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Frequently Asked Questions
PT's are Principal Tokens. Lending platforms use PTs to represent the redeemable principal of your lent capital.
The core mechanism behind the Illuminate Protocol is the wrapping of external principal tokens into "meta" principal tokens, "Illuminate PTs" (iPTs) which comply with EIP-5095. They are redeemable at a 1:1 ratio for the underlying assets upon maturity, and follow a standard interface allowing easy integration of Illuminate into any dApp or wallet.
The rate of return is a function of the discounted price paid for principal tokens and their full redeeming price upon market maturity. The difference in proceeds is represented as a fixed rate return.
For example, if an USDC-based iPT due to mature in one year trades at .95, it would represent a 5.25% fixed-APY return for the lender.
As a fixed-yield aggregator, our yield comes from the various available overcollateralized fixed-yield lending protocols. These include: Swivel, Element, Notional, Yield, APWine, Tempus, Sense, Pendle, and more as they release.
These protocols then source their yields either from direct overcollateralized lending (Yield & Notional), or through the “Yield Tokenization” of overcollateralized lending markets Aave, Compound and Euler.
Your principal is sent directly to the protocol with the highest yield available. This could be a single protocol, or a blend of several sources. (Link to Ecosystem explainer)
- 3.Your deposits ultimately lie on overcollateralized lending or liquid staking protocols, passing through the most efficient fixed rate marketplace at the time of deposit, securing a lending agreement for the redemption of your principal and your future yield at a 1 to 1 rate.
Tokenized Yield involves depositing to overcollateralized lending/liquid staking protocols (such as Lido, Rocketpool, Frax, Compound, Aave, Yearn, Rari, Fraxlend, & future EIP-4626 compliant protocols.), and tokenizing the deposit into the redeemable principal lent (Principal Tokens) and the tokenized cash flow of the lending platform's variable rate (names vary by protocol, but often called Yield Tokens, Notional Tokens, etc.)
Illuminate shares the same core risks that come with all DeFi protocols: Smart Contract Bugs + Reviewer Oversight, Oracle Liveliness, and Liquidator Liveliness. Should any of our external integrations face a shortfall event, iPTs may then become partially collateralized.
Should any of our external integrations face a shortfall event, iPTs may become partially collateralized. We also provide insurance with a baseline coverage of up to $10,000,000 through our partnership with Sherlock.
Through Audits, and Insurance:
- Audits: We work to reduce these risks through diligent audits alongside Code4rena and Sherlock(TBD). For a report of our first audit with code4rena, check out the official report, and our blog post review: Code4rena: Link
(Disclaimer: audits should not be considered an advertisement of safety, and are only one indicator of the safety of a protocol.)
- We also provide insurance through our safety module (Information TBD) and a baseline coverage of up to $10,000,000 through our partnership with Sherlock (TBD).
Markets with more time until maturity have more time for yield to generate, and typically the PTs are sold at higher discount, translating to better overall yields if the position is held until maturity.
Markets closer to maturity have less time to accrue yield, so they typically produce less return overall under normal market circumstances.
Illuminate uses oracles alongside an API that perpetually determines which integrated protocol has the most discounted Principal Tokens for a given market, for the transaction amount quoted.
APY is a rate standard that simplifies comparisons for lenders seeking better returns, and reflects the rate of return for investments held for one year. Not every market has a year left to maturity, or even that long of a term, and so APY is not a measure of guaranteed return, but a standardized basis for comparison.