Before we explain the HOW, let’s quickly highlight the WHY!
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Traditional AMMs like Uniswap and Curve work very well for assets with on-chain price discovery, like governance tokens, meme coins, or stablecoins with minimal price deviation.
However, all major cryptos and RWAs have their main markets off-chain: on CEXs, stock exchanges, brokers, etc. Passive AMMs are inefficient for these assets, because the price needs to be brought on-chain.
To get the prices reflected on a passive DEX like Uniswap, constant CEX-to-DEX arbitrage is required. This type of arbitrage is a large volume driver and major contributor to MEV.
Some estimate that 60-70% of all stablecoin volume stems from bots. Most of it from high-frequency arbitrage, market-making bots, and algorithmic strategies. So, of the $60-70T annual stablecoin volume (December 2025), only ~$20T would be organic. The rest is due to CEX-to-CEX and CEX-to-DEX arbitrage.
This is where active AMMs come in (also referred to as propAMMs or PMMs).
Active AMMs leading to better pricing isn’t just theory anymore. On Solana, PropAMMs like HumidiFi or TesseraV make up >60% of trading volume.
But price discrepancy is not the only inefficiency of traditional AMMs. There are other issues like impermanent loss, poor capital efficiency, or low returns for LP.
In short, LP-ing on a DEX is often inefficient and unprofitable. This is not to say that on-chain price discovery is inferior. But trading volumes for majors are still mainly generated off-chain. And there are better ways to bring these prices on-chain.
MegaYield’s mission: Efficient liquidity for organic yield.
MegaYield has three main components:
Swap pools
Backstop pool
Swap router (incl. price engine and swap algo)
Swap pools provide the asset-leg and cash-leg for the trades. Initially, the majors like ETH and wBTC plus a couple of stablecoins will be enabled.
LPs will earn a portion of the swap fees (see below).
This is where the trading takes place. The router orchestrates the trade-in and trade-out between the pools.
Let’s assume a trader wants to buy 1 ETH for $3k USDC. The USDC pool will increase by $3k (trade-in), and the ETH pool will decrease by 1 ETH (trade-out). This happens in an atomic transaction.
This covers the first step to achieve our mission. Instead of needing one pool for every trading pair, MegaYield only requires one pool per token. All assets can be traded amongst all available pools.
But how does the pool determine the price of the assets?
In a traditional AMM, the price is derived from the constant product curve. On MegaYield, the price is sourced through a proprietary pricing engine.
The data that feeds the engine is obtained directly from [redacted]. The rates are updated real-time, instead of being passively derived as a function of the pool.
This covers the second step to achieve our mission. No more arbitrage is required to reprice the pools. The fair value is built into the protocol. In addition, this approach fits perfectly with the one-token pool design.
But what if a pool gets imbalanced?
The Swap Router is not just routing orders based on price information. It’s smarter than that. It’s aware of the health of each pool: A pool is healthy if its coverage ratio is around 1 (CR = deposits by LP’s - current liquidity).
However, trade activity and large LP withdrawals can bring a pool into an unfavorable state. This can trigger two reactions.
First, when a pool gets imbalanced, a slippage is automatically added/deducted from the price curve, to favor trades that are contributing to the pool’s health. For example, if a pool’s coverage ratio is <1, a slippage is added based on the pools’ state, to disincentivize further “trade-outs” and favor “trade-ins”. This can go as far as prohibiting trade-outs.
Secondly, if the pool is imbalanced, withdrawals by LPs are disincentivized by also adding a slippage. This can also yield positive returns for LPs that add to an imbalanced pool, until it is brought back into a healthy state.
Mathematically, a scalar potential is applied to get all the swap pools to fulfil certain constraints, keeping the price consistent with the pool’s state. In other words, the swap algo rewards trades that bring the pool back into a balanced state, using dynamic slippage curves.
But slippage for withdrawals sounds not gud. Gib back deposits! This is where the backstop pool (BSP) comes in.
