Markets - Napier AMM

What Are Markets in Napier?

A Napier Market consists of a trading pool and an execution system that pairs a single underlying yield-bearing asset with its Principal Token (PT).

Pools currently support both the Napier AMM and the Curve AMM, structured as PT/underlying pairs (e.g., PT-sUSDe / sUSDe).

The execution system functions as a router that atomically handles PT, YT, and underlying actions—including issuance, redemption, swaps, and liquidity operations—within a single transaction.

Each Napier Market is curated and customized to the underlying asset and intended use case. Parameters are chosen at launch and remain fixed, except where certain adjustments are predefined as configurable.

Core Concepts

Napier AMM: A bespoke liquidity engine facilitating swaps between PT, YT and the underlying asset.
Execution System: A unified router that encapsulates all actions within and beyond Napier, designed to enhance the overall UX.

Key Features

Modularity: Built from interchangeable components, allowing flexible configurations.
Flash-Swap: Atomic flash swaps ensure that YT trades are executed against the same PT/YT pool, preventing liquidity fragmentation and improving capital efficiency.
Rehypothecation + JIT: LP capital can be deployed into ERC-4626 vaults. Dynamic AMM↔Vault rebalancing during PT/YT trades enables just-in-time (JIT) liquidity, reduces idle reserves, and delivers dual yields (vault returns + trading fees).
Concentrated Liquidity: Liquidity is concentrated into bespoke implied-APY bands to maximize efficiency and minimize price impact.
Time-Adaptive Curve: Curves evolve with time-to-maturity, aligning price with accrued yield and minimizing LP value leakage, with greater usable depth near expiry.
Curator-Set Parameters: Curators configure vault allowlists, allocation ratios, fee splits, and APY bands, enabling differentiated strategies and business models.
Uniswap v4 Compatibility: Implemented as a v4 Hook for direct router/solver integration and portable deployment across all v4 chains.

How Rehypothecation Works

Rehypothecation in Napier allows pools to deploy idle assets into external ERC-4626 vaults while keeping them fully usable for trading. This enables LPs to earn additional yield beyond swap fees, maximizing capital efficiency by reducing idle reserves and delivering dual income streams.

Mechanism

Token-Specific Vaults: Each side of the LP pair (Underlying and PT) can be rehypothecated independently into separate ERC-4626 vaults.
Independent Parameters: For each token, the curator specifies:
- Vault Address – The ERC-4626 vault to use (or zero address to disable).
- Min (ϕmin) – Minimum ratio of raw tokens to total balance.
- Max (ϕmax) – Maximum ratio of raw tokens to total balance.
- Target (ϕtarget) – Target ratio of raw tokens to total balance.
- Lock Setting – At deployment or afterward, curators can freeze either the vault choice or ratio conditions. Once frozen, these cannot be changed, ensuring transparency for LPs and minimizing trust assumptions.
Reserve Split: A portion of reserves is kept as raw balance for swaps, while the remainder is deployed into the assigned vault.
- Vault-deposited reserves remain available for trading, but withdrawals incur additional gas costs and smart contract risks.
Rebalancing: After swaps, reserves are dynamically rebalanced between raw tokens and vault deposits according to curator-defined parameters.

Benefits

For LPs: Earn both trading fees and vault yield, boosting net returns.
For Curators: Configure vault allowlists, allocation ratios, and freeze parameters, tailoring strategies to specific assets and risk profiles.
For Traders: Just-in-time (JIT) rebalancing ensures sufficient liquidity for efficient execution without compromising depth.

Supported Vaults

Yield-generating protocols that can be integrated for rehypothecation include (but are not limited to):

Aave
Euler
Morpho
Yearn
Gearbox

Example

In a stETH/PT-stETH pool, a curator may configure:

ϕtarget = 20%
ϕmin = 10%
ϕmax = 30%

This means 20% of reserves are kept as raw stETH for swaps, while the remainder is deployed into a Morpho vault. If swaps reduce the raw balance below 10%, funds are withdrawn from the vault until the ratio is restored to 20%.

How Concentrated Liquidity Works

Concentrated liquidity in Napier allows LPs to allocate funds into bespoke implied-APY ranges, maximizing capital efficiency while minimizing impermanent loss (IL).

