What makes Covenant different?

Covenant introduces a new way to run on-chain funding markets, with several important differences from existing lending protocols:

• Market-driven rates (not governance or utilization curves): In Covenant, funding costs are set entirely by the price of Yield Coins. The Latent Swap AMM ties price, rate, and LTV together so that markets continuously clear. There are no governance-set interest rates, and no utilization curves that create wide spreads between borrowers and lenders.

• No liquidation cliffs: Traditional margin systems rely on hard liquidation thresholds for each borrower. Covenant instead prices risk at the market level: when LTV rises, funding rates automatically increase, drawing in new lenders and pushing LTV down. When LTV falls, the reverse happens. This removes cliff-based liquidations and replaces them with continuous, price-based risk adjustment.

• Fully collateralized, transparent instruments: Both Leverage Coins and Yield Coins are fungible ERC20 claims, always redeemable to the underlying Base Asset. This makes them liquid, composable, and easier to integrate than bespoke vault positions or illiquid loan contracts.

• Choice for margin providers: DIY or pooled (sUSDz Margin Fund): Lenders can either hold a specific Covenant Market’s Yield Coins to target a particular Base Asset, or supply to the pooled Covenant sUSDz Margin Fund ($sUSDz) to gain diversified exposure across many markets. This flexibility allows different risk appetites to coexist in one protocol.

• Composability with any asset: Covenant Markets can be created for any Base Asset with an oracle, including volatile tokens (ETH, WBTC), yield-bearing assets (stETH, sUSDe), or even real-world assets. This expands the design space for both leveraged trading and margin provision.