LP Guide
The LP's Structural Role
On Fira, the liquidity provider is not a traditional lender. The LP provides the capital that makes fixed-rate markets function. Without LPs, there is no pool, no BT/FW exchange, and no market-discovered rates.
DeFi lending today holds approximately $64 billion. Global fixed-rate debt exceeds $145 trillion. The structural gap is not yield — it is time. Fira introduces maturity-based markets where rates are discovered through supply and demand, not dictated by utilization curves. LPs are the actors who make this rate discovery possible.
An LP position on Fira is a dynamic portfolio of FW-USDC (cash equivalent) and BT-USDC (fixed-maturity bonds). The LP earns from three independent yield sources. All LP operations — minting, swapping, redeeming, migrating — carry zero fees.
Key Parameters
Base asset
USDC
Wrapped asset
FW-USDC (Fira Wrapped USDC)
Market type
Fixed-rate AMM (BT-USDC / FW-USDC)
V1 maturities
May 7, 2026 · May 27, 2026 (USDG)
Borrower collateral
Pendle PTs (PT-USDe, PT-sUSDe, PT-USDG)
Projected LP yield
6-14% APR
Fees charged to LP
0% on all operations
Rehypothecation reserve target
90% (bounds: 89.89% min, 91% max)
Chain
Ethereum Mainnet
How It Works
1. Entry
Deposit USDC into Fira. The protocol mints FW-USDC (Fira Wrapped USDC) at the current exchange rate. Then deposit FW-USDC into a fixed-rate market by selecting a specific maturity.
Upon deposit, FW-USDC is decomposed according to the pool's current composition:
The LP receives an LP token representing their share of the pool. Any CT-USDC minted during this process belongs to the LP and can be managed independently.
2. Yield Accrual
The LP token accrues value over time from three distinct yield sources (detailed below). Yield is realized upon redemption — the LP token appreciates in price as the pool accumulates fees and interest.
3. Rolling Maturities
If a market matures before the LP's desired exit date, the LP redeems their position and redeposits into a subsequent maturity market. This roll must be completed within 48 hours of the prior market's maturity. Multiple rolls are possible across V1's available maturities.
4. Exit
The LP redeems the LP token and receives FW-USDC and BT-USDC proportional to the pool's composition at withdrawal.
At maturity: BT-USDC redeems 1:1 for the underlying asset. No slippage. Full value returned.
Before maturity: BT-USDC trades at a discount to FW-USDC. Selling BT-USDC on the AMM incurs slippage proportional to time remaining and available liquidity. The LP may alternatively hold BT-USDC until maturity to avoid slippage — BT converges to par as maturity approaches.
After collecting FW-USDC, the LP unwraps it to USDC at the current exchange rate.
Three Yield Sources
LP yield on Fira is a composite of three independent sources. Each has distinct drivers and risk profiles.
Source 1: Swap Fees
Every trade in the BT-USDC / FW-USDC AMM generates fees collected by LPs. Swap fee revenue is a direct function of trading volume in the pool — borrower entries, lender purchases, arbitrage activity, and rollovers all contribute.
Driver: Trade volume.
Source 2: Net Lending Interest
When borrowers mint and swap BT-USDC in the AMM, the LP's pool composition shifts toward holding more BT-USDC. At maturity, each BT-USDC redeems 1:1 for the underlying asset. The difference between the discounted acquisition price in the pool and the par redemption value is the net lending interest earned.
Driver: The implied fixed rate of the pool. Higher rates produce larger BT discounts, which translate to higher lending interest at settlement.
Source 3: Rehypothecation Yield
Fira deploys a portion of FW-USDC reserves into variable-rate vaults (SisuVault). These vaults lend USDC against crypto collateral (WBTC, WETH) on Fira's floating-rate markets. The interest earned accrues to CT-USDC holders and flows through to the FW-USDC exchange rate. For the reserve allocation model and rebalancing mechanics, see Rehypothecation.
Driver: Variable-rate borrowing demand and utilization in the rehypothecation vaults.
Reserve allocation: The protocol maintains a 90% target reserve ratio, with bounds at 89.89% (min) and 91% (max). When the ratio drifts outside these bounds, the protocol rebalances automatically. Only approximately 10% of reserves are rehypothecated at any time.
Yield Summary
Swap fees + Net lending interest
Trading volume and implied fixed rate in the AMM
Rehypothecation yield
Variable-rate borrowing demand in rehypothecation vaults
Projected combined yield: 5-13% APR (swap fees + net lending interest + rehypothecation yield).
Token Mechanics
Fira's fixed-rate markets operate with four token types. The fundamental invariant:
FW-USDC
Wrapped USDC (cash equivalent)
Mintable and redeemable for USDC at any time. Exchange rate appreciates over time as rehypothecation generates yield. ERC-20 / ERC-4626 compliant.
BT-USDC
Zero-coupon bond (principal)
Trades at a discount to FW-USDC before maturity. Redeems 1:1 at expiry with the underlying. The discount reflects the implied fixed rate.
CT-USDC
Yield token (interest)
Accrues rehypothecation yield from FW-USDC reserves. Tradable before maturity.
LP Token
Pool share
Represents the LP's proportional claim on the AMM pool (mix of BT-USDC and FW-USDC). Accrues swap fees and lending interest.
For detailed token design, wrapping rate mechanics, and decomposition/reconstruction formulas, see Token Mechanics.