Mechanism

Similar to Pendle, Napier’s AMM accounts for the natural appreciation of PT toward its underlying as maturity approaches.
- This mitigates time-dependent IL and ensures that at maturity, LP positions are economically equivalent to holding the underlying asset.
IL from swaps is further reduced because PT and the underlying are highly correlated.
- For example, PT-stETH vs stETH trades within a predictable yield range, unlike the higher volatility of spot prices.
By concentrating liquidity into specific yield bands, LPs can provide much deeper liquidity within realistic ranges (e.g., 0.5–7% APY for staked ETH), enabling larger trades with lower slippage.

Benefits

For LPs: Concentration reduces wasted capital, generates dual yield from PT and YT swaps within the same pool, and minimizes IL exposure.
For Traders: Consolidated liquidity in a single PT/underlying pool ensures greater depth and lower slippage, enabling larger trades with more predictable pricing.

Example

If an LP expects the implied yield of a staked ETH market to remain between 0.5–7%, they can concentrate liquidity within that band.

This provides higher capital efficiency and stable returns while avoiding unnecessary exposure outside the expected range.
If yields move beyond 7%, liquidity in that direction becomes thin, limiting further trading until the range is adjusted in a new market.

How Napier Execution System Works

The Napier Execution System is the core layer that encapsulates all actions within and beyond Napier, designed to enhance the overall UX.

In addition to fundamental protocol operations such as PT/YT/underlying issuance, redemption, swaps, and liquidity actions, it unifies advanced flows such as Zaps, Batch actions, Flash Swaps, external router integrations, and—looking forward—cross-chain and cross-protocol execution.

Concept

The Execution System provides a holistic view of Napier’s operation layer. All transactions and integrations are executed atomically and modularly through this router. This allows users to handle complex flows with near one-click simplicity, while curators and builders can freely design strategies and integrations on top of an extensible framework.

Mechanism

The Execution System encompasses:

Execution Primitives

Zap
Batch Actions
Flash Swap
Routing Optimization

Connectors & Integrations

Vault Connector Registry (ERC-4626 etc.)
Cross-Protocol Integrations (future)
Cross-Chain Execution (Li.Fi, LayerZero, Wormhole, etc. – future)

Execution Primitives

Zap

Overview: Bundle multiple actions into a single one-click transaction.
Current Support: Examples include PT issuance + LP deposit, PT redemption + LP withdrawal, making user flows intuitive.
Future Extensions: Integration of external protocol actions (e.g., lending, vault deposits) into Zap flows.

Batch Actions

Overview: Aggregate multiple markets or transactions into a single call.
Current Support (Napier AMM): Claim fees across several pools, redeem multiple positions at once.
Future Extensions: Cross-chain batch operations (executing across multiple markets on different chains).

Flash Swap

Overview: FlashMint swaps are possible due to the relationship between PT and YT. Since PT and YT can be minted and redeemed from their underlying YBT, we can express: P(PT) + P(YT) = P(Underlying) Knowing YT price is inversely correlated to PT price, this relationship allows YT swaps using the PT/YBT pool.
- Buying YT:
  1. Buyer sends YBT into the contract
  2. Contract borrows additional YBT from the pool
  3. Mint PT and YT from the combined YBT
  4. Send YT to the buyer
  5. Sell PT for YBT to repay step 2
- Selling YT:
  1. Seller sends YT into the contract
  2. Contract borrows equivalent PT from the pool
  3. YT and PT are redeemed for YBT
  4. YBT is sent to the seller
  5. A portion of YBT is sold for PT to repay step 2
Current Support: Enables YT buy/sell via FlashMint without upfront capital.
Future Extensions: Cross-protocol and cross-chain flash trades, integration with MEV protection.

Routing Optimization

Overview: Discover optimal paths across Napier and external protocols.
Current Support: Napier AMM (Uniswap v4) and 1inch.
Future Extensions: Integration with CoW Swap, other aggregators, and eventually cross-chain bridges.

Connectors & Integrations

Vault Connector Registry

Overview: A registry to onboard vault shares and yield assets as executable actions within Napier.
Current Support: ERC-4626 vaults are currently supported.
Future Extensions: Expansion to stablecoin vaults, structured product vaults, and beyond.

