# Welcome Covenant is a permissionless, fully on‑chain protocol for tranching risk on tokenized vaults. Any oracle-priced asset can be split into two fungible ERC‑20 claims: a senior debt tranche (Yield Coin) and a junior equity tranche (Leverage Coin). Both are fully collateralized against the underlying and redeemable on demand, with prices and the funding rate set continuously by an on‑chain market against the asset's net asset value. # What is Covenant? Covenant is a fully on‑chain and permissionless protocol for tranching risk on tokenized vaults. Any asset with a price oracle can be deposited into a Covenant Market and split into two fungible ERC‑20 claims: * a **senior tranche** (a **Yield Coin**), a fully collateralized debt claim that earns a market‑determined yield; and * a **junior tranche** (a **Leverage Coin**), an equity claim that pays funding to the senior in exchange for leveraged exposure to the underlying. Both tranches are fully collateralized against the deposited Base Asset and redeemable to it at any time. The split is permissionless and works: 1. for any oracle-priced collateral, including volatile assets (ETH, WBTC), yield-bearing assets (stETH, sUSDe), and tokenized RWAs; 2. without governance‑set interest rates; 3. without requiring a stablecoin liquidity pool; and 4. without per‑position liquidations. ## Two audiences, one market Covenant Markets clear two natural counterparties against the same collateral pool: * **Yield seekers** (treasuries, stablecoin DAOs, fixed‑income allocators) hold Yield Coins. The senior claim is first in the waterfall and earns funding paid by junior holders. * **Leverage seekers** (structured product issuers, leveraged-yield vaults, directional traders) hold Leverage Coins. The junior claim is a single ERC‑20 with embedded leverage. There is no recursive deposit/borrow loop, no liquidation price to monitor, and no per‑position margin account. Lenders who prefer diversified senior exposure across markets will be able to hold the **Covenant sUSDz Yield Fund** receipt token (`$sUSDz`), a forthcoming product that holds a portfolio of Yield Coins denominated in USD. ## Where the yield comes from Each Covenant Market is designed around a **Neutral LTV**. At Neutral LTV, the value of the collateral pool splits cleanly between the two tranches: $$V\_B = V\_Y + V\_L$$ where: * $$V\_B$$ = Base Asset NAV (mark-to-market value of the collateral pool); * $$V\_Y$$ = Yield Coin NAV (par debt outstanding to senior holders, also called the notional); * $$V\_L$$ = Leverage Coin NAV (residual claim on collateral at Neutral LTV). A market at 80% Neutral LTV splits $100 of Base Asset NAV into $80 of Yield Coin NAV (senior debt at par) and $20 of Leverage Coin NAV (junior equity, levered 5x). At Neutral LTV, each tranche's market price equals its NAV. Funding flows continuously from the junior tranche to the senior tranche. Both the funding rate and the market price of each tranche are set by an on‑chain market relative to the tranche's NAV. When the market moves away from Neutral LTV, Yield Coins trade at a discount to NAV (the discount *is* the yield) and Leverage Coins clear at the corresponding price. Because senior yield is generated by leverage demand against the AMM rather than a slice of the underlying's yield, a Covenant Market can be deployed against any oracle-priced asset, including non‑yield‑bearing collateral (raw ETH, WBTC) and tokenized vaults with redemption windows (RWAs). The full mechanism is described in [How tranching works](/protocol-mechanism/how-does-covenant-work) and [The Latent Swap AMM](/protocol-mechanism/latent-swap-amm). # Yield Coin The **Yield Coin** is the senior tranche of a Covenant Market: a fully collateralized debt claim on the Base Asset, minted when collateral is deposited and redeemable back to the Base Asset on demand. A Yield Coin is a perpetual, zero-coupon bond. It is issued at par to its NAV (notional) and trades on the Latent Swap AMM at a price below par. The discount to NAV *is* the yield: a holder who buys at a price `P` soft-locks an implied APY of `r = -ln(P / D)`, where `D` is the market's duration parameter. As the implied rate moves over time, the Yield Coin's NAV accretes (or, in extreme cases, decretes), so the position remains a tradeable claim on the underlying collateral at all times. ## Where the yield comes from Yield Coin holders receive funding from Leverage Coin holders in the same Covenant Market. Funding is not paid as a separate cash flow; it accrues continuously as a transfer of NAV from the Leverage Coin tranche to the Yield Coin tranche. The Yield Coin's NAV grows at the implied rate; the same amount is removed from the Leverage Coin's residual claim on the collateral pool. (When the implied rate is negative, i.e. Yield Coin trading above par, the transfer reverses.) The market price of the Yield Coin sets the rate, and the Latent Swap AMM clears that price continuously. As leverage demand rises, Yield Coin prices fall, the implied rate rises, and new senior capital is drawn in. As leverage demand falls, Yield Coin prices rise and the implied rate compresses. ## Who it's for Yield Coins are designed for users who want a senior claim on a specific Base Asset: * **Treasuries and stablecoin DAOs** seeking a fully collateralized, on-chain credit exposure with a market-priced rate; * **Fixed-income allocators** who want to soft-lock a yield by buying at a price; * **Onchain credit funds and structured product issuers** who use Yield Coins as a fungible building block for downstream products. Lenders who prefer diversified senior exposure across multiple Covenant Markets will be able to hold the **Covenant sUSDz Yield Fund** receipt token (`$sUSDz`) instead. The sUSDz Yield Fund, a forthcoming product, holds a portfolio of USD-quoted Yield Coins across markets and is redeemable at NAV. ## Risk profile Yield Coins have first call on the collateral in a Covenant Market. Junior holders (Leverage Coin) absorb losses first; senior holders are protected up to the depth of the junior buffer. There are no per-position liquidations and no liquidation cliffs. Risk is repriced continuously by the Latent Swap AMM rather than enforced through forced unwinds: as junior capital thins, leverage becomes progressively more expensive, drawing in new junior capital before the senior buffer is exhausted. A Yield Coin is exposed to the same Base Asset whose price oracle defines the market. If Base Asset NAV falls below Yield Coin NAV outstanding, senior holders take on residual price exposure to the Base Asset. ## Key properties * **Fungible ERC‑20.** Composable across DeFi venues. Per-market, not pooled across collateral assets. * **Permissionless mint and redeem.** Yield Coins can be minted by depositing the Base Asset, swapped into via the Latent Swap AMM, and redeemed back to the Base Asset at any time. * **Market-priced rate.** Yield is set by the AMM price of the Yield Coin. Buying at a price soft-locks the implied rate as the realized return. * **Senior in the waterfall.** First call on Base Asset collateral, ahead of Leverage Coin holders. * **Diversified exposure (coming soon).** Hold individual market Yield Coins for concentrated exposure today; `$sUSDz` will offer diversified exposure across markets once the sUSDz Yield Fund launches. # Leverage Coin The **Leverage Coin** is the junior tranche of a Covenant Market: a fungible equity claim on the Base Asset collateral pool, minted when collateral is deposited and redeemable back to the Base Asset on demand. A Leverage Coin gives its holder leveraged exposure to the Base Asset's price, plus any native yield the asset produces (for example, the staking yield in stETH or the strategy yield in a tokenized vault), in exchange for paying funding to Yield Coin holders. Effective leverage is set by the market's loan-to-value: $$\text{effective leverage} = \frac{1}{1 - \text{LTV}}$$ A market running at 80% LTV gives Leverage Coin holders 5x effective leverage on the underlying. Leverage is structural rather than synthetic: a Leverage Coin holder does not borrow against collateral, so there is no loan to repay, no margin account to maintain, and no liquidation price to monitor. ## Where the return comes from Leverage Coins capture the residual Base Asset NAV in a Covenant Market after the Yield Coin NAV (notional). Their return has three components: 1. **Leveraged price exposure** to the Base Asset. A 1% move in the Base Asset price translates into a roughly *effective leverage* × 1% move in Leverage Coin value. 2. **Leveraged native yield**, where the Base Asset itself is yield-bearing. The full yield stream of the underlying flows to Leverage Coin holders. 3. **Funding cost** paid to Yield Coin holders, accruing continuously as a transfer of NAV from the Leverage Coin to the Yield Coin (rather than a separate cash payment). When the implied rate is negative, the transfer reverses and the Leverage Coin's claim grows at the Yield Coin's expense. For a Base Asset with native yield `y` and a market funding rate `r` implied by the Yield Coin price, the Leverage Coin's net carry (before price moves) is approximately `(y × effective leverage) - (r × LTV / (1 - LTV))`. In cheap funding environments this carry can be strongly positive; in tight funding environments it can be negative, in which case the Leverage Coin holder relies on price appreciation to outpace funding drag. ## Who it's for Leverage Coins are designed for users who want concentrated, leveraged exposure to a specific Base Asset: * **Leveraged-yield strategies and structured product issuers** who want a single ERC‑20 expressing a leveraged carry position, without running a recursive deposit/borrow loop; * **Directional traders** who want amplified long exposure to a Base Asset's price without a margin account or liquidation watchlist; * **Onchain credit and basis traders** who want to express a view on the funding rate by sizing their position into the junior tranche. ## Risk profile Leverage Coin holders are first in the loss waterfall: they absorb declines in the Base Asset's value (i.e. losses on the collateral) before Yield Coin holders are affected. The maximum loss is the Leverage Coin notional, never more than the holder's deposit. There is no liquidation event for any individual position; the protocol does not force-close junior positions when LTV rises. Instead, the Latent Swap AMM reprices leverage continuously, so the cost of holding a Leverage Coin rises smoothly with leverage demand. In normal operation, funding drag is the dominant risk: if the Base Asset's price stays flat and its native yield is low, Yield Coin NAV grows against the Base Asset NAV over time, eroding the Leverage Coin's claim. Holders manage this by sizing the position against their view on price and funding cost. ## Key properties * **Single ERC‑20, embedded leverage.** No looping, no per-position margin account, no liquidation price. * **Permissionless mint and redeem.** Leverage Coins can be minted by depositing the Base Asset, swapped into via the Latent Swap AMM, and redeemed back to the Base Asset at any time. * **First-loss against the Base Asset.** Junior in the waterfall; absorbs losses on the collateral ahead of Yield Coin holders. * **Captures full underlying yield (where applicable)** at the market's effective leverage, less funding paid to senior holders. * **Per-market exposure.** Each Leverage Coin is redeemable to its specific Base Asset, not pooled across markets. # Home page The landing page shows a list of all market opportunities to mint leverage-coins and yield-coins on Covenant, by depositing base assets.
**Market Details** * **Base Asset**: The ERC20 token that can be deposited in the market, which will collateralize the leverage and yield coins * **Liquidity**: The current market liquidity of base tokens * **Leverage Coin**: The target leverage against the underlying base asset. * **Yield Coin**: The APY you lock (and earn) when buying (and holding) a yield-coin, and the currency unit the yield-coin is denominated in (and in which it earns yield). * **Yield Duration**: Determines the price-yield relationship for the yield-coin, and the average duration in which yields are locked given price movements and interest accrual (see perpetual debt whitepaper for more details). # Market page The market page shows details for the chosen market on the top, including the base asset, the yield unit, the current market liquidity, as well as the current leverage for the leverage-coin (as well as target leverage), and the current yield for the yield-token (as well as the yield duration), as shown below.
From this page, users can swap, mint or redeem base assets, leverage-coins and yield-coins as described below: * [Swap](/user-guide/market-page/swap) * [Mint](/user-guide/market-page/mint) * [Redeem](/user-guide/market-page/redeem) Finally, on the right side, users can historical prices for leverage-coins and yield-coins given historical swaps in the internal Latent-Swap DEX.
