Modular Money Market & Liquidity Leverage

Liquidity on the TownSquare protocol is utilized in a modular fashion between the three core products of the layer:

• Lending Vault

Liquidity provided into the lending vault earns passive yield via various sources and provides direct liquidity into the TownSquare crosschain money market; the vault is on multiple chains, supporting different assets to be deposited and use cases in various ecosystems.

• Crosschain Money Market

The crosschain money market utilizes the liquidity from the lending vault to support single-chain leverage use cases such as loop strategy, and crosschain leverage use cases such as rate arbitrage between different chains. This money market serves as a source of base yield for the Lending Vault.

• Leveraged Loop Vault

Provides low-risk, optimized yield source for yield-bearing assets via PT (Principle Token) deposits. The leveraged strategy collateralizes PTs to borrow the underlying non-yield asset to get more PT exposure, utilizing the liquidity in the Crosschain Money Market and maximizing capital efficiency for liquidity providers and holders of the yield asset.

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By interweaving the liquidity supplied into the protocol across the three core products, TownSquare achieves several unique characteristics:

• Modularity

The liquidity vault is not the money market itself, which allows other liquidity vaults to access the money market as a yield source in a composable fashion.

• Capital utilization & efficiency

The borrow demand is natively generated by the Leveraged Loop Vault and met by the lending liquidity supplied into the money market by the Lending Vault. Liquidity can be dynamically adjusted from the money market and the vault sides based on the PT deposit value from the loop strategy side.

• Aligned incentive for yield assets

Whereas incentive for liquidity providers of the underlying non-yield assets and the yield-bearing assets is separately managed in different protocols, the modularity between TownSquare's Lending Vault and the Loop Vault aligns incentives for the PT asset and the underlying asset liquidity, further enhancing capital efficiency for liquidity providers and yield chasers.