What is Covenant?
Covenant is a fully on‑chain and permissionless credit marketplace that matches leverage users (borrowers) with yield seekers (lenders).
Leverage has proven strong product-market fit in crypto: traders borrow to take levered long positions on volatile assets, or to run profitable carry trades on yield-bearing assets. Covenant provides a transparent, market-driven way to fund this activity:
for any crypto asset;
without relying on centrally- or governance-set interest rates;
without requiring a stablecoin liquidiy pool; and
without liquidations.
The Covenant Protocol coordinates leverage users (borrowers) with margin providers (lenders) for a given Covenant Market (e.g., ETH, WBTC, stETH, sUSDe) using two core instruments which can be minted or acquired:
Leverage Coins: provide leveraged exposure to the Base Asset’s price and (where applicable) its native yield. Holders continuously pay funding to Margin Coin holders at a rate implied by the Margin Coin’s market price.
Yield Coins: fully‑collateralized debt claims minted when a Base Asset is deposited into a Covenant Market. Margin Coins operate like tradeable perpetual, zero-coupon bonds with interest accrued at the rate implied by the Margin Coin’s market price.
These instruments are fully collateralized and redeemable to the Base Asset at all times.
Within each Covenant Market, funding and risk (leverage) are self‑balancing. The Covenant Protocol’s Latent Swap AMM couples Margin Coin price, Margin Coin interest rate, and the Covenant Market’s LTV:
When LTV rises (high leverage demand / low margin supply), Margin Coin prices fall, implied rates rise, and new lenders are drawn in—reducing LTV.
When LTV falls (low leverage demand / abundant margin supply), Margin Coin prices rise, implied rates fall, and lenders withdraw—raising LTV.
This mechanism makes Covenant operate like a perpetual, transparent margin lending exchange, where funding and leverage continuously balance.
To participate, lenders can either hold a specific market’s Yield Coin (i.e. lend to a specific Covenant Market / Base Asset) or, for supported assets, supply to a diversified yield pool, known as the Covenant sUSDz Yield Fund, represented by the receipt token $sUSDz.
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