# Swap The swap panel allows users to swap between the base asset, the leverage-coin (aXXX) and the yield-coin (zXXX). Dropdowns allow users to choose the direction of swap and enter an amount to be swapped. Estimated swap outputs and swap price are shown before swapping. If a user wants leverage-coins or yield-coins directly, there is no need to mint and then swap - users can direclty swap base assets for leverage- or yield-coins in the Swap panel. In a similar way, users can redeem their leverge- and yield-coins for base assets in the Swap panel.
# Mint The Mint panel allows users to deposit base assets and mint leverage-coin and yield-coin tokens in a balanced manner - without affecting the market price. That is, users mint leverage- and yield-coins proportional to the current ratio of these coins in the market.
# Redeem The Redeem panel allows users to redeem any amount of leverage-coins or yield-coins for base assets. These do not have to be balanced, and might have a price impact on the underlying Latent Swap DEX.
# Covenant Incentives (Talents) Covenant rewards participation in the protocol through an incentives program based on **Talents**. **Talents** are points that track your contribution to Covenant. They are earned by: * Providing capital to Covenant markets * Referring other users to the protocol Talents are tracked off-chain and displayed on a **leaderboard**, allowing users to compare their participation across the ecosystem. The incentives program runs in **seasons**, with a fixed maximum number of Talents distributed each season. *** ## Season 2 Season 2 runs for 17 **weeks: June 1st to September 30th**. During this period, Covenant will distribute up to **17,000,000 Talents (maximum)** Distribution rules: * A maximum of **4,000 Talents per $100 deposited** in Covenant * Talents are distributed **proportionally** to the time-weighted TVL deposited or referred Talents are split between: * **95% → Users** * **5% → Referrers** *** ## User Talents Users earn Talents are distributed proportionally to the **long-term exposure** to Covenant markets. Rather than rewarding short-term deposits, the system favors **consistent participation over time**. User rewards are calculated using the following metric: $$ User Score =D\_1^{1/2}.D\_{20}^{1/2}.T.R $$ Where * $$D\_1$$ is the user's daily deposit TVL across participating markets * $$D\_{20}$$ is the user's average 20-day deposit TVL across participating markets * $$T$$ is a +10% additional factor if the user follows Covenant on Twitter * $$R$$ is a +10% additional factor if someone referred the user Talents are distributed daily in proportion to each user's score. ### Why this metric? This design encourages healthy liquidity and discourages opportunistic farming. It does so by: * **Rewarding consistent TVL** maintained over longer periods * **Penalizing volatility**, such as rapidly depositing and withdrawing capital In practice, this means users who maintain stable exposure over time earn more Talents than users who briefly deposit large amounts. *** ## Referrer Talents Referrers earn Talents based on factors including the **TVL contributed by the users they referred**. This uses the same long-term exposure logic as the user calculation, but based on the aggregate deposit of all individuals they referred. $$ Referrer Score =R\_1^{1/2}.R\_{20}^{1/4}.T $$ Where * $$R\_1$$ is the referred daily deposits TVL across participating markets * $$R\_{20}$$ is the referred average 20-day deposit TVL across participating markets * $$T$$ is a +10% additional factor if the referrer follows Covenant on Twitter Note that for referrals, the ¼ power is used for the 20 day average, leading to a sublinear increase of the referrer score vs TVL.
*** ## Worked Example Consider the following simplified example. #### User Activity Alice deposits **$10,000** into Covenant and keeps it there consistently. After 20 days: * $$D\_1 = 10,000$$ * $$D\_{20} = 10,000$$ Her score becomes: $$\begin{align\*} User Score &= 10,000^{1/2} \* 10,000^{1/2} \ &= 100 \* 100\ &= 10,000 \end{align\*}$$ Now consider Bob. Bob deposits **$10,000 most days,** but last week took it out of Covenant markets for a few days His averages become: * $$D\_1 = 10,000$$ * $$D\_{20} = 8,100$$ His score becomes: 9,000 # Live markets A **Covenant Market** is a permissionless tranching market deployed against a single oracle-priced Base Asset. Each market splits its Base Asset into two fungible ERC‑20 tranches: a senior Yield Coin and a junior Leverage Coin, with prices and the funding rate cleared continuously by the [Latent Swap AMM](/protocol-mechanism/latent-swap-amm). Each market is calibrated to one of the standard [Market types](/markets/market-types), which define the Neutral LTV, duration, price band, fees, and gates that suit a given collateral profile. In the app, the four types appear under their short names — **x5 wide**, **x5 slim**, **x2 wide**, **x2 slim** — where x5 / x2 is the structural leverage and wide / slim is the price-band width. Markets are quoted in one of two debt units: **USD** (stablecoin, RWA, and yield-vault collateral) or **MON** (Monad liquid-staking tokens). Live TVL, rates, prices, and capacity are on the [Covenant app](https://app.covenant.finance) — they change block to block, so this page lists only each market's fixed identity. Token tickers link to the contract on MonadVision. ## USD-quoted markets | Base asset | Strategy | Market type | Yield Coin | Leverage Coin | | | -------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | | **bbqUSDC** | [Steakhouse High Yield USDC ↗](https://app.morpho.org/monad/vault/0xbeEFf443C3CbA3E369DA795002243BeaC311aB83) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`USD.b.bbqUSDC`](https://monadvision.com/token/0xdFf181C68dae5f848BA7f8B20566D0E88f1E1404) | [`bbqUSDCx5.USD`](https://monadvision.com/token/0x5E533aD38D3873911B77507A083b4290d4e94E26) | [Mint ↗](https://app.covenant.finance/market/0x2BbB31F07Be3bf497adA87eb9446e0Eb5F937C89?action=mint) | | **aHYPER** | [Hyperithm Delta Neutral Vault ↗](https://yield.accountable.capital/vaults/0xD0943c76ee287793559c1dF82E5B2B858Dd01Ef3) | x5 slim · [80/20 Concentrated](/markets/market-types/80-20-concentrated) | [`USD.b.aHYPER`](https://monadvision.com/token/0x8967a44Ed642ac5Ff324C7a9C465199F9C9E10cd) | [`aHYPERx5.USD`](https://monadvision.com/token/0x69CFf64785760aeB4Ef592CE8878777Cc42759fA) | [Mint ↗](https://app.covenant.finance/market/0xBe9B86B9B2992701Bb70805c5e7cED0D6129F9AB?action=mint) | | **StablesLP** | [Balancer v3 stable pool (wnAUSD / wnUSDC / wnUSDT0) ↗](https://balancer.fi/pools/monad/v3/0x2daa146dfb7eaef0038f9f15b2ec1e4de003f72b) | x5 slim · [80/20 Concentrated](/markets/market-types/80-20-concentrated) | [`USD.b.wnAUSD-wnUSDC-wnUSDT0`](https://monadvision.com/token/0xCe89C65326680A5c5e5317977530dCfb0a2AE67c) | [`wnAUSD-wnUSDC-wnUSDT0x5.USD`](https://monadvision.com/token/0x119083081A2bC348aDBfebc64e86Ac70b84ac2C4) | [Mint ↗](https://app.covenant.finance/market/0x072ec0649B821B1647bA5a1a4fA32342b1E98279?action=mint) | | **hyperUSDCa** | [Hyperithm USDC Apex ↗](https://app.morpho.org/monad/vault/0x78999cc96d2Ba0341588C60CcB0E91c6C33CF371) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`USD.b.hyperUSDCd`](https://monadvision.com/token/0xb73957DbB96D9dfd3Bc1e818001DF66CAB8ccbc5) | [`hyperUSDCdx5.USD`](https://monadvision.com/token/0xe5fe0887357f29B89193A29f81D8C8c040ACD8fe) | [Mint ↗](https://app.covenant.finance/market/0xDAE76886306e311307B0D406394555377c21A3e6?action=mint) | | **aHYPER** | [Hyperithm Delta Neutral Vault ↗](https://yield.accountable.capital/vaults/0xD0943c76ee287793559c1dF82E5B2B858Dd01Ef3) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`USD.b.aHYPER`](https://monadvision.com/token/0x02e092532583bd48E47cCEB44c2B2f1913727498) | [`aHYPERx5.USD`](https://monadvision.com/token/0xf457d970036A2B78A03Afe8B41Ae21A2B8AF0835) | [Mint ↗](https://app.covenant.finance/market/0xeB91150761Cf353D9d9Cd932D87B9E3a33649B5f?action=mint) | | **naccUSDC** | [sUSN Delta Neutral Yield Vault ↗](https://yield.accountable.capital/vaults/0xd43F8443Bd91829b36153e33d3e631Bdd3b93844) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`USD.b.naccUSDC`](https://monadvision.com/token/0x7Baba501946144A2c4Cd953EFf9f83A800C553e5) | [`naccUSDCx5.USD`](https://monadvision.com/token/0xa3Ef50500dbCF5b7135889fC6Ab0d9e52d206802) | [Mint ↗](https://app.covenant.finance/market/0xc387A0dD7c67e96B0522B40C0425274eda8Ec8B2?action=mint) | | **shMON** | [ShMonad ↗](https://shmonad.xyz/) | x2 wide · [50/50 Wide](/markets/market-types/50-50-wide) | [`USD.b.shMON`](https://monadvision.com/token/0x1f537cE577C91FAb77eF3d803E7125faaA38F906) | [`shMONx2.USD`](https://monadvision.com/token/0x8Ee1c0C21d459bebf1544b56aF04B6f485A9e0a8) | [Mint ↗](https://app.covenant.finance/market/0xC731F60dBDc480110E1fb135e985eE25D85c21bD?action=mint) | | **WETH** | [Wrapped Ether ↗](https://app.uniswap.org/swap?chain=monad\&inputCurrency=NATIVE\&outputCurrency=0xee8c0e9f1bffb4eb878d8f15f368a02a35481242) | x2 wide · [50/50 Wide](/markets/market-types/50-50-wide) | [`USD.b.WETH`](https://monadvision.com/token/0x2e9f16DEd4fC6Df5F2E641e279946f1ce462a3a5) | [`WETHx2.USD`](https://monadvision.com/token/0x2Bb447963B0aBbeceFaC6AC80DaA8c55bd96B383) | [Mint ↗](https://app.covenant.finance/market/0x1CF32aAbab09cF73D5EbD22D08d472F9AAaC0650?action=mint) | | **sbMU** | [Asia Credit Yield Vault ↗](https://yield.accountable.capital/vaults/0x78f9486C71371bB5af50cBCdf4BACDC298eC8A97) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`USD.b.sbMU`](https://monadvision.com/token/0x943Ee8a6Be28467C2763a98C62ad9E7A1537Fc6A) | [`sbMUx5.USD`](https://monadvision.com/token/0x562d8Ba5f99EDFbcC18f399A3766B3D1967c058f) | [Mint ↗](https://app.covenant.finance/market/0x84d4052c25391d26B16A685218b9eE8D9c78e4F8?action=mint) | | **earnAUSD** | [Upshift AUSD pool ↗](https://app.upshift.finance/pools/143/0x36eDbF0C834591BFdfCaC0Ef9605528c75c406aA) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`USD.b.earnAUSD`](https://monadvision.com/token/0xf5b54DC84a52634d1F50284388708ac3d828E827) | [`earnAUSDx5.USD`](https://monadvision.com/token/0x014169722539692a3cd1A77D429e659439542004) | [Mint ↗](https://app.covenant.finance/market/0xf30D107691FDE017FBf47af10EEA67607dfa6F13?action=mint) | | **bbqAUSD** | [Steakhouse High Yield AUSD ↗](https://app.morpho.org/monad/vault/0xbeeffeA75cFC4128ebe10C8D7aE22016D215060D) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`USD.b.bbqAUSD`](https://monadvision.com/token/0xE3715389656C546c80379B2D1ff144D6817c6622) | [`bbqAUSDx5.USD`](https://monadvision.com/token/0x2f2dA409D5a42ccc5909dE0eBC8fBB80Cd855b10) | [Mint ↗](https://app.covenant.finance/market/0x3Ed929B6C215655dFBa05dCD524494C1644E4912?action=mint) | ## MON-quoted markets | Base asset | Strategy | Market type | Yield Coin | Leverage Coin | | | ---------- | --------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------- | | **shMON** | [ShMonad ↗](https://shmonad.xyz/) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`MON.b.shMON`](https://monadvision.com/token/0x4EcEE86813246f052266f4d8BaA414E83C41CA35) | [`shMONx5.MON`](https://monadvision.com/token/0x820f3348Dc57fa639167Fa94C46650df01c88B1d) | [Mint ↗](https://app.covenant.finance/market/0xB17Ed620936f4F90C53D554f4CE4cf654855bCF0?action=mint) | | **gMON** | [Magma ↗](https://www.magmastaking.xyz/) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`MON.b.gMON`](https://monadvision.com/token/0xBC19aC589c66e3661B8DCe5CAa29838279Bd733A) | [`gMONx5.MON`](https://monadvision.com/token/0xC3932F079eA871aF1A18e6530b9F9E8Eab5BDa4F) | [Mint ↗](https://app.covenant.finance/market/0x544e60C94E9AA394Db6b0ed7868EB29b8745CD46?action=mint) | | **sMON** | [Kintsu Staked Monad ↗](https://kintsu.xyz/staking) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`MON.b.sMON`](https://monadvision.com/token/0xB60812eB6d15d395eA3c41B989fcb4c08A30D63a) | [`sMONx5.MON`](https://monadvision.com/token/0x75CAc36502ba8FDdEF8711F9a161A785C8D37B1a) | [Mint ↗](https://app.covenant.finance/market/0xB2C399D52B748bcabAbF1fFaB623135bBd2aA69a?action=mint) | | **aprMON** | [aPriori Monad LST ↗](https://stake.apr.io/) | x5 wide · [80/20 Wide](/markets/market-types/80-20-wide) | [`MON.b.aprMON`](https://monadvision.com/token/0x5815A1fd745Be35AF048DFB6227416c07D23C8Fd) | [`aprMONx5.MON`](https://monadvision.com/token/0xC59B6A252AE39C29BF9C9a501025A41EFDA3604c) | [Mint ↗](https://app.covenant.finance/market/0xc0E43BE9048549AA7d4c78A20Ce6C50AAe603875?action=mint) | Note that **aHYPER** trades in two markets with different calibrations: the original x5 slim (80/20 Concentrated) market and a newer x5 wide (80/20 Wide) market. Likewise, **shMON** has both a USD-quoted x2 market and a MON-quoted x5 market. For an end-to-end walkthrough of how the tranching mechanics play out on a live market, see [Worked example: aHYPER](/protocol-mechanism/worked-example). # Market types A **market type** is a parametric template for a Covenant Market. It specifies the Neutral LTV, duration, price band, fees, and gates that together define how the market behaves under stress and at equilibrium. A single market type can be deployed against many Base Assets; for example, all major-crypto markets (BTC, ETH, MON) share the same 80/20 Wide template, while RWA-style yield-bearing collateral typically uses the 80/20 Concentrated template. Four market types are currently in production. They span two design axes: * **Leverage / buffer split (80/20 vs 50/50).** The senior / junior NAV split at Neutral LTV. 80/20 markets give 5x structural leverage to the junior tranche and an 8–10% loss buffer; 50/50 markets give 2x leverage and a 20% buffer. * **Price band width (Wide vs Concentrated).** The AMM's operating range. Wide bands absorb base-asset price volatility but slip more on swaps; Concentrated bands concentrate liquidity around par for tight swaps but accommodate less collateral drawdown before stress gates engage. ## Comparison | Market type | Neutral LTV | Structural leverage | Min / max price | Neutral rate | Min buffer | Best for | | -------------------------------------------------------------- | ----------- | ------------------- | --------------- | ------------ | ---------- | --------------------------------------------------------------------- | | [80/20 Wide](/markets/market-types/80-20-wide) | 80% | 5x | 0.37 / 1.02 | 4% | 8% | Volatile major crypto (BTC, ETH, MON, HYPE) | | [80/20 Concentrated](/markets/market-types/80-20-concentrated) | 80% | 5x | 0.97 / 1.00 | 4% | 10% | Yield-bearing low-volatility collateral (RWAs, stables, LST pairs) | | [50/50 Wide](/markets/market-types/50-50-wide) | 50% | 2x | 0.80 / 1.07 | 4% | 20% | Volatile collateral with conservative leverage / new assets | | [50/50 Concentrated](/markets/market-types/50-50-concentrated) | 50% | 2x | 0.96 / 1.01 | 4% | 20% | Moderately volatile collateral (LST/USD, equity indices, mezz credit) | All four types share the same duration (`D = 3 month perpetual`) and currently charge no protocol fee on funding yield. Swap fees differ: 5 bps for 80/20 markets (deep liquidity around par), 30 bps for 50/50 markets (compensates junior LPs for the lower-leverage book). See the [Glossary](/resources/glossary) for definitions of each parameter. # 80/20 Wide *A Covenant Market type calibrated for volatile collateral.* The **80/20 Wide** market is a Covenant Market for volatile collateral, such as major crypto assets like BTC, ETH, MON, and HYPE. Deposits are split into a Yield Coin (senior, \~4% target yield) and a Leverage Coin (junior, \~5x leveraged exposure to the collateral's NAV returns). The wide price band absorbs price volatility in the underlying, at the cost of larger swap slippage for both tranches. ## Market characteristics * High Yield Coin price volatility and swap slippage * \~5x Leverage Coin neutral structural leverage * Minimum buffer: 8% * Broad yield and price bounds ## Parameters ### Core | Parameter | Value | | --------------- | ------------------- | | Neutral LTV | 80% | | Duration | 3 month perpetual | | Min / max price | 0.37 / 1.02 | | Swap fee | 5 bps | | Protocol fee | None (0% currently) | ### Rates | Parameter | Value | | ------------ | ------ | | Max rate | 5,225% | | Neutral rate | 4% | | Min rate | -2.5% | ### Gates | Parameter | Value | | ------------ | --------- | | High LTV | 92% | | Max LTV | 96% | | Workout rate | -1% daily | ## Curves
80/20 Wide market specification

