Overview

Hyperdrive AMM

Hyperdrive is an automated market maker (AMM) protocol that enables fixed-rate markets to be built on top of arbitrary yield sources. It deploys assets into those yield sources and wraps them as Hyperdrive positions represented as hy[Tokens] that trade at a discount (%) and can be redeemed for their full face value at maturity. Since the hy[Token]’s initial cost and value at maturity are known upfront, this discounted purchase represents a fixed rate of return.

Abstracting interest rate dynamics into a single price opens up interesting Market Dynamics while giving users the freedom to employ a number of Trading Strategies.

To ensure that a balanced market exists where the market price can be increased and decreased by supply and demand, the AMM supports three basic operations:

• Opening Longs, which provides exposure to the fixed rate by purchasing hy[Tokens] at a discount to their face value for the price of forgoing the variable rate. Longs pay trading fees to the pool.

• Opening Shorts, which provides exposure to the variable rate generated by the capital that backs hy[Tokens] for the price of paying the fixed rate. Shorts pay trading fees to the pool.

• Providing Liquidity, which facilitates Long and Short trading by automatically taking the other side of user positions, and charges trading fees. Part of the pool's fees may go to a governance address.

Hyperdrive lets users take a Long or Short position on the hy[Token] price. If a user believes the current fixed rate is higher than what the average variable rate over the course of the term will be (i.e., they consider the hy[Token] price to be low), they’ll go Long because they like the fixed rate. If they believe the average variable rate over the term will outperform the current fixed rate (i.e., they consider the hy[Token] price to be high) they'll go Short because they like the variable rate.

Hyperdrive is a non-custodial platform; users remain in control of their funds, which are either invested into the underlying yield source, or used to underwrite other market positions. Depositing funds into or withdrawing funds out of Hyperdrive requires the owner of the wallet (holder of the wallet's private key) to sign each transaction for execution on-chain.