Applications

Yield Trading

Yield-bearing assets such as ETH can be liquid staked and separated into a yield component (YT) and a principal component (PT).

Existing AMMs for trading YT vs. PT work on the formula: Price(YT) + Price(PT) = Price(Underlying). Each AMM pool facilitates the exchange of YT vs. PT for a specific asset (e.g. ETH), with a specific maturity date (e.g. 31/12/23).

With Temporal’s version, a single pool facilitates the exchange of YT vs. PT for a specific asset for any maturity with given frequency (e.g. daily maturities) and max-min maturities (e.g. ‘today’s date + 1 day’ to ‘today’s date + 365 days’).

On-Chain Bond Dealer AMM

Enhancing institutional bond market efficiency through Temporal’s unified market for on-chain bonds.

In conventional bond markets, individual bonds are bought and sold by several OTC bond dealers quoting their prices for each bond. These bonds are quoted individually by dealers, and current TradFi market structure needs active participation from dealers. This characteristic results in concentration of trading activity predominantly at the inception and near maturity of the bonds. Consequently, leads to challenges in achieving accurate pricing or accessing a liquid market for bonds during the intermediary years of their lifespan.

Temporal’s AMM vastly improves market efficiency by enabling automated pricing and dealing bonds across any duration or interest rate. Dealers simply initiate and maintain issuer-specific yield curves for single-asset bond AMMs. Only tactically adjusting the spread without altering the state of the underlying AMM.

Central to Temporal’s system is its utilization of shared liquidity across the entire yield curve. In contrast to traditional OTC systems where there are separate ‘fragmented’ markets for each bond (having its own duration and interest rate). The framework is versatile and generalizable to Treasuries, Investment Grade Bonds, and even the less frequently traded private credit. Dealers are enabled to allocate funds across various single-asset bond AMMs with ease, significantly reducing operational complexities.

The mechanism is outlined in Annexure B.