80/20 Wide: parameters, funding rate curve, and discount price curve.

*The wide band lets the Yield Coin discount deeply at low LTV (to \~0.37 of NAV, implying extreme funding rates off-chart) and slightly above par at high LTV. Above the Max LTV gate (96%), workout pricing takes effect (not shown).* # 80/20 Concentrated *A Covenant Market type calibrated for stable-yield collateral.* The **80/20 Concentrated** market is a Covenant Market for low-volatility, yield-bearing collateral such as tokenized credit funds (HYBOND, ACRDX, JAAA), tokenized treasuries (BUIDL, JTRSY), yield-bearing stablecoin vaults (sUSDS, sUSDe), and ETH-LST pairs (stETH/ETH, weETH/ETH). Deposits are split into a Yield Coin (senior, \~4% target yield) and a Leverage Coin (junior, \~5x leveraged exposure to the collateral's NAV returns). The narrow price band concentrates liquidity around par, producing tight, low-slippage swaps for both tranches. ## Market characteristics * Low Yield Coin price volatility * \~5x Leverage Coin neutral structural leverage * Minimum buffer: 10% * High LTV and Leverage volatility * Narrow yield and price bounds ## Parameters ### Core | Parameter | Value | | --------------- | ------------------- | | Neutral LTV | 80% | | Duration | 3 month perpetual | | Min / max price | 0.97 / 1.00 | | Swap fee | 5 bps | | Protocol fee | None (0% currently) | ### Rates | Parameter | Value | | ------------ | ----- | | Max rate | 16.5% | | Neutral rate | 4% | | Min rate | 3.5% | ### Gates | Parameter | Value | | ------------ | --------- | | High LTV | 90% | | Max LTV | 96% | | Workout rate | -1% daily | ## Curves
80/20 Concentrated market specification

80/20 Concentrated: parameters, funding rate curve, and discount price curve.

*As LTV rises, the AMM clears the Yield Coin closer to par, compressing its yield toward the Neutral rate. At low LTV, excess senior supply forces a discount and a higher funding rate. Above the Max LTV gate (96%), workout pricing takes effect (not shown).* # 50/50 Wide *A Covenant Market type with conservative leverage and a wide price band for volatile collateral.* The **50/50 Wide** market is a Covenant Market for volatile collateral where lower leverage and a wider safety buffer are preferred: major crypto assets (BTC, ETH, MON, HYPE), long-tail tokens, and newly launched assets without an extended price history. Deposits are split into a Yield Coin (senior, \~4% target yield) and a Leverage Coin (junior, \~2x leveraged exposure to the collateral's NAV returns). The wide price band absorbs price volatility in the underlying; the 50% senior / 50% junior split absorbs twice the loss buffer of the 80/20 configuration. ## Market characteristics * High Yield Coin price volatility and swap slippage * \~2x Leverage Coin neutral structural leverage * Minimum buffer: 20% * Broad yield and price bounds ## Parameters ### Core | Parameter | Value | | --------------- | ------------------- | | Neutral LTV | 50% | | Duration | 3 month perpetual | | Min / max price | 0.80 / 1.07 | | Swap fee | 30 bps | | Protocol fee | None (0% currently) | ### Rates | Parameter | Value | | ------------ | ----- | | Max rate | 159% | | Neutral rate | 4% | | Min rate | -22% | ### Gates | Parameter | Value | | ------------ | --------- | | High LTV | 80% | | Max LTV | 90% | | Workout rate | -1% daily | ## Curves
50/50 Wide market specification

50/50 Wide: parameters, funding rate curve, and discount price curve.

*The wide band lets the Yield Coin discount deeply at low LTV (to \~0.80 of NAV, implying extreme funding rates off-chart) and trade above par at high LTV. Above the Max LTV gate (90%), workout pricing takes effect (not shown).* # 50/50 Concentrated *A Covenant Market type with a wider safety buffer for moderately volatile collateral.* The **50/50 Concentrated** market is a Covenant Market for collateral that warrants a wider junior cushion: moderately volatile assets like tokenized equity indices (SPXA), LST-vs-USD pairs (stETH/USD, stMON/USD), as well as newer tokenized credit funds, mezzanine and BBB credit tranches. Deposits are split into a Yield Coin (senior, \~4% target yield) and a Leverage Coin (junior, \~2x leveraged exposure to the collateral's NAV returns). The narrow price band concentrates liquidity around par; the 50% senior / 50% junior split absorbs twice the loss buffer of the 80/20 configuration. ## Market characteristics * Low Yield Coin price volatility * \~2x Leverage Coin neutral structural leverage * Minimum buffer: 20% * High LTV and Leverage volatility * Narrow yield and price bounds ## Parameters ### Core | Parameter | Value | | --------------- | ------------------- | | Neutral LTV | 50% | | Duration | 3 month perpetual | | Min / max price | 0.96 / 1.01 | | Swap fee | 30 bps | | Protocol fee | None (0% currently) | ### Rates | Parameter | Value | | ------------ | ----- | | Max rate | 20.5% | | Neutral rate | 4% | | Min rate | -1% | ### Gates | Parameter | Value | | ------------ | --------- | | High LTV | 80% | | Max LTV | 96% | | Workout rate | -1% daily | ## Curves
50/50 Concentrated market specification

50/50 Concentrated: parameters, funding rate curve, and discount price curve.

*At low LTV, excess senior supply discounts the Yield Coin and lifts the rate. The curve crosses the Neutral rate at the Neutral LTV (50%) and dips slightly negative beyond. Above the Max LTV gate (96%), workout pricing takes effect (not shown).* # How tranching works A Covenant Market accepts deposits of a specific Base Asset and splits them into two fungible ERC‑20 tranches against the same collateral pool. This page walks through the split, the loss waterfall, redemption mechanics, and a simple worked example. Pricing and rate-setting are handled by the Latent Swap AMM and described in [The Latent Swap AMM](/protocol-mechanism/latent-swap-amm). ## 1. The split A Liquidity Provider deposits the Base Asset into a Covenant Market and receives one of two claims: * a **senior tranche**, the **Yield Coin**, with first call on the collateral pool; or * a **junior tranche**, the **Leverage Coin**, with leveraged exposure to the residual. Each Covenant Market is designed around a **Neutral LTV**. At Neutral LTV, the value of the collateral pool splits cleanly between the two tranches: $$V\_B = V\_Y + V\_L$$ where: * $$V\_B$$ = Base Asset NAV (mark-to-market value of the collateral pool); * $$V\_Y$$ = Yield Coin NAV (par debt outstanding to senior holders, also called the notional); * $$V\_L$$ = Leverage Coin NAV (residual claim on collateral at Neutral LTV). For a market with an 80% Neutral LTV, $100 of Base Asset NAV splits into $80 of Yield Coin NAV (senior debt at par) and $20 of Leverage Coin NAV (junior equity, levered 5x on the underlying). At Neutral LTV, each tranche's market price equals its NAV (no discount, no premium). When the market is away from Neutral LTV, the [Latent Swap AMM](/protocol-mechanism/latent-swap-amm) prices the tranches above or below NAV. The Yield Coin trades at a discount to NAV when leverage demand is high (the discount is the implied funding rate), and at a premium when leverage demand is low. Leverage Coin pricing moves correspondingly. The simple split identity above is the anchor; the AMM provides the continuous off-Neutral pricing. Even off Neutral, the AMM only ever re-divides the collateral pool — the two tranches' market values sum to the full collateral value at every LTV, so value is never created or destroyed, only re-split (see [Value conservation](/protocol-mechanism/latent-swap-amm#value-conservation)). The split is permissionless. Either tranche can be minted directly through the Latent Swap AMM, or both tranches can be minted simultaneously against fresh Base Asset collateral (a "pair-mint"). Both tranches are fully collateralized against the deposited Base Asset at all times. A Covenant Market is parameterized by: 1. a specific Base Asset; 2. a price oracle (denominating the Base Asset in a quote unit); 3. a duration parameter `D` (used in the Perpetual Debt mechanism); 4. a min and max market price `Pa`, `Pb` (concentrating liquidity in the Latent Swap AMM); and 5. a Neutral LTV (the design point at which $$V\_B = V\_Y + V\_L$$ and tranche prices equal their NAVs). These parameters are fixed at deployment and cannot be changed for the life of the market. ## 2. The loss waterfall Yield Coin holders are first in the waterfall and protected up to the depth of the Leverage Coin buffer. Leverage Coin holders absorb losses on the collateral first (i.e., declines in the mark-to-market value of the Base Asset), in exchange for amplified exposure on the upside. If the Base Asset's mark-to-market value falls, the loss is allocated to Leverage Coin holders pro rata until the Leverage Coin's claim is exhausted. Only after that does any further loss flow to Yield Coin holders. There is no liquidation event for any individual position. Risk is repriced continuously by the Latent Swap AMM rather than enforced through forced unwinds. ## 3. Funding flows from junior to senior Funding flows continuously from Leverage Coin holders to Yield Coin holders at the rate implied by the Yield Coin's market price. There is no separate cash payment. Instead, **funding accrues as a continuous transfer of NAV between the two tranches**: * the Yield Coin's NAV (notional) grows at the implied rate `r = -ln(P / D)`, where `P` is the Yield Coin's market price and `D` is the duration parameter; * the same amount is removed from the Leverage Coin's residual claim on the collateral pool. When the implied rate is positive (Yield Coin trading below par), NAV transfers from the Leverage Coin to the Yield Coin. When the implied rate is negative (Yield Coin trading above par), the transfer reverses: the Yield Coin's NAV decretes and NAV flows back to the Leverage Coin. The total Base Asset NAV does not change as a result of funding; only the split between the two tranches does. See [Perpetual Debt](/protocol-mechanism/perpetual-debt) for the full accrual mechanism. ## 4. Redemption Both tranches are redeemable to the Base Asset at any time: * **Single-tranche redemption** swaps a Yield Coin or a Leverage Coin into the Base Asset through the Latent Swap AMM at the prevailing market price. * **Pair redemption** burns matched Yield Coin and Leverage Coin notional simultaneously and returns the underlying Base Asset with no AMM slippage. This is the path used by leverage-and-yield-seeking flows that want to unwind cleanly. Redemption never requires permission and is not subject to a queue or unbonding period at the Covenant level. (The Base Asset itself may have its own redemption window, which passes through to redemption back to the asset that originated the Base Asset.) ## 5. A worked example Consider a Covenant Market with $100 of Base Asset collateral, an 80% Neutral LTV, and a 5% implied funding rate: * Yield Coin notional: **$80** * Leverage Coin claim: **$20** * Effective leverage on the Leverage Coin: **1 / (1 - 0.8) = 5x** If the Base Asset stays flat for one year and produces no native yield, the Yield Coin's notional accretes at the implied 5% rate, growing from $80 to roughly $84. The Leverage Coin's residual claim falls from $20 to roughly $16. The $4 transfer is the funding paid by Leverage Coin holders to Yield Coin holders, realized as dilution rather than as a cash payment. If instead the Base Asset is yield-bearing, paying 10% per year, the collateral grows from $100 to $110. After Yield Coin accrual to $84, the Leverage Coin's claim is $26, a 30% return on the $20 deposit. This is the leveraged carry case: 5x effective leverage on a 10% underlying yield, less funding paid to senior, lands the Leverage Coin holder at roughly 30% net. If the Base Asset moves down 10%, collateral falls to $90. The full $10 loss is absorbed by the Leverage Coin, whose claim becomes $10, a 50% loss on the $20 deposit. The Yield Coin's $80 notional is unaffected. ## 6. The market clears continuously The Latent Swap AMM sets the Yield Coin price, the Leverage Coin price, and the implied funding rate as a continuous function of the market's LTV. As leverage demand rises, Yield Coin prices fall, the implied rate rises, and senior capital is drawn in. As leverage demand falls, Yield Coin prices rise, the implied rate compresses, and junior capital is drawn in. There is no governance vote, no utilization curve, and no per-position margin call. The mechanism is described in detail in [The Latent Swap AMM](/protocol-mechanism/latent-swap-amm). # Priced markets vs NAV Covenant prices each tranche continuously relative to its net asset value (NAV) rather than pegging tranches to NAV directly. The Yield Coin trades at a discount price to NAV (its NAV is also called notional, since it represents the par debt outstanding), and the discount *is* the yield. The Leverage Coin captures the residual Base Asset NAV at the corresponding price. Both tranches clear on the Latent Swap AMM. This page explains what the priced-market design is and what it unlocks. ## How a priced market works In a priced market, the senior tranche has a market price that can sit below, at, or even above NAV depending on the balance of supply and demand for the tranche. * If a Yield Coin with a duration of one year trades at `$0.95` against `$1.00` of NAV (par notional), the implied rate is roughly `5.3%` (`r = -ln(P / D)`). * A holder who buys at that price soft-locks \~5.3% as their realized return. NAV accrual plus mark-to-market on the price will track the entry rate even as the spot rate moves (the offset mechanism is described in [Perpetual Debt](/protocol-mechanism/perpetual-debt)). The Latent Swap AMM clears the price continuously: every swap moves Yield Coin and Leverage Coin prices along the curve, so the rate is always set by the marginal trade. ## What priced markets unlock Three properties drop out of the priced-market design. **Soft-lock a rate.** A Yield Coin holder buys at a price and soft-locks that rate as their realized return. The spot rate continues to float, but the Yield Coin price moves in the opposite direction, offsetting changes in the rate. A holder entering at a temporarily high rate captures the dislocation as the rate mean-reverts. **Trade above or below NAV.** A market price can express things accounting cannot. If a holder believes the underlying is impaired in a way the protocol's NAV has not yet recognized, the holder can sell at a price below NAV. The discount widens, the implied rate spikes, and the market price-discovers the actual risk before the oracle catches up. If the market believes the underlying is stronger than NAV reflects, the senior trades closer to (or above) NAV and the implied rate compresses. The market is allowed to disagree with the oracle, and that disagreement is informative. **Tranche assets without native yield.** Because the senior earns funding paid by the junior tranche rather than a slice of the underlying's yield stream, a Covenant Market does not require the underlying to produce a yield. As long as someone is willing to hold a leveraged claim against the Base Asset and pay funding for it, the senior earns that funding. Raw ETH, WBTC, and any other oracle-priced asset can be tranched even when the asset itself produces nothing. ## Mark-to-market is the signal The trade-off of a priced market is that the senior tranche's value moves with the implied rate. A holder entering at one rate and exiting at a higher rate realizes a mark-to-market loss on the price change, even if the holder's rate accrual was positive. This is the same dynamic that fixed-income desks live with on every bond: duration is real, and a higher rate later means a lower price now. For users who want to manage that exposure, the Latent Swap AMM offers a pair-redeem path that exits both tranches against fresh collateral with no AMM slippage. For users who want to lean into it, the priced market is the structure that lets a credit allocator own a duration position rather than just a floating-rate balance. The duration parameter `D` is the dial. As `D → 0`, tranche prices stay effectively pinned to NAV and the funding rate floats freely to balance the market: the same structural behavior as a NAV-pegged tranching design. As `D` rises, prices acquire room to move off NAV and the priced-market properties above (soft-lock, mark-to-market, dislocation capture) become available. Each Covenant Market chooses its `D` at deployment to suit the underlying. See [Perpetual Debt](/protocol-mechanism/perpetual-debt) for the full treatment of `D`. The Latent Swap AMM is the clearing mechanism for this priced market. It is described next. # The Latent Swap AMM The Latent Swap is Covenant's automated market maker. It clears swaps among Yield Coins, Leverage Coins, and the underlying Base Asset within a Covenant Market, and it sets the implied funding rate continuously as a function of the market's loan-to-value (LTV). ## The mechanism Traditional AMMs (like Uniswap) require both sides of a trading pair to be deposited as liquidity. The Latent Swap is different: the protocol itself controls all of the Yield Coins, Leverage Coins, and Base Asset collateral in a Covenant Market. That allows it to define a swap invariant that reflects the balance between Yield Coins and Leverage Coins against the collateral pool, rather than requiring external LPs. The Latent Swap is designed to: * allow continuous swaps among Yield Coins, Leverage Coins, and Base Assets; * tie swap prices directly to the market's LTV and therefore to the implied funding rate; * ensure that leverage becomes progressively cheaper as LTV rises (drawing in more leverage seekers) and progressively more expensive as LTV falls (drawing in more lenders), so the market clears continuously. ## The invariant The Latent Swap invariant is a concave curve defined over the values of Leverage Coins, Yield Coins, and the Base Asset:

