Key concepts
TL;DR: Learn the essential terminology before diving into XCCY — Fixed Yield (FY), Variable Yield (VY), positions, notional, and settlement.
Fixed Yield vs Variable Yield
These are the two fundamental concepts in XCCY:
Variable Yield (VY)
What it is: The fluctuating APY you earn from lending protocols like Aave or FLuid.
Changes every block based on supply/demand
Unpredictable — could be 2% today, 15% tomorrow
This is what you currently earn on aTokens, cTokens, etc.
Variable Yield over time:
APY %
^
15%| /\
| / \ /\
10%| / \ / \
| / \/ \
5%|/ \___
+──────────────────────> Time
(unpredictable)Fixed Yield (FY)
What it is: A guaranteed yield rate locked via XCCY for a specific term.
Stays constant for the entire term
Predictable — you know exactly what you'll earn
Determined by market supply and demand in XCCY pools
Position Types
There are two ways to use XCCY:
FY Position (Lock Fixed Yield)
You receive
Fixed Yield (guaranteed)
You pay
Variable Yield (whatever it turns out to be)
Best when
You want certainty, or expect VY to drop
Risk
If VY > FY, you miss out on extra yield
Example: "I lock 5% FY. If Aave averages 3%, I profit. If Aave averages 8%, I lose."
VY Position (Trade Variable Yield)
You receive
Variable Yield (whatever it turns out to be)
You pay
Fixed Yield (locked rate)
Best when
You expect VY to rise above current FY
Risk
If VY < FY, you lose money
Example: "I give up 5% FY to get VY. If Aave averages 8%, I profit. If Aave averages 3%, I lose."
Key Terms
Notional
The principal amount your position is based on.
If you open a 100,000 USDC notional position at 5% FY for 1 year, you'd earn/lose based on 100,000 USDC worth of yield
You don't deposit the full notional — only margin (collateral)
Margin
The collateral you deposit to open a position.
Typically 1-10% of notional (depending on leverage)
Protects against losses
Returned at settlement (corrected on your PnL)
Term / Maturity
The duration of the IRS contract.
Positions have a start date and end date (maturity)
At maturity, positions are settled
Common terms: 30 days, 90 days, 6 months, 1 year
Settlement
What happens at maturity:
Example Calculation:
Notional: 100,000 USDC
Term: 90 days (0.247 years)
FY locked: 6%
VY actual: 4%
The XCCY Pool
Each XCCY pool is defined by:
Underlying Asset
The base asset (e.g., USDC)
Compound Token
The yield-bearing token (e.g., aUSDC)
Term Start
When the pool's term begins
Term End (Maturity)
When positions settle
Tick Spacing
Granularity of FY rates
Visual Summary
Next Steps
Yield Basics — Deeper understanding of FY/VY
How IRS Works — The full mechanics
Getting Started — Open your first position
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