The BSP is a stablecoin pool that covers the risks of MegaYield. Under healthy conditions it’s just accruing fees.
In an unfavorable situation, however, the BSP acts as a safety net. It covers the following potential risks:
Insurance Withdrawal - The BSP acts as an “insurance pool”. Assume trading activity tilted a swap pool negatively, such that there are fewer tokens in the pool than originally deposited by LPs (i.e., coverage ratio <1). In this scenario, LPs can instead withdraw an equivalent amount from the BSP
Inventory Risk - refers to the risk of imbalanced pools increasing in debt due to market volatility. For instance, if the ETH swap pool has a coverage ratio of 0.8, the remaining 0.2 is covered by the BSP. If the price of ETH increases, the debt gets bigger in USDC terms, independent of swap activity
Loss vs Rebalancing (LVR) - What is impermanent loss in traditional AMMs, is LVR for active market makers. It describes the risk of the oracle being frontrun - usually by bots - which can cause negative performance for the pools, i.e. in instances of sudden price changes
Oracle Risk - As mentioned, MegaYield is dependent on a pricing engine. In case the oracle fails or gets manipulated (many security measures in place to prevent that), the BSP would take the loss
Ok, so swap pool risks are covered. But why would anyone be willing to take all the above risks and deposit into the BSP?
The BSP also has advantages.
First, it gets the lion share of the swap fees (see next section). Its APR is expected to be the highest under normal conditions.
Secondly, any surplus of the swap pools are accredited to the BSP. Like the debt in the negative case (i.e., the inventory risk), the surplus in the positive case belongs to the BSP. Over a long time horizon, the PnL from this is expected to be non-directional.
Over time, the BSP will be filled with protocol-owned liquidity (POL), as the protocol accrues fees. This way, MegaYield will reduce the dependency on LPs and cover the remaining risks via POL.
MegaYield charges a flat fee between 4–10 basis points. The fee is currently fixed, but in the future could be adjusted to a dynamic fee based on volume, market conditions, or pool health.
Initially, the fee is split as follows (can be adjusted):
30% to swap-out pool LPs
60% to backstop pool LPs
10% to protocol treasury
The fee plays an important role in dog-feeding the BSP. As mentioned above, the BSP takes on the most risk. Hence, it receives the highest fees. And it benefits from every trade, while swap pools only get paid from swap-outs.
When moving in or out of a swap pool, there’s always a chance of slippage (positive or negative). While under balanced conditions, MegaYield charges no withdrawal fees. But there is one exception:
Insurance Withdrawal - If a swap pool LP chooses to withdraw from a pool that is below 100% coverage ratio, they can select to either withdraw the deposited token (accepting a small loss due to the applied slippage), or they can select to withdraw an equivalent of their deposit in USDC from the BSP. In this case, an insurance fee is charged (0.1-0.4%). After a one-block cool-off period (flashloans protection), the withdrawal is initiated
Swap Pool Withdrawal - If a BSP LP decides to withdraw, they can either withdraw directly from the BSP in USDC (after a 14-day cool-off period, to avoid sudden uncovered risks) or they can withdraw from a swap pool in a different token, if that swap pool’s coverage ratio is above 100%. In this case, the withdrawal can even yield a small bonus due to positive slippage
MegaYield combines three components.
The swap pools provide one asset each. The LPs earn swap fees.
The swap router intelligently orchestrates trades between the pools in atomic transactions, leveraging the pricing engine and swap algo. The pricing engine sources real-time data. And dynamic slippage steers trades, taking into account the health of each swap pool.
The backstop pool acts as safety net and covers the protocol risks: insurance withdrawals, inventory risk, LVR, and oracle risk. In return, it gets the highest fee share and surplus of swap pools.
In combination, MegaYield offers what only propAMMs and professional market makers achieve:
Capital efficiency
Profitable LP-ing
HFT-ready
No impermanent loss
Single-sided pools
All pools open to everyone
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