\left(L/\sqrt{P_a} -V_Y\right)\left(L\sqrt{P_b} - V_L \right)=L^2,

L=\frac{\sqrt{P_aP_b}}{\sqrt{P_b}-\sqrt{P_a}}V_B

Where: * $$V\_Y$$ = NAV (notional) of **Yield Coins**; * $$V\_L$$ = NAV of **Leverage Coins**; * $$V\_B$$ = NAV of the **Base Asset** collateral pool; * $$P\_a, P\_b$$ = price band parameters that concentrate liquidity within a defined range. The Latent Swap AMM clears each tranche at a market price relative to its NAV. The Yield Coin trades at a discount to NAV (its discount *is* the implied funding rate); the Leverage Coin's price relative to its NAV moves with leverage demand. The price band parameters `Pa` and `Pb` are fixed at market deployment and define the range over which the Yield Coin price can move; they concentrate liquidity within that range and bound the implied funding rate at the corresponding extremes. ## Value conservation The invariant is **homogeneous of degree one**: scaling both tranche positions and the collateral pool by the same factor leaves the curve unchanged (each side scales identically). A direct consequence — Euler's identity for a degree-one homogeneous function — is that the **market values of the two tranches always sum to the collateral value**, at every LTV and not only at Neutral LTV:

V_B = p_Y\,V_Y + p_L\,V_L

where $$p\_Y$$ and $$p\_L$$ are each tranche's market price relative to its NAV (the prices the AMM sets above). In words: the Latent Swap never creates or destroys value; it only re-divides a fixed collateral pool between the senior and junior claims as LTV moves. The clean NAV identity $$V\_B = V\_Y + V\_L$$ on the [How tranching works](/protocol-mechanism/how-does-covenant-work) page is the special case at Neutral LTV, where $$p\_Y = p\_L = 1$$. This is a solvency property by construction: because the curve can only partition the collateral — never inflate the sum of the claims against it — a Covenant Market is fully backed at every point on the curve, with no path by which the AMM itself manufactures an uncovered claim. ## LTV is the input variable Covenant defines the loan-to-value of a market as Yield Coin NAV divided by Base Asset NAV: $$ LTV = \frac{V\_Y}{V\_B} $$ Effective leverage on the Leverage Coin is `1 / (1 - LTV)`. The Latent Swap AMM prices Yield Coins and Leverage Coins as a continuous function of LTV, so changes in LTV move tranche prices and the implied funding rate together. ## Self-balancing The Latent Swap invariant makes Covenant Markets self-balancing without external rebalancing or governance: * **When LTV falls** (high Leverage Coin demand, low Yield Coin supply), Yield Coin prices fall, the implied rate rises, and new lenders are drawn in, pushing LTV back up. * **When LTV rises** (low Leverage Coin demand, abundant Yield Coin supply), Yield Coin prices rise, the implied rate compresses, lender appetite cools, and Leverage Coin demand returns, pushing LTV back down. The diagram below illustrates this for the [80/20 Concentrated](/markets/market-types/80-20-concentrated) market type (`Neutral LTV = 80%`, `Pa = 0.97`, `Pb = 1.00`, `D = 3 month perpetual`, Neutral rate \~4%). The left curve shows the implied funding rate as a function of market LTV; the right curve shows the Yield Coin's discount price against NAV at the same LTV.

Funding rate and Yield Coin discount price as a function of LTV, for the 80/20 Concentrated market type.

