Introducing Illuminate
The start of our journey to make "Defi: Fixed"
Three weeks ago, Illuminate pushed forward to mainnet with our guarded launch. Since then we've made a splash becoming the largest depositors across most fixed-yield protocols — shifting the dynamics of the wider fixed-yield space overnight.
As of today (05/16/2023), Illuminate’s first market has crested $600k in liquidity and quickly approaches $1m — a key milestone toward further growth not only for Illuminate but also the wider fixed-yield space.
What Is Illuminate?
Built by the team behind Swivel and best described in our litepaper, Illuminate is a lending protocol that provides lenders the combined depth of all fixed-yield markets as well as a guarantee of the best yield in DeFi.
With our guarded launch we aggregate @yield, @NotionalFinance, @SwivelFinance, @senseprotocol, @delv_tech, @APWineFinance, @TempusFinance & @pendle_fi and in doing so Illuminate becomes the primary interface for fixed-yield deposits and integrations.
How does Illuminate Work?
Similar to most fixed-yield protocols, Illuminate originates fixed yields through the buying/selling of Principal Tokens (PTs).
Unlike other protocols that mint PTs through either direct over-collateralization (e.g. Notional, Yield) or yield tokenization (e.g. Swivel, Pendle, Delv), Illuminate mints PTs through the backing of other PTs!
Illuminate aggregates and wraps principal tokens with similar maturities and underlying assets into one single (meta) principal token (iPTs).
This meta principal token (iPT) is traded on a secondary market YieldSpace AMM to provide access to Illuminate’s optimized yields and allow the creation of novel products such as composable futures and options.
DeFi Native Yield Arbitrage & iPT Pricing
By providing a direct route for the exchange of fixed-yield PTs, Illuminate provides the first liquid market for cross-protocol arbitrage & rate trading in DeFi.
This dynamic impacts the wider space as discussed below, and importantly this exchange introduces a constant arbitrage opportunity.
Should a protocol offer a better yield than Illuminate, that protocol’s lenders have the opportunity to profitably wrap their position into iPTs (which are at that point worth more) bearing no risk.
This arbitrage naturally grows Illuminate’s TVL…
And of most importance, this arbitrage establishes an equilibrium that ensures iPTs consistently provide the combined depth of all fixed-yield markets, while also offering the best possible APY.
Illuminate’s Impact Insofar
When Illuminate launched, the various fixed-yield protocols were in relative disarray as their liquidity sat in isolated silos, little activity existed to arbitrage inefficiencies, and integrations… didnt exist.
More specifically, the five live USDC markets maturing in late June had a ~550% variance in APY:
Yield: 3.19%
Notional: 5.22%
Sense: 11.27%
Swivel: 2.99%
Illuminate: 4.73%
This variance did not last long though! Immediately upon Illuminate’s launch we saw users purchase PTs from Sense and Notional in order to then sell iPTs and capture free arbitrage opportunities.
This led to an immediate shift in market dynamics as Illuminate became the largest depositor across each of Sense, Notional and Swivel, bringing rates to complete parity at an eventual ~4.2% APY.
DeFi: Fixed
Though already impactful, Illuminates journey to “fix” DeFi’s fixed yields has just begun.
Scalability
Through Illuminate’s arbitrage, iPTs provide both on and off-chain applications with the combined liquidity of all fixed-yield markets.
This ensures the scalability of fixed yield integrations and traditional partnerships, and unifies the liquidity of the otherwise fragmented fixed-yield space.
Increased Volume & Secondary Liquidity
As external protocols generate demand, Illuminate guarantees increased volume as their yields are traded against the wider fixed-yield market.
Further, for larger entities and integrators Illuminate provides additional exit / liquidation liquidity — a key facet for avoiding insolvencies similar to SVB or Credit Suisse.
Integrations
Moreover, through the factors above and the on-chain dynamics behind iPTs, Illuminate enables the first scalable fixed-yield integrations with our first upcoming integration being Contango’s expirable futures.
(We will be announcing more partners over the coming weeks)
The market for on-chain integrations is massive, and as the building block for expirable instruments, Illuminate is poised to capture:
Fixed Lend/Borrow ($300m)
Options ($160m)
Expirables (~$130m*)
Aggregators ($1.3b)
“Banks” – Maker, Liquity, etc., (~$100m-2b)
* Projected based upon the ratio of perpetual <> expirable notional on centralized exchanges as applied to DeFi
What’s Next
With a number of upcoming integrations, initiatives and launches, the wider Illuminate (Illuminati) community has a lot to be excited about!
In our next update, we’ll discuss the advantages Illuminate provides for liquidity providers (LPs)! (Hint — We give LPs an additional 5% APY by solving a key problem in fixed-yields.)
This coming Monday we continue our weekly Twitter Space with Premia Finance as they prepare to launch their big v3 upgrade — propelling L2 options to their next stage.
Come on by and join the Illuminati in ourdiscord, and don't forget to pick up some of our amazing yields while they last:
Fixed APR: 4.22%
LP APR: 6.55% Variable + 4.02% Fixed
About Illuminate
Illuminate is a protocol designed to aggregate fixed-yield Principal Tokens and provide the only scalable infrastructure for fixed yields.
At Illuminate we offer the combined depth of all fixed-yield markets as well as a guarantee of the best yield in DeFi.
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