CT Optionality: The LP's Strategic Choice
When depositing FW-USDC, the pool decomposes it into BT-USDC and CT-USDC. The CT-USDC is returned to the LP. Two options:
Option A — Hold CT to maturity. Collect all rehypothecation yield accrued over the period. The yield flows from the variable-rate vault interest, distributed proportionally to CT holders.
Option B — Sell CT immediately. Monetize the present value of expected future rehypothecation yield upfront. Selling CT returns FW-USDC to the pool, increasing available liquidity. This is economically equivalent to locking in a yield rate today rather than bearing floating-rate exposure.
CT is a hybrid instrument: its cash flows depend on floating-rate markets (rehypothecation), but it trades in a fixed-rate market. A pricing equilibrium exists where the market price of CT equals the discounted expected value of its remaining rehypothecation yield.
LP Behavior Under Rate Changes
An LP position is not a pure fixed-rate lending position. It is a dynamic portfolio of cash (FW-USDC) and bonds (BT-USDC). As market rates evolve:
Rates stay low: Portfolio holds proportionally more FW-USDC (cash)
Rates increase: Portfolio shifts toward more BT-USDC at lower prices
This rebalancing is economically similar to impermanent loss on Curve: the portfolio adjusts as the market moves.
The Critical Difference
Unlike Curve impermanent loss, this unrealized loss is only realized if the LP withdraws before maturity. If the LP holds until maturity, BT-USDC converges to par, offsetting the unrealized loss from rate changes.
LP vs. Lender: Rate Spike Comparison
A fixed-rate lender holding pure BT-USDC has concentrated exposure to interest rate movements. An LP holds a diversified portfolio of cash and bonds, which naturally dampens the impact.
Scenario: entry at 4% implied rate, rate spikes to 10%
Lender (pure BT holder)
Full rate exposure
~5x higher than LP
LP (BT + FW portfolio)
Dampened by cash component
~5x lower than lender
The LP's diversified composition absorbs rate shocks. The lender's concentrated BT position amplifies them.
Zero Operational Fees
FW-USDC minting (USDC wrapping)
0%
FW-USDC redemption (USDC unwrapping)
0%
LP deposit (FW decomposition)
0%
LP withdrawal (FW reconstruction)
0%
AMM swaps
Swap fee accrues to LPs
Rehypothecation
0%
All protocol-level operations are fee-free for LPs. Swap fees generated by trading activity accrue entirely to the LP pool. Standard Ethereum gas costs apply.
Risk Factors
1. Duration Risk
Exiting before maturity means the LP redeems the LP token for FW-USDC and BT-USDC proportional to the pool's current composition. Selling BT-USDC for FW-USDC before maturity incurs slippage correlated to time remaining. Longer maturities carry higher duration risk.
Mitigation: Select maturities aligned with the investment horizon. Hold to maturity to eliminate duration risk. BT converges to par as maturity approaches — illiquidity does not imply loss.
2. Bad Debt Risk
LPs can incur bad debt from two sources:
Fixed-rate borrowers: If collateral liquidation does not cover outstanding loans (extreme price decline, insufficient liquidation incentive), LPs absorb the shortfall. Bad debt reduces the FW-USDC/USDC exchange rate.
Rehypothecated reserves: Variable-rate vault borrowers (WBTC/USDC, WETH/USDC) may also generate bad debt, similarly reducing the FW-USDC exchange rate.
Mitigation: All borrowing is overcollateralized. LLTV is set at conservative levels for variable-rate markets. Liquidation incentives (LIF up to 1.15x) compensate liquidators. Variable-rate vault caps ($5M per market) limit rehypothecation exposure. However, extreme market conditions can bypass these protections. For details, see Bad Debt Risk.
3. Liquidity Risk
Reserve rehypothecation means not all USDC backing FW-USDC is liquid at all times. If a large withdrawal coincides with high vault utilization, the LP may face temporary withdrawal restrictions until the rehypothecation module rebalances.
Mitigation: Reserve ratio maintained at 90% target with automatic rebalancing. Only approximately 10% of reserves are rehypothecated. Variable-rate vault caps ($5M each) limit total exposure. See Liquidity Risk.
4. Smart Contract Risk
Fira is a newly deployed protocol. Smart contract risk includes coding errors, bugs, and potential exploits that could lead to partial or total loss of deposited funds.
Mitigation: Six independent external audits (Sherlock ×2, Spearbit/Cantina, yAudit ×2, Hexens), an extended internal review, and a bug bounty program up to $500K. Contracts deployed with transparent proxies on Ethereum Mainnet. These measures reduce but do not eliminate smart contract risk. For details, see Audits.
5. Rehypothecation Risk
A portion of FW-USDC reserves is lent through variable-rate vaults. The yield from this activity accrues to CT holders, but the underlying loans carry their own risk profile. If variable-rate borrowers default and liquidation proceeds are insufficient, the resulting bad debt reduces the FW-USDC exchange rate for all holders.
Mitigation: Conservative reserve parameters (90% target ratio). Vault caps of $5M per market. DAO governance over all rehypothecation parameters. See Rehypothecation.
Related
Fixed-Rate Markets — AMM mechanics and pricing
Token Mechanics — BT, CT, FW, and LP token design
Rehypothecation — Reserve allocation model
Curation Vaults — Curated vault architecture
Liquidations — Position health and liquidation mechanics
Contracts & Addresses — Deployed contract addresses
UZR Simulator — Stress-test market parameters
This document is for informational purposes only and does not constitute financial advice. Projected yields are estimates based on modeling assumptions and are not assured. DeFi participation carries risk of partial or total loss of funds. All parameters are subject to governance approval.
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