## What the AMM does and does not do The Latent Swap AMM does: * clear single-tranche swaps (Base Asset to Yield Coin, Base Asset to Leverage Coin, and the reverses), with slippage that scales with trade size and tranche-side imbalance; * set the implied funding rate continuously via the Yield Coin price (`r = -ln(P / D)`, see [Perpetual Debt](/protocol-mechanism/perpetual-debt)); * enforce risk repricing as LTV moves, with no external trigger or curator action required. The Latent Swap AMM does not: * hold external LP deposits or pay LP fees in the conventional sense (junior holders capture the swap fee stream, see [Risks and mitigations](/protocol-mechanism/risks-and-mitigations)); * require a stablecoin liquidity pool to function; * trigger per-position liquidations. ## Pair-mint and pair-redeem In addition to the AMM swap path, both tranches can be created or destroyed as a matched pair against fresh Base Asset collateral. A pair-mint deposits the Base Asset and produces matched notional in Yield Coin and Leverage Coin without touching the AMM curve, so there is no slippage. A pair-redeem burns matched notional and returns the Base Asset on the same terms. This is the cleanest path for a holder of both tranches to enter or exit a market without paying the swap spread. # Perpetual Debt A Yield Coin in a Covenant Market is structured as **Perpetual Debt**: a continually refinancing zero-coupon bond. Instead of expiring at a fixed maturity, the Yield Coin's NAV (also called notional, since it represents the par debt outstanding) accretes (or, in extreme cases, decretes) over time at a rate implied by its market price. ## Price implies the rate The Yield Coin's market price `P` directly determines its implied funding rate: $$ r\_t = -\ln!\left(P\_t / D\right) $$ where `r_t` is the instantaneous funding rate and `D` is the duration parameter set at market deployment. Lower Yield Coin prices imply higher rates; higher Yield Coin prices imply lower rates. A holder who buys a Yield Coin at price `P` **soft-locks** the implied rate `r = -ln(P / D)` as their realized yield. The spot rate continues to float, but the Yield Coin price moves in the opposite direction. When the rate falls, the price rises. When the rate rises, the price falls. A holder's realized return (NAV accrual plus price change) tracks the entry rate even as the spot rate moves underneath. Example: a market clears on average at 10%. A holder enters when leverage demand temporarily pushes the rate to 15%. As the rate mean-reverts back to 10%, the price recovers, and the holder gains on the price even as accrual slows. The combined return tracks \~15%, soft-locking the dislocation captured at entry. ## Duration as a soft holding period In a fixed-maturity bond, duration is the weighted average time to cash flows; in Covenant's perpetual market the bond never matures, so that definition does not apply directly. The right operational interpretation of `D` is the **half-life of price-rate convergence**: a holder's realized yield is an exponential moving average of the spot rate set by the AMM, with characteristic timescale `D`. A price move today produces an instantaneous mark-to-market; the spot funding rate then accrues to the holder over the duration window, recouping the move as it does. Set `D` short and the holder is essentially earning the spot rate; set `D` long and the holder is earning a slow-moving average. In effect, `D` acts as a soft holding period: not a hard lock, but the timescale over which a Yield Coin discount converts into realized yield. The parameter is named `debtDuration` in the contracts and is fixed at market deployment (the aHYPER market uses `D = 3 month perpetual`). A useful limit case: as `D → 0`, tranche prices stay effectively pinned to NAV and the funding rate floats freely to balance leverage demand against senior supply. The split identity `V_B = V_Y + V_L` holds at all times, and the market behaves structurally like a **money-market tranching protocol**: the rate is the variable, prices are clamped to NAV. As `D` rises, prices acquire room to move off NAV, the realized yield smooths into an EMA, and the market takes on the characteristics of a perpetual zero-coupon bond market with a tradeable price. Covenant is the priced-debt design point on this spectrum; the duration parameter `D` is the dial. ## Notional accrual replaces coupons Traditional zero-coupon bonds accrue value by approaching face at maturity. A Perpetual Debt bond has no maturity, so the value accrual is built into the notional balance directly. The accrual mechanism is a continuous transfer of NAV between the two tranches: * the Yield Coin's NAV (notional) grows at the implied rate `r_t`; * the same amount is removed from the Leverage Coin's residual claim on the collateral pool; * the total Base Asset NAV is unchanged; only the split between Yield Coin NAV and Leverage Coin NAV moves. When `r_t > 0` (Yield Coin trading below par), the transfer flows junior-to-senior. When `r_t < 0` (Yield Coin trading above par), the Yield Coin's NAV decretes and the transfer reverses, flowing senior-to-junior. The direction is set entirely by the Yield Coin's market price. Practically, a holder of one Yield Coin at the start of a period earns interest by holding more Yield Coin notional at the end of the period (when `r_t > 0`). The mechanism is fully on-chain and continuous; there is no coupon payment, no rebase event, and no claim transaction. ## Why perpetual Perpetual Debt eliminates two friction points that limit on-chain credit markets: 1. **No fixed maturities to roll.** A holder can stay in the position indefinitely. There is no maturity date that forces a roll, no expiring-bond liquidity gap, and no off-the-run vs on-the-run distinction. 2. **No governance-set rates.** The funding rate is a continuous function of the Yield Coin's market price. Because the price is set by a market (the Latent Swap AMM), the rate is too. ## TradFi parallel Perpetual zero-coupon bonds barely exist in modern fixed income. UK consols were retired; French rentes are vestigial. The instrument is theoretically clean, but TradFi has no clearing mechanism for an asset with no natural settlement event. AMMs solve this. An AMM is, structurally, a clearing mechanism for an asset that does not need a maturity date to be priced. Covenant uses this property to make perpetual zero-coupon bonds tractable on-chain. The TradFi parallel for the priced senior tranche is a regular bond market with floating duration; the parallel for Covenant specifically is a perpetual zero-coupon bond market with the discount priced by an AMM. ## Where this connects to the rest of the protocol The Perpetual Debt mechanism is the bridge between the [Latent Swap AMM](/protocol-mechanism/latent-swap-amm) (which sets the Yield Coin price `P`) and the Yield Coin's economics (the rate at which its NAV accrues). The two pieces fit together: the AMM clears the price; the Perpetual Debt formula turns the price into a rate; the rate drives a continuous transfer of NAV between the two tranches in the direction the rate's sign dictates. # Worked example: aHYPER This page walks through the mechanics of a Covenant Market end-to-end using the live **aHYPER** market as the example. It connects the abstract material in [How tranching works](/protocol-mechanism/how-does-covenant-work), [The Latent Swap AMM](/protocol-mechanism/latent-swap-amm), and [Perpetual Debt](/protocol-mechanism/perpetual-debt) to a concrete deployment. aHYPER is deployed as an instance of the [80/20 Concentrated](/markets/market-types/80-20-concentrated) market type. Because the underlying is a delta-neutral USDC vault — low NAV volatility by design — its market uses the narrow "slim" price band (0.97 / 1.00), which concentrates liquidity around par for tight, low-slippage swaps on both tranches. The [Markets](/markets/markets) overview lists its tickers and app link. ## The Base Asset `aHYPER` is the share token of the **Hyperithm Delta Neutral Vault** on Accountable, a permissionless USDC vault managed by Hyperithm. The vault pools USDC and runs a delta-neutral book (basis trading on Hyperliquid, regulated securities, on-chain venues), with all holdings cryptographically verified by Accountable's Data Verification Network. Net yield to vault depositors is approximately 10% per year: * \~8% from the underlying delta-neutral strategy (after Hyperithm's 2% performance fee); * \~1% from Accountable points (`ACC`) at the assumed $100M FDV; * \~1% from Merkl `WMON` distributions while the program is active. The Covenant aHYPER Market accepts deposits of `aHYPER` (not raw USDC) and tranches the deposited share token. ## The split A Liquidity Provider deposits $100 of `aHYPER` into the Covenant aHYPER Market. At the market's 80% Neutral LTV, the value of the collateral pool splits cleanly between the two tranches: $$V\_B = V\_Y + V\_L \quad\Rightarrow\quad $100 = $80 + $20$$ where $$V\_B$$ is the Base Asset NAV, $$V\_Y$$ is the Yield Coin NAV (notional), and $$V\_L$$ is the Leverage Coin NAV. | Tranche | NAV (notional) | Effective leverage | | ------------------------------ | -------------- | ------------------ | | Yield Coin (`USD.b.aHYPER`) | $80 | 1x | | Leverage Coin (`aHYPERx5.USD`) | $20 | 5x | The 80% Neutral LTV gives the Leverage Coin a 5x effective leverage on `aHYPER` (`1 / (1 - 0.8) = 5`). The Latent Swap AMM clears the Yield Coin at a Neutral rate of \~4% APY at this LTV; the actual rate at any moment is whatever the live AMM price implies. As the market moves away from Neutral LTV, the AMM moves Yield Coin and Leverage Coin prices off NAV — but in this slim market the Yield Coin price stays inside the tight 0.97–1.00 band, so its funding rate is bounded to roughly 3.5%–16.5% rather than swinging freely as it would in a wide market. ## Where the yield goes All of the underlying `aHYPER` yield (\~10% net, including Accountable points and Merkl distributions) accrues to the **Leverage Coin** tranche through the share-price growth of the collateral pool. The Yield Coin earns funding paid by the Leverage Coin, accruing through dilution at the rate set by the Latent Swap. At the Neutral design point (80% LTV, 4% Yield Coin APY), one year of holding looks like this: * `aHYPER` collateral pool grows from $100 to \~$110 (10% net yield). * Yield Coin notional accretes from $80 to \~$83.20 (4% on $80 = \~$3.20 of funding paid by Leverage Coin to Yield Coin). * Leverage Coin claim = collateral - Yield Coin notional = $110 - $83.20 = \~$26.80. * Yield Coin holder return: \~4% APY (soft-locked at entry by buying the Yield Coin at the corresponding Latent Swap price). * Leverage Coin holder return: \~$6.80 on $20 deposit = \~34% APY. The Leverage Coin captures roughly the underlying yield times effective leverage, less funding paid to the senior: $$\text{Leverage Coin APY} \approx (y \times \text{leverage}) - (r \times \text{LTV} / (1 - \text{LTV})) = (10% \times 5) - (4% \times 4) = 34%$$ ## Drawdown scenario Suppose the `aHYPER` NAV falls 5% over the year (the Hyperithm strategy underperformed expectations) instead of growing. A 5% drawdown is a genuine tail event for a delta-neutral vault — exactly the low-frequency, low-magnitude risk profile the slim calibration is built for: * `aHYPER` collateral pool moves from $100 to $95. * Yield Coin notional still accretes from $80 to \~$83.20 at the prevailing spot rate. Senior accrual is unaffected by `aHYPER` performance until the Leverage Coin buffer is exhausted. * Leverage Coin claim = $95 - $83.20 = \~$11.80. * Yield Coin holder return: \~4% APY (unchanged; the collateral pool still covers the senior notional). * Leverage Coin holder return: \~-41% on the $20 deposit (the full $5 NAV drop plus the $3.20 of funding paid to senior). The Leverage Coin absorbs the loss first; the Yield Coin is unaffected as long as `aHYPER` NAV stays above the Yield Coin notional. ## Stress: LTV gates If leverage demand pushes the market into stressed LTV, the protocol enforces gates: * **High LTV gate (90%):** no further Leverage Coin → Base swaps and no further Base → Yield Coin mints. Both directions would deepen the imbalance. This gate leaves a minimum 10% junior buffer (`1 − 0.90`) protecting the senior — tighter than a wide market's 92% gate, reflecting the slim band's lower tolerance for collateral drawdown. * **Max LTV gate (96%):** Leverage Coin mints are also blocked; only Yield Coin → Base redemptions remain open. Above this threshold the [workout rate](/resources/glossary) begins to accrue (a daily negative return paid by senior to junior, designed to incentivize an orderly senior exit). These gates allow the market to rebalance through new Leverage Coin deposits or matched pair-redeems before the senior buffer is exhausted. No individual position is force-closed at any point. ## How to enter and exit * **Deposit:** swap the Base Asset (`aHYPER`) directly into either tranche on the Latent Swap AMM, or pair-mint matched Yield Coin and Leverage Coin notional against fresh `aHYPER` collateral with no slippage. * **Exit:** swap the tranche back to `aHYPER` on the Latent Swap (slippage scales with trade size), or pair-redeem matched notional against the collateral pool with no slippage. `aHYPER` itself is then redeemable through Accountable's normal redemption windows. Live rates, capacity, and the deposit/redeem flow are on the [Covenant app](https://app.covenant.finance). Market parameters are on the [80/20 Concentrated](/markets/market-types/80-20-concentrated) market type page; tickers and mint links are on the [Markets](/markets/markets) overview. # Risks and mitigations This page describes the structural risks of holding Yield Coins or Leverage Coins in a Covenant Market and the mitigations built into the protocol. A shorter, user-facing risk disclosure lives at [Risks](/resources/risks). ## Oracle risk A Covenant Market depends on a price oracle to mark the Base Asset to market. The oracle defines the value of the collateral pool and the LTV of the market, and through the Latent Swap AMM it sets tranche prices and the implied funding rate. * **Failure mode:** if the oracle reports a stale or incorrect price, LTV is mis-set, the AMM mis-prices both tranches, and entry/exit at the mis-priced rate transfers value between participants. * **Mitigation:** the oracle is fixed at market deployment and cannot be changed for the life of the market. Each market is parameterized with a known oracle source whose properties (push or pull, on-chain or off-chain, fallback behavior) are visible to participants before they deposit. Markets with weaker oracles can be priced by the market itself: the Yield Coin's discount to NAV widens to reflect perceived oracle risk, which is the priced market's structural way of expressing disagreement with reported NAV. ## Junior buffer thinning The Yield Coin's safety margin is the depth of the Leverage Coin claim ahead of it. As LTV rises, the junior buffer shrinks and the senior takes on more residual exposure. * **Failure mode:** if leverage demand persistently exceeds senior supply and LTV rises toward `1`, the Leverage Coin claim approaches zero and the Yield Coin holder begins to absorb price risk on the Base Asset directly. * **Mitigation:** the Latent Swap AMM reprices leverage continuously as LTV rises. The implied funding rate climbs, leverage gets progressively more expensive, and senior capital is drawn in by the higher rate. At named LTV gates the protocol additionally throttles flow: the **High LTV gate** blocks Leverage Coin burns and Yield Coin mints (the two swaps that would push LTV further up), and the **Max LTV gate** blocks Leverage Coin mints as well, leaving only Yield Coin exits open. These gates prevent a death-spiral and give the system room to rebalance through new deposits before the senior buffer is exhausted. No individual position is force-closed. ## Workout rate at 100% LTV If the Base Asset's NAV falls below the Yield Coin notional, the market reaches 100% LTV and the collateral pool no longer covers the senior claim in full. The protocol activates a **workout rate**: a daily negative return paid by Yield Coin holders to Leverage Coin holders. * **Failure mode:** beyond 100% LTV, every additional unit of Base Asset NAV loss is borne directly by the Yield Coin. Without an incentive to exit, senior holders might otherwise wait, deepening the impairment for the holders that remain. * **Mitigation:** the workout rate is designed to incentivize an orderly senior exit. The negative carry pushes Yield Coin holders to redeem to the collateral pool at the current NAV, which lets the market resolve a permanent impairment rather than letting the position hang. The workout rate is a market parameter fixed at deployment (typically `-1% daily`). ## Funding drag on Leverage Coin holders A Leverage Coin holder pays funding continuously to Yield Coin holders through dilution of the junior claim against the collateral pool. * **Failure mode:** if the Base Asset's price stays flat and its native yield (if any) is below the implied funding rate, the Leverage Coin's notional claim erodes over time. A holder who entered expecting price appreciation can realize a negative return even if the price did not move. * **Mitigation:** funding is set by the market, not by governance. In cheap-funding environments the implied rate is low and carry is positive; in tight-funding environments the rate is high but the Leverage Coin's price is correspondingly lower at entry, so a holder can size the position against an explicit view on funding. The funding cost is visible in the Yield Coin's market price at entry. ## Liquidity and slippage on exit Single-tranche redemption (Yield Coin to Base Asset, or Leverage Coin to Base Asset) clears against the Latent Swap AMM curve. The AMM concentrates liquidity within a defined price band, but very large trades or trades at extreme LTV experience slippage. * **Failure mode:** a holder exiting a large position into a thin market realizes a worse price than the marginal market price. * **Mitigation:** holders of both tranches can pair-redeem matched notional against fresh Base Asset collateral with no AMM slippage. This is the cleanest exit path for users who want to unwind cleanly. Single-tranche exit is intended for holders who want to express directional rebalancing within a market. ## Smart contract risk Covenant is a deployed smart-contract system. Bugs, undiscovered vulnerabilities, or mis-specified parameters at deployment can result in loss of funds. * **Mitigation:** the Covenant Protocol has undergone multiple independent audits (see [Audits](/resources/audits)). The codebase is fully open-source and onchain. Once a market is deployed, its contracts are immutable: parameters cannot be edited, the oracle cannot be swapped, and there is no upgrade path. Admin authority is limited to a Pause function controlled by external Governance. ## Tradeoff of immutability The flip side of immutability is that bugs and parameter errors discovered after deployment cannot be patched in place. * **Mitigation:** the Pause function gives Governance the ability to halt deposits and withdrawals on a market in extremis. Funds remain redeemable through the existing collateral pool. New markets with corrected parameters can be deployed permissionlessly without disturbing existing positions. ## Systemic risk in the sUSDz Yield Fund The Covenant sUSDz Yield Fund is a forthcoming product; this risk applies once it launches. Holders of `$sUSDz` (the fund's receipt token) are diversified across multiple Covenant Markets, but they are correlated through any common shocks across the underlying Base Assets. * **Failure mode:** a shock that simultaneously impairs multiple Yield Coins in the fund (e.g., a correlated oracle event, a broad RWA stress) can compress the fund's NAV faster than any single market would. * **Mitigation:** the fund's market selection and concentration limits are visible. Holders who prefer concentrated exposure to a specific Base Asset can hold that market's Yield Coin directly instead of `$sUSDz`. # What makes Covenant different? Covenant is a permissionless, immutable protocol for tranching risk on tokenized vaults. The design choices that follow set the tranching primitive apart from other on-chain credit structures. * **Both sides of the tranche are fungible.** The senior Yield Coin and the junior Leverage Coin are both fungible ERC‑20 claims, transferable, composable, and redeemable to the Base Asset. There are no per-position accounts, no per-borrower LTVs, and no bespoke collateral mixes. Leveraged exposure is a token a user holds, not a position they manage. * **No looping for leverage.** Leveraged exposure is embedded in a single ERC‑20. A user mints (or buys) a Leverage Coin and the leverage is structural; there is no recursive deposit-borrow loop, no liquidation price to monitor, and no margin account to maintain. * **No liquidation cliffs.** Risk is repriced continuously by the [Latent Swap AMM](/protocol-mechanism/latent-swap-amm). As the junior buffer thins, leverage gets progressively more expensive, drawing in new junior capital before the senior buffer is exhausted. At sufficiently high LTV the protocol halts both junior withdrawals and additional senior minting, which prevents a death-spiral; no individual position is ever force-closed. * **A priced market against NAV.** Yield Coins and Leverage Coins trade at market prices against the Base Asset's NAV, cleared continuously by the Latent Swap AMM. A senior holder can [soft-lock a rate](/protocol-mechanism/priced-markets-vs-nav) by buying at a price; the market can price tranches above or below NAV when the market disagrees with reported NAV. * **Works on assets without native yield.** Senior yield is generated by leverage demand against the AMM, not by a slice of the underlying's yield stream. A Covenant Market can be deployed against a Base Asset that produces no native yield (e.g. raw ETH, WBTC) and still produce a meaningful Yield Coin rate purely from leverage appetite. * **Works on assets with redemption windows.** Tranching does not borrow against the underlying; it splits the existing collateral. There is no liquidation race against an unbonding clock, no forced redemption of the underlying, and no looping. RWAs and other slow-settling assets can be levered natively without a synthetic redemption layer. * **Permissionless and immutable.** Markets can be deployed permissionlessly against any oracle-priced Base Asset. Once a market is live, its parameters (oracle, duration, price band, fees) are fixed for the life of the market. There is no upgrade path, no curator with allocation authority, and no governance-set rates. Admin authority is limited to a Pause function controlled by external Governance. * **Swap fees accrue to the junior tranche.** The Latent Swap charges a per-swap fee (5 bps on 80/20 markets, 30 bps on 50/50 markets) that accrues to Leverage Coin holders as compensation for providing AMM liquidity, not to a protocol treasury. This compounds the dynamic that makes the junior side an attractive home for first-loss capital. The protocol does not currently charge a fee on the funding yield Yield Coin holders receive. * **Concentrated or pooled senior exposure.** Lenders can hold a specific market's Yield Coin to target one Base Asset, and will be able to hold the forthcoming Covenant sUSDz Yield Fund (`$sUSDz`) for diversified senior exposure across markets. Both are fungible ERC‑20s and both are redeemable through the protocol. # Monad Covenant is accessible @ [app.covenant.finance](https://app.covenant.finance) ### Deployment Addresses * Covenant: [0x11A7Ab0A9D7bD531DBcF0f0630BF7167F8F198f6](https://monadvision.com/address/0x11A7Ab0A9D7bD531DBcF0f0630BF7167F8F198f6) * Covenant Curator: [0xAB0f8aB1e67cc02A9D58fc27055292289B159094](https://monadvision.com/address/0xAB0f8aB1e67cc02A9D58fc27055292289B159094) * LatentSwapLEX - 80/20 Wide (x5 wide): [0x9a369DF53EC62725c93f41B891e701BD88aFf2c8](https://monadvision.com/address/0x9a369DF53EC62725c93f41B891e701BD88aFf2c8) * LatentSwapLEX - 80/20 Concentrated (x5 slim): [0x820517d0dfd1F084254571F722c5357Cb3483318](https://monadvision.com/address/0x820517d0dfd1F084254571F722c5357Cb3483318) * LatentSwapLEX - 50/50 Wide (x2 wide): [0x6A5Aa3df89bA1C1f8B471c72159458D61a9447c2](https://monadvision.com/address/0x6A5Aa3df89bA1C1f8B471c72159458D61a9447c2) * LatentSwapLEX - 50/50 Concentrated (x2 slim): [0xE484728342853B35d0EbE71cD99A9053ae922b15](https://monadvision.com/address/0xE484728342853B35d0EbE71cD99A9053ae922b15) * DataProvider: [0x3818a6d5018AA9eb69b6bCe09e38a7C24BBe8C22](https://monadvision.com/address/0x3818a6d5018AA9eb69b6bCe09e38a7C24BBe8C22) # Monad Testnet Monad Testnet regenesis was executed Dec 16th, 2025.\ We are relaunching Covenant on Monad testnet shortly. ### Deployment Addresses * Covenant Core: TBD # Audits [Pashov - 2025-08](https://github.com/pashov/audits/blob/master/team/pdf/Covenant-security-review_2025-08-18.pdf) [Code4rena - 2025-10](https://code4rena.com/reports/2025-10-covenant) # Risks Using Covenant involves risks. These risks include, but are not limited to: * **Market risk:** If collateral falls heavily, Leverage Coin holders are wiped out, and Yield Coin lenders face losses only if collateral value < debt notional value. * **Funding risk:** High LTV → high funding → negative carry for Leverage Coins. * **Oracle risk:** Bad oracle feeds can misprice LTV, leading to mis-set rates. * **Liquidity risk:** Exiting large positions may face slippage depending on Latent Swap depth. * **Systemic risk:** In pooled lending (the forthcoming sUSDz Yield Fund, `$sUSDz`), lenders share risk across markets; a bad market can drag NAV. * **Protocol risk:** Covenant has undergone various audits, but there is always a risk of undetected bugs that expose locked value. As per terms of service, use of the Covenant Protocol or the Covenant Interface bears risks, and is the sole responsibility of the user. # Glossary A list of terms commonly used in Covenant's documentation and their corresponding descriptions.
TermDescription
Base AssetThe underlying collateral (e.g., aHYPER, ETH, WBTC, stETH, sUSDe) deposited into a Covenant Market.
Covenant Market

