yTokens

Overview

yTokens form the foundation of the YieldFi protocol, offering users tokenized exposure to sophisticated yield-generating strategies. Each yToken represents a proportional claim on the underlying assets plus accumulated yield, enabling users to earn returns while maintaining liquidity.

Core Concepts

1. Yield Distribution and Vesting

yTokens use a yield distribution mechanism that balances immediate value accrual with price stability.

When our strategies generate yield, the profits aren't immediately reflected in the token price. Instead, we gradually incorporate these profits into the exchange rate over a vesting period (typically 24 hours). This creates a steady increase in token value rather than sudden jumps.

The vesting mechanism serves several important purposes:

• Prevents abrupt exchange rate changes that could be exploited

• Protects against yield sniping where users deposit right before and withdraw right after yield distribution

• Creates a more predictable experience for all users

2. Asset Valuation

The value of yToken is calculated through:

• Total Assets Tracking: We continuously account for all assets under management

• Vesting-Aware Calculations: When determining the exchange rate, we consider both fully vested yield and the portion of recent yield still in the vesting period

This approach ensures that token values grow smoothly and predictably, while still accurately reflecting the true value of the underlying assets.

3. Oracle-Based Exchange Rate

Unlike our mainnet implementation, yTokens on other chains is minted and redeemed at oracle price to reflect consolidated value of assets and supply shares across all chains as one single, monolithic system.

This design offers several advantages:

• Eliminates the need for complex on-chain accounting

• Enables unified exchange rates across multiple networks

• Eliminates the need to account for each chain individually as the L1 serves as the source of truth from where exchange rate is published via oracles.