The Mechanism Behind Stable Jack

Stable Jack strips the yield and volatility of a collateral asset into two separate tokens, serving different types of users. This mechanism can be applied to various assets, including:

• LST and LRT assets (solvBTC, stETH, jupSOL, sAVAX)

• Yield-bearing tokens (stablecoins, LP tokens)

• LP tokens (lending markets, DEXs)

• Bonds (T-bills, Eurobonds, corporate bonds)

• Stocks (NVDA, AAPL, TESLA)

• Commodities (gold, silver, copper)

• Curated pairs (managed by third-party curators)

Stable Jack’s smart contract divides the collateral asset into two tokens: the Yield Token and the Volatility Token. The protocol allows users to retain their principal while the yield and volatility of the collateral are split between the two tokens.

The Volatility Token functions like a junior tranche, absorbing the full volatility of the collateral. This makes it capable of generating higher returns but also positions it as the first to bear any downside risk. On the other hand, the Yield Token acts like a senior tranche, receiving the entire yield from the collateral and earning leveraged yield returns.

Yield Token holders gain access to leveraged yield returns because Volatility Token holders forgo their yield and direct it to Yield Token holders. As a result, Yield Token holders earn both their own yield and the yield of the Volatility Token holders.

Volatility Token holders gain access to leveraged returns because Yield Token holders forgo their volatility and direct it to Volatility Token holders. As a result, Volatility Token holders get exposed to both their own volatility and the volatility of Yield Token holders.

In simpler terms, at Stable Jack, users exchange the yield and volatility of the collateral asset.