A self-contained market within the Covenant Protocol that splits a deposited Base Asset into two fungible ERC‑20 tranches: a senior Yield Coin and a junior Leverage Coin.

Each Covenant Market is defined by:

  1. a specific Base Asset;
  2. a price oracle (denominating that asset in a quote unit);
  3. a duration parameter (used in the Perpetual Debt mechanism); and
  4. a min / max market price (concentrating liquidity in the Latent Swap AMM).

All Yield Coins and Leverage Coins in a given Covenant Market are fully collateralized and redeemable back to the Base Asset at any time.

Prices and the funding rate in each Covenant Market are continuously set by the Latent Swap AMM, which couples Yield Coin price, the implied funding rate, and market LTV so that funding and leverage remain self-balancing rather than fixed by governance or managed via forced liquidations.

Covenant Protocol

The set of smart contracts and mechanisms that power the Covenant tranching protocol. The Covenant Protocol is responsible for:

  • Collateral management: accepting deposits of Base Assets into Covenant Markets and minting fully collateralized Yield Coins and Leverage Coins.
  • Funding rate setting (via Perpetual Debt): the Yield Coin's market price continuously determines its implied funding rate and notional accrual.
  • Market clearing (Latent Swap AMM): a concave swap curve that links Yield Coin price, market LTV, and leverage, so that funding and risk are self-balancing without governance-set rates or per-position liquidations.
  • Redemptions: Yield Coins and Leverage Coins are always redeemable back to the underlying Base Asset at market rates.
  • Optional pooling ($sUSDz): the forthcoming Covenant sUSDz Yield Fund diversifies senior exposure across multiple USD-quoted Covenant Markets.
Duration

The implicit half-life over which a Yield Coin discount converts into realized yield. The market is perpetual (no maturity or hard redemption), but the duration parameter creates a soft holding period: a price move today produces an instantaneous mark, then the spot funding rate accrues to the holder via an exponential moving average over the duration window.

Denoted D in the Perpetual Debt formula r = -ln(P / D). Named debtDuration in the contracts and fixed at market deployment.

Funding rateThe rate at which the Leverage Coin pays the Yield Coin in a Covenant Market. Implied by the Yield Coin's market price P via the Perpetual Debt formula r = -ln(P / D), where D is the market's duration parameter. Funding accrues continuously as a transfer of NAV from the Leverage Coin tranche to the Yield Coin tranche, not as a separate cash payment.
High LTV gateA threshold above which the market blocks Leverage Coin burns and Yield Coin mints (the two actions that would push LTV higher). Forces rebalancing through deposits before the senior buffer can be exhausted.
Junior trancheThe first-loss equity claim in a Covenant Market. In Covenant, the junior tranche is the Leverage Coin, which absorbs losses on the collateral ahead of the senior tranche in exchange for leveraged exposure to the Base Asset.
Latent SwapCovenant's automated market maker (AMM) that clears swaps between Yield Coins, Leverage Coins, and the underlying Base Asset within a Covenant Market. The swap invariant is concave and concentrates liquidity within a defined price band, so leverage becomes progressively more expensive as LTV rises and progressively cheaper as LTV falls.
Leverage Coin

The junior tranche of a Covenant Market: a fungible ERC‑20 equity claim that gives leveraged exposure to the Base Asset's price and (where applicable) its native yield. The Leverage Coin's NAV equals the residual Base Asset NAV after Yield Coin notional, evaluated at the market's Neutral LTV. Effective leverage is 1 / (1 - LTV).

Leverage Coin holders pay funding to Yield Coin holders at the rate implied by the Yield Coin's market price. Funding accrues through the dilution of the Leverage Coin's claim, not as a separate payment.

Leverage Coins are redeemable to the Base Asset on a per-market basis (not pooled across assets).

LTV (loan‑to‑value)The ratio of Yield Coin NAV to Base Asset NAV in a Covenant Market: LTV = V_Y / V_B. LTV determines the effective leverage available to junior holders and is the input variable that the Latent Swap AMM prices against.
Max LTV gateA threshold above the High LTV gate at which Leverage Coin mints are also blocked and the workout rate begins accruing. Only Yield Coin exits remain open above this threshold.
Min / max priceThe Yield Coin's price relative to NAV at the price-band extremes. Set at market deployment to bound the Latent Swap AMM's operating range. Wide bands absorb base-asset price volatility at the cost of larger swap slippage; narrow bands concentrate liquidity around par for tight swaps and high capital efficiency.
Min / max rateThe funding-rate bounds at the price-band extremes, derived from the duration parameter and the min / max price via r = -ln(P / D). Min rate occurs at the Yield Coin's ceiling price; max rate occurs at its floor price.
NAV (net asset value)

The mark-to-market par value of any quantity in a Covenant Market, denominated in the market's quote unit. Three NAVs are tracked:

  • Base Asset NAV = mark-to-market value of the collateral pool;
  • Yield Coin NAV (also called notional) = total par debt outstanding to senior holders;
  • Leverage Coin NAV = the residual Base Asset NAV after Yield Coin notional, evaluated at the market's Neutral LTV.

The Latent Swap AMM clears each tranche at a market price relative to its NAV: Yield Coins trade at a discount to NAV (the discount is the implied funding rate), and Leverage Coin prices relative to NAV move with leverage demand.

Neutral LTVThe market's design point: V_B = V_Y + V_L, where both tranches trade at par to their NAV. At an 80% Neutral LTV, each Leverage Coin holds ~5x structural leveraged exposure to the underlying collateral; at a 50% Neutral LTV, ~2x. The Latent Swap AMM clears each tranche at NAV when the market sits at Neutral LTV.
Neutral rateThe funding rate the market clears at when it sits exactly at Neutral LTV. The "fair price" of leverage in the absence of supply / demand imbalance.
Perpetual DebtThe financial primitive that defines Yield Coin behavior. A Yield Coin is a continually refinancing zero-coupon bond: rather than expiring at a fixed maturity, the Yield Coin's notional balance accretes (or, in extreme cases, decretes) over time at a rate implied by its market price. See also: Duration.
Protocol feeA percentage of the funding rate Yield Coin holders receive, accruing to the Covenant protocol. No protocol fee is currently charged (the parameter is set to 0 on live markets).
Senior trancheThe first-call debt claim in a Covenant Market. In Covenant, the senior tranche is the Yield Coin, which has priority on Base Asset collateral and earns funding paid by the junior tranche.
Swap feeCharged on each swap into or out of a tranche on the Latent Swap AMM. Accrues to Leverage Coin holders (not the protocol) as compensation for providing AMM liquidity.
sUSDz Yield Fund

The Covenant sUSDz Yield Fund is a forthcoming optional pooled product that diversifies senior exposure across multiple Covenant Markets with USD as their quote unit.

Lenders deposit supported USD-denominated assets into the fund and receive $sUSDz, a fungible ERC‑20 receipt token representing their share of the fund's NAV. The fund allocates capital by holding a portfolio of Yield Coins across markets, so $sUSDz holders are effectively long a diversified set of yield exposures.

This structure provides a simple way for lenders to participate in the Covenant marketplace without selecting and managing exposure to individual Base Asset markets.

TrancheA claim on a specific slice of risk and return in a structured product. A Covenant Market produces two tranches against the same collateral pool: a senior Yield Coin and a junior Leverage Coin. Both are fungible ERC‑20 claims, both fully collateralized, and both redeemable to the Base Asset at any time.
Workout rateThe daily return paid by Yield Coin holders to Leverage Coin holders when the market reaches 100% LTV (undercollateralized). Negative from the Yield Coin holder's perspective. Designed to incentivize senior holders to exit the market in an orderly default.
Yield Coin

The senior tranche of a Covenant Market: a fully collateralized debt claim minted when the Base Asset is deposited. A Yield Coin is a perpetual zero-coupon bond whose NAV (notional) accretes continuously at a rate implied by its market price (Perpetual Debt). The Yield Coin trades on the Latent Swap AMM at a market price relative to its NAV; the discount to NAV is the implied funding rate.

Yield Coins are fungible ERC‑20 claims redeemable to the Base Asset on a per-market basis (not pooled across collateral assets). Lenders seeking diversified senior exposure across markets will be able to hold the forthcoming Covenant sUSDz Yield Fund ($sUSDz) instead.

# Brand kit Covenant logos. SVG vector plus PNG renders with transparent backgrounds. ## Logo | PNG | SVG | | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | ![](https://3972845554-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FCHCjmUrjuPhzffSUl2eD%2Fuploads%2Fs99INbofx1mMSW37dSRO%2FLogoGreen_AlphaBG_1024.png?alt=media\&token=7e77f547-920b-4a50-a862-948cb57400c6) | ![](https://3972845554-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FCHCjmUrjuPhzffSUl2eD%2Fuploads%2F2grJA9QORjBU4wcOLdtF%2FLogoGreen_AlphaBG_vector.svg?alt=media\&token=fa6fe139-5de7-4156-aa56-a2434aa0977b) | ## Logomark
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THE LIMITATIONS SET FORTH IN THIS SECTION SHALL APPLY REGARDLESS OF THE FORM OF ACTION, WHETHER THE ASSERTED LIABILITY OR DAMAGES ARE BASED ON CONTRACT, INDEMNIFICATION, TORT, STRICT LIABILITY, STATUTE, OR ANY OTHER LEGAL OR EQUITABLE THEORY, AND WHETHER OR NOT THE Covenant COMPANIES INDEMNIFIED PARTIES HAVE BEEN INFORMED OF THE POSSIBILITY OF ANY SUCH DAMAGE. IN NO EVENT WILL THE COVENANT LABS INDEMNIFIED PARTIES’ CUMULATIVE LIABILITY TO YOU OR ANY OTHER USER, FROM ALL CAUSES OF ACTION AND ALL THEORIES OF LIABILITY EXCEED ONE THOUSAND U.S. DOLLARS (U.S. $1,000.00). UNDER NO CIRCUMSTANCES SHALL ANY COVENANT LABS INDEMNIFIED PARTY BE REQUIRED TO DELIVER TO YOU ANY VIRTUAL CURRENCY AS DAMAGES, MAKE SPECIFIC PERFORMANCE, OR ANY OTHER REMEDY. 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# Privacy Policy **The Covenant Protocol operates in a decentralized and permissionless manner. Although we may collect and process information about users of Covenant.finance or the Interface in accordance with this Privacy Policy, we do not have information about all protocol users beyond what is already publicly available and recorded on the blockchain.** This Privacy Policy (the "Privacy Policy") explains how the Covenant Companies ("we," "our," or "us") collects, uses, and shares information in connection with our Services as well as your rights and choices regarding such information. These terms apply to Covenant.finance and any other online location that links to this Privacy Policy (collectively, the "Services"). By using the Services, you also agree to our collection, use, and sharing of your information as described in this Privacy Policy. If you do not agree with the Terms of Use, you should not use or access the Interface or the Services. **1. Information Collection** **A. Information You Provide.** We may collect the following information about you when you use the Services: * **Correspondence and Content**, Within any messages you send to us (such as feedback and questions to information support), we may collect your name and contact information, as well as any other content included in the message. You may choose to voluntarily provide other information to us that we have not solicited from you, and, in such instances, you are solely responsible for such information.
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# Litepaper Perpetual debt and protocol mechanics for Covenant V1 ### Abstract Covenant V1: a collateral-agnostic, capital-efficient, market-driven lending protocol. Covenant V1 is built on *tradeable perpetual debt*, a new DeFi primitive which enables an efficient method of pricing, buying, and selling debt on digital assets. The purpose of this document is to explain in a readable manner how the protocol works. If you have any questions after reading, please join the [Discord](https://discord.gg/rHYMB3QWmJ). ### Motivation Incumbent DeFi lending protocols are characterized by one or more of the following deficiencies: * **Limited collaterals**, e.g. focused on easy to price liquid tokens with continuous oracle data * **Incorrect risk pricing**, i.e. algorithmically constrained (e.g, pool utilization) * **Expensive markets**, i.e. wide borrow-lend spreads Some of the above deficiencies are design tradeoffs. For example, utilization-based protocols like AAVE and Compound are characterized by wide borrow-lend spreads, a knock-on effect of prioritizing on-demand liquidity and having yields being the only market incentive. We solve for these deficiencies with Covenant, such that hard to price and illiquid collaterals can be used to mint debt, where the risk of these collaterals is priced directly by the market, and where this is done through efficient low-spreads between borrowers and lenders. This enables important synergies and use cases. One exciting example, in our view, is for protocols to mint debt against their liquid and illiquid tokens in ways that do not negatively affect the protocol's tokenomics. This is discussed in more detail in the **Protocol Debt** section. ### Tradeable Perpetual Debt The core component of Covenant is *tradeable perpetual debt, or **zTokens**,* which a user can obtain from on-chain ***guilds***. Users can then swap *zTokens* on DEXs for money. Borrowers swap collateral for zTokens through a Guild, and subsequently zTokens for money through a DEX. Lenders, on the other hand, swap money for zTokens. Over time, the value of these zTokens increases - implying an additional cost that borrowers need to pay to get back their collateral, and an interest that lenders earn by holding the zTokens. The various components of this system are explained below and illustrated in Figure 1.

