Modular Liquidity & Passive Lending Yield

The TownSquare Modular Liquidity architecture makes liquidity in the Liquidity Vault interwoven with a number of markets and protocols including TownSquare Crosschain Money Market, Morpho, Curvance etc. Modular liquidity directs asset holders' liquidity into these various yield sources to optimize lending yield.

The curators of the Vaults can adjust the strategy has the following roles:

• Market Selection & Management: Evaluates and selects appropriate markets based on risk-reward profiles, actively manages caps, and maintains market health.

• Rate Optimization: Actively manages interest rates between markets to maintain competitive yields for depositors while attracting borrowers.

• Liquidity Allocations: Strategically allocates capital across markets to balance yield optimization with risk management, configures supply and withdrawal queues, and uses the Public Allocator to maximize capital efficiency.

• Risk Monitoring: Continuously assesses collateral quality, oracle reliability, liquidation feasibility, and onchain liquidity to protect against bad debt events.

• Communication: Maintains transparency with users about vault strategies, risk parameters, and operational decisions.

Unlike the Leveraged Yield Vault, there is no leverage strategy involved in the asset management and primarily deals with allocation strategies, in the following execution flow:

• Deposit into Lending Vaults

  • Users deposit assets (e.g., asset x, asset y) into corresponding Lending Vaults.

  • Depositors receive receipt tokens (e.g., lp-asset x), which accrue value based on vault yield.

• Liquidity Allocation

  • Primary: Vault assets are supplied to the platform’s Crosschain Money Market & Asset Pools for borrowing.

  • Secondary: Underutilized liquidity is allocated to external DeFi protocols (e.g., Morpho, Aave) for optimized yield—possibly cross-chain.

• Yield Accrual & Distribution

  • Vaults earn interest from borrowers and external sources.

  • Yield is reflected in the growing value of receipt tokens.

• Withdrawal

  • Users redeem receipt tokens to withdraw their principal plus accrued yield (minus fees).