Abstract:

Swivel finance is a fixed rate yield protocol.

How it woks:

Swivel split the deposit as zctoken and ntoken.

zctoken is principal and ntoken is interest. When people deposit their money to Swivel finance, they will get yield( ntoken ) immediately. Because protocol will sell ntoken to secondary market. On the other hand, zctoken will lock until maturity, then user can get same amount of token.

Assume market rate = 5% and it need to lock one year. That’s why 1000 ntoken equal to 50 usdc.

Ntoken:

Ntoken means the right of the claim to the deposit’s future yield. In other words, Ntoken are currently generating interest in an underlying protocol, and deprecating assets that experience time-decay. 

When any one buy the Ntoken with usdc/dai , they create a vault, which aim at aave, compound and yearn.

Zctoken:

If user wants to redeem their money back, for example, 1000usdc, they should pay 1000 zctoken plus 1000 ntoken. On the other hand, if 1000 zctoken is mature, they will get back 1000 usdc 1year later.

Competition:

There are several fixed income protocol. Most of them divide the deposit into principal token and yield token. Let’s zoom in the yield token and break down into 2 parts, past yield(PY) and future yield(FY). There are 3 design about YT construction dealing with PY.

*PY means what the user receives from selling the ntoken and FY means why the Investor wants to buy the ntoken.

In a collect way, the user can either save their PY or reinvest their money manually.

They will not suffer IR sensitivity in the future.

Swivel Feature- Orderbook:

The orderbook is the biggest feature between Swivel and other fixed-income protocols, also they put a lot of emphasis on it. When we deposit our money, or buy/sell zctoken/ntoken , we place the order but not swap the token through AMM.

Simply to say, the ntoken is worth with projected future yield. However as rates and rate volatility changes, this projected future yield changes. It leads to awful return for LP. After all, they choose orderbook instead of AMM because of capital efficiency, number of transaction(reduce from 3~6 to 0~2) and minimal slippage.

Future:

They didn’t release what the platform token will do in future, so it’s hard to estimate the value of Swivel. They just launch their testnet this month, and many detail information doesn’t release yet.

The fixed income protocol is important in financial world. In fact, the traditional banks offer us similar service that give us 1~2% interest annually and if we lock the money we can get more. In conclusion, there is no new thing in defi, most of the protocol has established in real world before. People just convert it into an automatically and trustless way. That’s the reason I believe fixed income protocol is very important.