Figure 1. Guild, DEX, and users

#### Guild - C*ollateral vs zToken exchange* Guilds implement all functionality related to collateral management (what can be deposited or withdrawn) and debt management (mint, burn, liquidations). In essence, through a guild, a user can **swap** their collateral assets for a liquid ***zToken***. For this, Guilds are initialized with a base money unit (e.g., Eth) in which both collaterals and *zTokens* are valued. Collaterals are valued using external oracles, whilst *zTokens* keep an internal *facePrice* that tracks their full, non-discounted, face-value. Each Guild has an LTV defined, indicating the maximum amount of *zTokens* that can be swapped for collateral, such that $$ zTokenFaceValue <= LTV \* collateralValue $$ where $$zTokenFaceValue = facePrice \* zToken$$. When a user swaps collateral for zTokens, there is a specific amount of *collateralValue that* is locked, and only they can swap zTokens to get that collateral back (unless their vault is open to liquidations, at which time anyone can swap zTokens for the collateral). #### Uniswap - *zToken vs Money exchange* Users can swap *zTokens* on any DEX for money. In particular, their *marketPrice* is defined as the value of a *zToken* in terms of base money (as defined in the Guild). #### Interest rates The *facePrice* of *zTokens* continuously increases through time *t* at a *rate* determined directly from the *marketPrice zTokens* trade at on the DEX: $$ facePrice\_t = facePrice\_0 \* e^{rate \* t} \ , \\ rate = f(marketPrice) $$ Further details are contained in the whitepaper. Here we'll summarize by indicating that the effective APY of the *zToken* *facePrice* is inversely proportional to the token's *marketPrice*, specifically: $$ APY \propto \frac{facePrice}{marketPrice} $$ In practice, the *marketPrice* is always at a discount to the *zToken facePrice*. The below table provides example APY's given a constant discount through the year:
marketPrice / facePriceEffective APY
.991%
.955%
.90~10%
In addition to the *zToken* *facePrice* increasing over time at this rate, the *collateralValueLocked* in each vault in a Guild goes up at the same rate, thus ensuring the total collateral value locked is always equal to the total *zToken faceValue* in circulation. *zTokens* behave similar to existing real-world debt instruments. The price and interest rate are inversely related. If the *marketPrice* of a *zToken* goes down, the effective interest rate increases and vice-versa, if the *marketPrice* goes up, then the effective interest rate decreases. #### Liquidations Debt is perpetual, in that if the borrower meets all conditions of the Guild, their vault will never be open for liquidation. In practice, however, this will require the borrower to continually add collateral, or to pay back debt that has accrued (by swapping zTokens bought on the market to unlock collateral in their vault). Thus, debt is not *perpetual* per se, but continuously accrues interest till the liquidation conditions of the vault are met. This flexible structure allows for various loan products: margin type loans (where the mark-to-market value of liquid collateral has to exceed a liquidation threshold of debt value before being open to liquidations), to illiquid asset type loans (where the value of the collateral is assessed once, and from then on that value is used as the watermark above which the debt value cannot exceed). In the case of insolvency, meaning the available collateral value after liquidator fees does not cover the value of outstanding debt, then the face value of all *zTokens* are reduced proportionally to the value gap. In effect, the loss is passed proportionally to all *zToken* holders via a reduction in the *facePrice* of *zTokens*. ### System Dynamics While Covenant is similar in many ways to real world debt markets, its incentives diverge in important ways from incumbent lending protocols. **Borrower and Lender Incentives** Borrowers and lenders are both directly influenced by the current rate on zTokens. If the *marketPrice* is high (i.e. low interest rate), borrowers are incentivized to take out loans and lenders are incentivized to sell their *zTokens*. Conversely, if the *marketPrice* is low (i.e. high interest rate), then borrowers are incentivized to pay back their loans (if they can) and lenders are incentivized to buy but *zTokens*. In addition to yield incentives, a change in *zToken* price can make borrowers and lenders immediately realize some of their expected yield, creating a more reactive market to yield changes vs existing money market lending protocols. **LP Incentives** The DEX fees LPs earn on *zToken* pools can be considered a loan underwriting fee, given they are charged when borrowers swap zToken for money, or vice versa when repaying a loan. To maximize these fees, LPs are incentivized to strategically place their liquidity given the functionality of Uniswap v3 around the expected risk price of debt. ### Additional questions **How is interest distributed to zToken holders?** Although Covenant debt is perpetual (ie, without a fixed maturity), it does have an end value it is anchored to: the value of the collateral backing it at the time it is liquidated. Borrowers, seeking to avoid liquidation, will make sure to swap money for zTokens on the DEX so as to reduce their debt burden; or liquidators will acquire zTokens when liquidating to lay claim to the liquidated collateral. Both of these mechanisms ensure the price of zTokens on the DEX keeps track of the value of the collateral backing the zTokens in circulation. **Why Uniswap V3?** While a Uniswap V2-style AMM could be used to swap *zTokens* for money, Uniswap V3 is currently a preferred option given its capital efficiency. Because *zToken's* *marketPrice* determines the interest rate on the underlying debt, we think it’s important for LPs to provide liquidity only at the interest rate considered appropriate for a given collateral type and liquidation mechanics (e.g., liquidation threshold). Additionally, it’s important for observers of such a market to have a view of potential interest rates given liquidity allocation.
# User App # Guild Swaps In addition to swapping debt tokens (zTokens) and money tokens in Uniswap v3 pools, users can also swap between these pairs using the Guild’s `swapMoneyForZTokens` and `swapZTokensForMoney` functions. The Guild has infinite zToken liquidity, meaning users can always `swapMoneyForZTokens` at the zToken *facePrice*. This is useful if there are not enough zTokens in the Uniswap v3 pool to pay off a user’s debt, if the user needs zTokens for liquidations, or if zToken *marketPrices* are too high (more details on this below). The Guild does not have infinite money tokens, however, so `swapZTokensForMoney` can only be used after users have already executed `swapMoneyForZTokens` and the Guild has a remaining money balance. Guild money <> zToken swaps will always occur at the debt token *facePrice* (see details [here](https://docs.covenant.finance/getting-started/litepaper#interest-rates)). As a result, users can **potentially** take advantage of arbitrage opportunities if, for instance, the zToken *marketPrice* > *facePrice* or if zToken *facePrice* < *marketPrice* and there is Guild money to be claimed. **Note: The following is meant for advanced defi users. Proceed with extreme caution and follow these steps at your own risk.** *** ## How to `swapMoneyForZTokens` : 1. Approve Money Token Transfers: 1. Navigate to the top of the Market Details page in [https://alpha.covenant.finance/ ](https://alpha.covenant.finance/), and click on the link out from the money token in the right metrics panel
2. This will take you to the block explorer page for the money token. Navigate to the `Contracts` > `Write Contract` (or `Write as Proxy` if available) tab and click the `Connect to Web3` button to connect your wallet to the site.
3. After connecting your wallet, click the `approve` dropdown. Executing this function will enable the Guild to transfer an amount of money tokens on your behalf, which is required to execute `swapMoneyForZTokens`.
4. You can find Guild address by navigating back to the Market Details page and clicking on the address button next to the market name at the top of the page.
5. Input the guild address into the `spender` input field and add the money token amount you want to swap in the `value` field. **Note**: the money token value should be in money token units (i.e. 1 sUSD = 1000000000000000000) - **ALWAYS** confirm the decimal value of the money token you intend to swap.
6. Click on the `Write` button & sign the transactions in your wallet to execute the `approve` function. 2. Swap money for zTokens 1. Navigate back to the Market Details page and click on the link out to the Guild address on the block explorer.
2. This will take you to the block explorer page for the money token. Navigate to the `Contracts` > `Write Contract` (or `Write as Proxy` if available) tab and click the `Connect to Web3` button to connect your wallet to the site.
3. Navigate to the bottom of the page, click on the `swapMoneyForZTokens` function, and enter the amount of money you want to swap with the Guild (note: this cannot exceed the amount of money you approved in the previous step).
4. Click the `Write` button & approve transactions in your wallet to execute the Guild swap. ## How to `swapZTokensForMoney` : 1. Navigate to the bottom of the Market Details page to check if the Guild has money to swap (i.e. the `Guild Balance` is greater than 0):
2. Approve zToken Transfers: 1. Navigate to the top of the Market Details page in , and click on the link out from the zToken in the right metrics panel
2. This will take you to the block explorer page for the Guild contract. Navigate to the `Contracts` > `Write Contract` (or `Write as Proxy` if available) tab and click the `Connect to Web3` button to connect your wallet to the site.
3. After connecting your wallet, click the `approve` dropdown. Executing this function will enable the Guild to transfer an amount of zTokens on your behalf, which is required to execute `swapZTokensForMoney`.
4. You can find Guild address by navigating back to the Market Details page and clicking on the address button next to the market name at the top of the page.
5. Input the guild address into the `spender` input field and add the zToken amount you want to swap in the `value` field. **Note**: the money token value should be in zToken units (i.e. 1 zTazzDebtTest = 1000000000000000000) - **ALWAYS** confirm the decimal value of the zToken you intend to swap.
6. Click on the `Write` button & sign the transactions in your wallet to execute the `approve` function. 3. Swap zTokens for money 1. Navigate back to the Market Details page and click on the link out to the Guild address on the block explorer.
2. This will take you to the block explorer page for the Guild contract. Navigate to the `Contracts` > `Write Contract` (or `Write as Proxy` if available) tab and click the `Connect to Web3` button to connect your wallet to the site.
3. Navigate to the bottom of the page, click on the `swapZTokenForMoney` function, and enter the amount of zToken you want to swap with the Guild (note: this cannot exceed the amount of zToken you approved in the previous step).
4. Click the `Write` button & approve transactions in your wallet to execute the Guild swap. # Markets Welcome to the the Covenant Finance app, deployed on Arbitrum mainnet. Upon arrival, you will see a list of available debt markets. Covenant will offer a wide variety of borrower opportunities in the future, but our launch product will be in partnership with a single borrower, a protocol that wishes to borrow against its treasury assets. You can use the app to view the current state of Covenant debt markets, add liquidity to DEXs that trade Covenant debt, or trade debt tokens. Let’s go over the data presented and how to navigate the Markets page. \ The TVL, highlighted in the image below, is the amount of borrower collateral locked across the entire protocol. **Note, the TVL, and thus DEX pool liquidity, for this test deployment are very low. Please transact accordingly, only with small amounts!**
The **Debt APY** is the rate at which the borrower’s position accrues. It is also a derivative of debt token price. As a reminder, rates on Covenant are set by the market. Refer to the [litepaper](https://docs.covenant.finance/getting-started/litepaper) and [whitepaper](broken://pages/Pgh4ZiG4fUvWP1n1UXif) for deep dives on the mechanism design. Below Debt APY are the following figures: * **Locked Collateral Value**: The amount of locked borrower collateral, denominated in the borrowed asset (aka money). * **Total Debt Outstanding**: The notional amount of debt. This figure is used to calculate LTV. Notional debt is also closely tied to Covenant’s liquidation mechanism. * **Debt Token Ticker**: The name of the debt token. This is what borrowers mint and sell for money, and what lenders buy with money. Finally, notice user options to add liquidity and trade debt. Both buttons will take you to the same page, pre-selected to a tab of your selected option.
