? @Terminal_fi has a novel fix to this. This one is simple, yet game-changing. TerminalFi's DEX instead separate yield accrual from LP via 'Redeemable Tokens'. Here's how it works: 1⃣rUSDe acts a 'stable' wrapper that accounts & peg 1:1 to non-yielding USDe 2⃣Yield from sUSDe accrual gets paid out as new rUSDe supply *Here: LPs hold rUSDe, not sUSDe → no rebalancing losses This way, LPs capture yield without being exposed to yield-derived IL where pools stay stable, even as yield accrues And the benefits extends for capital efficient LP strategies: 🔸LPs can go narrower in concentrated ranges → max fee capture + tighter spreads 🔸Yield flows to LPs via claimable inflation, not arb losses TLDR what this unlocks: IL protection (from enhanced stabilised single-sided exposure) + more fees. ------ Final Thoughts: The cool thing is that this AMM model itself is generalisable to any yield-bearing asset stable pair. 1. Stable/stable pools (sUSDe/USDT, etc.) 2. Double-yield pairs (e.g. sDAI/sUSDe) *Even volatile YBAs like wstETH (e.g. wstETH/ETH) works perfectly. Secondary liquidity serves as the heartbeat of efficient markets, where it's a pre-requisite to scaling a robustly matured financial ecosystem. As YBS adoption scales on Converge, infra like Terminal is critical. This is the kind of novelty required to scale next-gen institutional markets with efficiency.