Cross-Protocol Integrations (future)

Overview: Enable multi-protocol strategies via the Execution System, such as lending (Euler, Morpho), interest rate swaps (IPOR), and structured products.

Cross-Chain Execution (future)

Overview: Through Li.Fi, LayerZero, Wormhole, and similar messaging layers, PT/YT issuance, redemption, and liquidity actions can be executed atomically across multiple chains.

Benefits

For Users: Execute all strategies from a single unified system, drastically simplifying UX.
For Curators: Design diverse market growth strategies—including fee design, rehypothecation, and PT looping—with ease.
For Builders: Build yield products on top of Napier or integrate Napier actions directly into consumer apps and payment systems with minimal overhead.

Permission-less Creation

A defining feature of Napier is permissionless market creation. Any curator may deploy an isolated market defined by a fixed set of parameters.

This design contrasts with conventional models that:

require governance or core-team approval for market listings or parameter changes, and
concentrate market control in a single entity or DAO, thereby pooling systemic risk.

In Napier, parameters are determined by each market’s curator at creation and cannot be modified thereafter (except where predefined as adjustable). The curator exercises full administrative control and receives the economic returns tied to the market’s growth.

Fees (Economics)

Similar to PTs and YTs, curators configure fee parameters based on market demand, volatility, and maturity.

Swap Fee

A fee is applied to every swap in the underlying token.
Napier charges percentage-based swap fees on the yield-receivable portion of PT whenever trades occur. This ensures that fees scale fairly across different maturities:
- Longer time to maturity → higher yield receivables → higher fees (in $ terms)
- Shorter time to maturity → lower yield receivables → lower fees (in $ terms)
At pool creation, the curator defines the LP vs Curator/Protocol Fee Share (reserveFeePct), which allocates fees between LPs and Curator/Protocol.
LPs receive their portion in proportion to liquidity share.
The Curator vs Protocol split (splitFeePct) is subsequently adjustable by Napier Governance (currently set to 100% Curator).
Curators must balance their own revenue share with LP attractiveness to ensure sustainable market growth.

Example

A $1,000 swap with a 1% Swap Fee (= $10):

With reserveFeePct = 90/10 and splitFeePct = 70/30:
- LPs receive $9
- Curator receives $0.7
- Protocol receives $0.3

Roles (Governance)

Similar to PTs and YTs, roles may be delegated on a per-market basis. Curators assign roles to one or more parties.

Role Types

Curator: Market owner responsible for assigning and removing roles.
LP: Provides liquidity and receives fee allocations in proportion to share.
Fee Receiver: An individual or project designated by the curator to collect curation fees.
Protocol Pauser: An account authorized by the curator to pause a specific market in emergencies.
Developer: A role authorized to implement additional custom logic for PTs/YTs.

Governance Principle

Neither Napier Labs nor the Napier DAO holds privileged control over individual PT/YT markets. Role assignment is exclusively managed by curators.

Market Categories

Permissions evolve with DeFi and may be selectively retained to meet user demand.

Core Interactions

Buy and Sell: Trade PT/YT through Napier Markets.
Provide Liquidity: Add or remove liquidity to earn fees and rehypothecation incentives.
Build Collateralized PT Positions: Use PT as collateral in external protocols.
Rehypothecation Settings: Configure vaults and allocation ratios to unlock new strategies, such as built-in PT looping.
Claim Curation Revenue: Curators claim accrued fees, incentives, and rehypothecation revenue at any time.
Curate and Manage: Create markets, configure fees/oracles, manage roles, and administer rehypothecation and emergency actions.

Get Involved

Napier Markets are open and composable by design. Choose your path and dive deeper with the dedicated guides:

For Users → User Guide: Learn how to trade PT/YT, provide liquidity, and use PT as collateral.
For Curators → Curator Guide: Understand how to launch markets, configure parameters, and build your own onchain yield products.
For Builders → Developer Guide: Integrate Napier Markets into your protocol with SDKs and APIs.

PreviousPT and YT — Tokenized Yield NextMarkets - Curve AMM

Last updated 4 days ago

Was this helpful?