Use Cases & Practical Examples

Discover a wider range of Spectra uses cases followed by practical scenarios.

By the end of this article, you will have a clearer understanding of Spectra's potential benefits and flexibility and how it could become an integral part of your DeFi strategy.

Please note that actual outcomes may vary based on pool availability, liquidity levels, and maturity.

Fixed Rate

Lock in the yield on your position, removing any uncertainty about future returns. Aave: For instance, if you deposit 1000 DAI into the Aave protocol at a 4% APR, you can lock in this rate for a set period (e.g., one year) using Spectra. āœ… Even if Aave's DAI pool rate drops to 2% APR, you'll continue to earn at the initially fixed 4% rate for the rest of the year. This advantage means you could potentially double your yield compared to users who deposited DAI at the same time as you but didn't lock in the rates.

Lido: Alternatively, suppose you hold 10 stETH with a current 5% staking rewards APR. With Spectra, you can lock in this rate for a defined period, such as six months. āœ… In this example, if the staking rewards APR decreases to 2.5% APR natively, you'll continue to earn at the initially fixed 5% rate for the next six months.

Upfront Yield

Spectra allows you to obtain your anticipated yield upfront, giving you immediate access to funds that generally take months or years to accrue.

Compound Finance: Assume you've deposited 1000 USDC into Compound protocol with a 7% APR. Using Spectra, you can instantly receive the equivalent of your future yield ā€“ approximately 70 USDC.

Paraswap: Likewise, if you're staking 100,000 PSP at a 10% APR, Spectra can provide you with your future yield - 10,000 PSP upfront.

āœ… This provides immediate liquidity that you can use elsewhere or reinvest.

Yield Trading

Yield Tokens (YTs) represent the right to future yield, allowing you to trade and speculate on interest rate (APR) fluctuations, akin to buying a token and gaining exposure to its price changes.

Morpho: If you believe that the current 4% APR on the lending protocol's DAI pool will rise due to market conditions, you can buy YT-DAI.

āœ… If the APR increases, you've made a gain on your YT investment.

Compound Finance: Consider you have YT-ETH of the Compound ETH pool, which you bought when the APR was 5%. However, you predict a bearish market and believe the interest rates might fall. To avoid a potential loss, you can sell your YT-ETH early.

āœ… If rates fall afterward, you've successfully mitigated your risk and secured your position by selling at a higher APR.

Liquidity Provision

Providing liquidity in Spectra offers the opportunity to earn from swap fees, keeping you entitled to yield accrual and all sorts of incentives. Liquidity providers are integral to any DeFi protocol, and Spectra is no different.

āœ… It's a strategy for liquidity providers to capitalize on the growing trend of interest rate derivatives in DeFi.

Discounted Assets (Fixed-Income Principal Tokens)

Discounted PTs are a byproduct of the Fixed Rates tool. Its discounted nature deserves an explanation.

When using the Fixed Rates tool, a user receives Principal Tokens - an asset with zero coupon bond mechanics, offering a fixed return to holders at maturity.

Reminder: All Principal Tokens come with maturity dates.

Simplified Example: If you deposit 1000 USDC and use the Fixed Rates tool at 7% APR, you shall receive 1070 PT-USDC. These 1070 PTs represent a claim on 1070 USDC one year from now. Below is a rough representation of how the value of Principal Tokens develops as they mature.

  • On the day of using the Fixed Rate, 1070 PT-USDC will be worth 1000 USDC

  • Halfway to maturity, 1070 PT-USDC will be worth ~1035 USDC

  • At maturity, 1070 PT-USDC will be worth & redeemable for precisely 1070 USDC.

You can hold these PTs until maturity and redeem them 1:1 with the underlying token, sell them back to the pool in advance if you don't want to wait anymore, or buy additional PTs to grow your fixed-income position.

āœ… Fixed-Income Principal Tokens provide the holder with a fixed return at maturity.

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