# Add Liquidity Covenant debt is traded via Uniswap V3 pools, and thus requires LPs. Users interested in LPing can do so via the Covenant front end. On the **Markets** page, identify the market you are interested in LPing for and click on "Add Liquidity".
You will be redirected to the **Add Liquidity** widget. Note the current price of the respective market's debt token. You will most likely want to provide liquidity above and below this price. Direct you attention to the **Set Price Range** section in the below image. There, you can specifiy a **Low Price** and a **High Price** to provide liquidity. Enter your desired values, noticing that the **Low Price** dynamically updates a **High Rate**. Similarly, the **High Price** you enter dynamically updates a **Low Rate.** In addition to providing liquidity at dictated by price, LPs also provide liquidity dictated by rate. If you are unfamiliar with this central aspect of Covenant, we highly recommend you read the rest of the documentation.\ \ Depending on the market, you might notice that some prices you input do not update the high/low rate. Some markets have rate limits set as a parameter. You can still provide liquidity at a price beyond a given rate threshold.
Once you are satisfied with the price and rate displayed, enter your desired deposit amounts. As with LPing on the Uniswap interface, you only need to enter a value for the first asset, and the second asset, sUSD in this case, will auto-fill. Once you are satisfied with the amounts to be deposited, click "Add Liquidity" and approve the necessary transaction approvals.
With your liquidity deposited, you may want to proceed to the **Positions** tab to see if the market you just LPd for is currently receiving liquidity incentives. If so, also proceed to the next section, where you can learn how to Stake and Register your LP tokens to receive incentives, if available. It's also important to note that your *unstaked* LP tokens will appear on Uniswap, where you can also manage them, if desired. However, staked and/or registered LP tokens will not appear under your wallet address on Uniswap, because you have transferred them to another contract address. # Stake Liquidity Covenant can facilitate the distribution of liquidity incentives (distinct from regular Uniswap fees) to Liquidity Providers. LPs can earn these incentives, when they are available, by **staking**, and then **registering**, their LP tokens via the Positions page. Navigate to the Positions page and scroll down to the 'Uni V3 LP Positions' section. If you are an LP of one or more guilds you should see your active liquidity positions there. In order to stake your LP token, click the 'Stake' button and approve the necessary transaction permissions.
Staking functionality can take a while to complete, sometimes around 30 seconds, so don't be surprised if you see the spinning wheel go on.
Once the transaction is complete, the button will read 'Unstake.' The next step will be to **register** your staked position. IMPORTANTLY, In the future, if you want to unstake and redeem your LP token, you will have to unregister your position BEFORE you unstake it. To register your NFT scroll down to the "Uni V3 LP Incentives" section. Find the LP position that you just registered, identifiable by the **Token ID.** In the previous screenshot, we staked Token ID 526275, so that is the one we will register. Click the 'Register' button and approve the prompted transaction notifications.
With your LP token now registered, you will accrue incentives, if any are active on your respective pool, on a time and LP-fee weighted basis. Scroll to the bottom of the page to see your accrued rewards.
Finally, to redeem you LP token, you will need to **Unregister** and then **Unstake,** in that order. You do not need to claim your rewards prior to withdrawing your LP token. It's important to note, by staking your LP token, you are transferring that asset to the Uniswap staking [contract](https://github.com/Uniswap/v3-staker). If you look for a staked LP token on the Uniswap interface, it will not appear. # Trade Debt/Lend In addition to LP’ing, users can also trade debt. Navigate to this tab from the ‘trade debt’ button on the home page, or by selecting the ‘trade debt’ tab highlighted in the image below.
On Covenant, borrowers mint debt and then sell that debt on the market to lenders. In other words, debt has a market price, and buyers (i.e. lenders) of the debt realize interest by price exposure to the token. Passive lenders will buy and hold the debt token, but you can also trade it, speculating on its price, and thus rate. If the interface reminds you of Uniswap V3, that’s because it is! Covenant has integrated the Uniswap swap widget. Unlike LP’ing, swaps are executed in-app. \ If you’ve used Uniswap, you already know how to buy debt. If not, just input your desired purchase amount, click ‘Review Swap,’ and execute any prompted permissions. The swap widget defaults to *buying* debt tokens (i.e. lending). If you would like to *sell* debt tokens, click the blue arrows to change the swap order.
# Additional Market Details Below the **Add Liquidity/Trade Debt** card you will find additional information about the debt market. You may have to scroll down to see this information, highlighted in the below image. Under the **Debt Details** section, find the following fields: * **Loan Term:** Debt on Covenant is perpetual, not fixed. For more information, see the [litepaper](/deprecated/litepaper) and [whitepaper](broken://pages/Pgh4ZiG4fUvWP1n1UXif). * **Rate:** The rate on Covenant is set by the market, so it's floating, not fixed. * **Liquidation Type**: Covenant can support multiple liquidation types. While it can support LTV-based, mark-to-market liquidations, of the variety you might find on AAVE/Compound/etc., it can also support non-mark-to-market liquidations, in which a borrower is liquidated based on their total debt outstanding, as opposed to their mark-to-market LTV. Finally, further down, find **Collateral Details**, which lists the collateral types and amounts locked in the respective lending market.
# Deployments These debt markets are being wound down. We thank again users that tested and gave us feedback! alpha debt markets were launched on Arbitrum, and can be accessed through Beta debt markets were launched on Arbitrum and Optimism, and can be accessed through # Covenant V1 V1 debt markets were launched on Arbitrum, and can be accessed through https\://v1.covenant.finance These debt markets are being wound down. We thank again users that tested and gave us feedback! # Addresses # Risk Parameters # Deprecated These debt markets are being wound down. We thank again users that tested and gave us feedback! alpha debt markets were launched on Arbitrum, and can be accessed through Beta debt markets were launched on Arbitrum and Optimism, and can be accessed through # Arbitrum Deployment details on Arbitrum mainnet # Addresses Below are Arbitrum deployed addresses for each guild - including zTokens (asset token), dTokens (liability token), oracles and Uniswap pools. #### Cross-Guild Addresses | Contract | Address | Arbiscan | | ---------- | ------------------------------------------ | ---------------------------------------------------------------------------------- | | tazzHelper | 0x6CB2121Ff9AFeC39d1B377E0AA1d28A72cb7f1B5 | [Arbiscan](https://arbiscan.io/address/0x6CB2121Ff9AFeC39d1B377E0AA1d28A72cb7f1B5) | #### LiqStake(3M-WETH) | Contract | Address | Arbiscan | | -------- | ------------------------------------------ | ---------------------------------------------------------------------------------- | | LP Pool | 0x79CDe29F303b0a18c66473C3aDeE21f83E34531E | [Arbiscan](https://arbiscan.io/address/0x79cde29f303b0a18c66473c3adee21f83e34531e) | | zToken | 0x067eCEDD510fEEd3906c97894aa7E91d1B43318A | [Arbiscan](https://arbiscan.io/address/0x067eCEDD510fEEd3906c97894aa7E91d1B43318A) | | dToken | 0x2E030A2fa1A1005B473B6850b4AE1A5B4d185e17 | [Arbiscan](https://arbiscan.io/address/0x2E030A2fa1A1005B473B6850b4AE1A5B4d185e17) | | oracle | 0x5b9Bae46B53458E164b534A1CEF2B5DbB317fef0 | [Arbiscan](https://arbiscan.io/address/0x5b9Bae46B53458E164b534A1CEF2B5DbB317fef0) | | guild | 0x28cc546eac8Cf224ba43af95928643b25C379894 | [Arbiscan](https://arbiscan.io/address/0x28cc546eac8Cf224ba43af95928643b25C379894) | #### BlueCryp (3M-USDC) Guild | Contract | Address | Arbiscan | | -------- | ------------------------------------------ | ---------------------------------------------------------------------------------- | | LP Pool | 0x17840b61a34edc33e99e49dec4ba849de1240ef2 | [Arbiscan](https://arbiscan.io/address/0x17840b61a34edc33e99e49dec4ba849de1240ef2) | | zToken | 0xD2040A2dD314B7C979482cE1667082Ab0D0f47e2 | [Arbiscan](https://arbiscan.io/address/0xd2040a2dd314b7c979482ce1667082ab0d0f47e2) | | dToken | 0xa6863e17820168FEb3397215ADEc50eB4f518948 | [Arbiscan](https://arbiscan.io/address/0xa6863e17820168feb3397215adec50eb4f518948) | | oracle | 0xF65d90674543C089A04a052275Bd8c7D220a0093 | [Arbiscan](https://arbiscan.io/address/0xf65d90674543c089a04a052275bd8c7d220a0093) | | guild | 0x845E65C6798119605F901C50A24135B62784C2B0 | [Arbiscan](https://arbiscan.io/address/0x845e65c6798119605f901c50a24135b62784c2b0) | #### ArbFaucet(3M-ARB) | Contract | Address | Arbiscan | | -------- | ------------------------------------------ | ---------------------------------------------------------------------------------- | | LP Pool | 0x345C6457bfD792f6286556bCBe7220D8de6E3236 | [Arbiscan](https://arbiscan.io/address/0x345c6457bfd792f6286556bcbe7220d8de6e3236) | | zToken | 0x399142B1AddEbAe810DA82933c7C0e2E7a8eA6e4 | [Arbiscan](https://arbiscan.io/address/0x399142B1AddEbAe810DA82933c7C0e2E7a8eA6e4) | | dToken | 0xcBAc0eF62eCB9a20e3ef4dA0C047C09cFADe61B6 | [Arbiscan](https://arbiscan.io/address/0xcbac0ef62ecb9a20e3ef4da0c047c09cfade61b6) | | oracle | 0xD0B483b41F46f5AF45EA57Cb3082d712186d2f99 | [Arbiscan](https://arbiscan.io/address/0xD0B483b41F46f5AF45EA57Cb3082d712186d2f99) | | guild | 0xA7211f8d00ed498ddd42a4aE4F14cCa896C529C0 | [Arbiscan](https://arbiscan.io/address/0xA7211f8d00ed498ddd42a4aE4F14cCa896C529C0) | | | | | # Risk Parameters Deployed guild parameters #### LiqStake (3M-ETH) * Money: * WETH * [0x82aF49447D8a07e3bd95BD0d56f35241523fBab1](https://arbiscan.io/token/0x82af49447d8a07e3bd95bd0d56f35241523fbab1) * Duration: 3 months * Collateral * wstETH * [0x5979D7b546E38E414F7E9822514be443A4800529](https://arbiscan.io/address/0x5979d7b546e38e414f7e9822514be443a4800529) * Max LTV: 95% * User Deposit Cap: 1 wstETH * Guild Supply Cap: 25 wstETH * Liquidation Threshold: 98% * Liquidation Fee: 2% * ankrETH * [0xe05A08226c49b636ACf99c40Da8DC6aF83CE5bB3](https://arbiscan.io/address/0xe05a08226c49b636acf99c40da8dc6af83ce5bb3) * Max LTV: 95% * User Deposit Cap: 2 ankrETH * Guild Supply Cap: 25 ankrETH * Liquidation Threshold: 98% * Liquidation Fee: 2% * swETH * [0xbc011A12Da28e8F0f528d9eE5E7039E22F91cf18](https://arbiscan.io/address/0xbc011A12Da28e8F0f528d9eE5E7039E22F91cf18) * Max LTV: 95% * User Deposit Cap: 2 swETH * Guild Supply Cap: 25 swETH * Liquidation Threshold: 98% * Liquidation Fee: 2% #### BlueCryp (3M-USDC) * Money: * USDC.e * [0xFF970A61A04b1cA14834A43f5dE4533eBDDB5CC8](https://arbiscan.io/token/0xff970a61a04b1ca14834a43f5de4533ebddb5cc8) * Duration: 3 months * Collateral * WETH * [0x82aF49447D8a07e3bd95BD0d56f35241523fBab1](https://arbiscan.io/token/0x82af49447d8a07e3bd95bd0d56f35241523fbab1) * Max LTV: 93% * User Deposit Cap: .7 WETH * Guild Supply Cap: 20 WETH * Liquidation Threshold: 95% * Liquidation Fee: 2% * ARB * [0x912CE59144191C1204E64559FE8253a0e49E6548](https://arbiscan.io/token/0x912ce59144191c1204e64559fe8253a0e49e6548) * Max LTV: 93% * User Deposit Cap: 1000 ARB * Guild Supply Cap: 10000 ARB * Liquidation Threshold: 98% * Liquidation Fee: 2% * WBTC * [0x2f2a2543B76A4166549F7aaB2e75Bef0aefC5B0f](https://arbiscan.io/token/0x2f2a2543b76a4166549f7aab2e75bef0aefc5b0f) * Max LTV: 93% * User Deposit Cap: .1 WBTC * Guild Supply Cap: 1 WBTC * Liquidation Threshold: 95% * Liquidation Fee: 2% * wstETH * [0x5979D7b546E38E414F7E9822514be443A4800529](https://arbiscan.io/address/0x5979d7b546e38e414f7e9822514be443a4800529) * Max LTV: 93% * User Deposit Cap: 1 wstETH * Guild Supply Cap: 10 wstETH * Liquidation Threshold: 95% * Liquidation Fee: 2% #### ArbFauce (3M-ARB) * Money * ARB * [0x912CE59144191C1204E64559FE8253a0e49E6548](https://arbiscan.io/token/0x912ce59144191c1204e64559fe8253a0e49e6548) * Duration: 3 months * Collateral * USDC.e * [0xFF970A61A04b1cA14834A43f5dE4533eBDDB5CC8](https://arbiscan.io/token/0xff970a61a04b1ca14834a43f5de4533ebddb5cc8) * Max LTV: 70% * User Deposit Cap: 1000 USDC.e * Guild Supply Cap: 10000 USDC.e * Liquidation Threshold: 80% * Liquidation Fee: 2% # Optimism # Addresses coming soon.... ### Core & Periphery Contracts
Contract NameAddressBlock Explorer
GuildAddressesProviderRegistry
0x26e52FCf6fB27717B4b890b3fBAB0D00f425645
Optimistic Etherscan
DataProvider
0x3B945B44C1fFf20307B191c617b60E78F9860C30
Optimistic Etherscan
### Oracle Proxies
Token0Token1Proxy TypeOracle Proxy Address
SNXsUSDChainlinkV2V3OracleProxy
0x4d45a970bd379AE9af576c81642200161B462d71
zTazzDebtTestsUSDUniswapV3OracleProxy
0x7b9eCB76c75759638b744166b43ec2bCf42Ce94a
### Market Contracts #### Covenant (Test) Debt
Contract NameAddressBlock Explorer
ACLManager
0xf38Aba80b4041bf31B37F18242d34599bEb33F11
Optimistic Etherscan
GuildAddressesProvider
0xA254852F61e8c461f2B2F05909Ba4CF9c89E7A2e
Optimistic Etherscan
GuildRoleManager
0xe4dD48C506DF29fF3B4A971f7cee6a4199dC4EAB
Optimistic Etherscan
PermissionedGuildConfigurator
0x5C135624f517a22773aaC79119934ce94E3EDe4C
Optimistic Etherscan
PermissionedGuild
0x39B3b1D5301b45AC2A4bd07bF4A481C54211c9B8
Optimistic Etherscan
Asset Token (zTazzDebtTest)
0x1c3Ec4F715b01eb5C14C3097C8Ef88deF9aBaE43
Optimistic Etherscan
Liability Token (dTazzDebtTest)
0xe958ab9DBE5d995ddA91fcEe7CdEAc9D05B74FaE
Optimistic Etherscan
Oracle
0xc14B3C5057f990FCcaa83650abE65CBEA0Fc8c5e
Optimistic Etherscan
# Risk Parameters ## Markets #### Covenant (Test) Debt
CollateralTypeMax LTVLiquidation ThresholdLiquidation FeeCollateral Address
SNXNon-MTM50%55% LTV at debt issuance price2%
0x8700dAec35aF8Ff88c16BdF0418774CB3D7599B4