The Hyperdrive Protocol: An Automated Market Maker for Fixed and Variable Rates
Jonny Rhea, Alex Towle, Mihai Cosma
TL;DR
Hyperdrive solves liquidity fragmentation in fixed and variable rate markets by delivering a single, continuous AMM pool that underwrites terms on demand. It combines a Yield Source-backed bond mechanism with a share-based accounting and a path-independent pricing model built on the invariant $I$ and maturity value $M$, augmented by a zeta adjustment to maintain pool depth. The design supports Longs, Shorts, and LPs within checkpointed maturities, ensuring solvency and distributing zombie interest to LPs, thereby improving trading efficiency, liquidity provisioning, and user experience. By enabling on-demand term issuance without rollovers and preserving fair LP economics, Hyperdrive aims to enhance capital efficiency and access to fixed- and variable-rate assets in DeFi.
Abstract
Hyperdrive is a protocol designed to facilitate the trading of fixed and variable rate assets. The protocol's unique pricing model consolidates liquidity into a single pool which addresses the challenges of fragmented liquidity across terms, eliminates the need for rollovers, and allows terms to be issued on demand. Its design meaningfully improves trading efficiency, liquidity provisioning, and user experience over existing fixed and variable rate protocol models.