To calculate the yield rate of your investments, we continuously estimate how many assets can be redeemed for each token you hold, and compare that with historical redemption values. In the most common scenario, the redemption value of your tokens increases at every second, and so when we compare the current redemption value against historicals, we can accurately estimate the annualized yield rate of your investment by calculating the growth rate of the redemption value.

A negative yield means that the redemption value has decreased compared to 30 days ago. This means that the tokens can be redeemed for fewer assets than in the past. While highly unusual, these deviations are temporary. We estimate your yield rate every hour so there is a high chance that you will see a more representative yield rate within the next hour.

If you see a negative yield for a longer period (2+ days), it means the liquidity pool where your assets are invested is indeed accruing losses. The yield you earn on any DeFi investment is highly comparable to a profit-sharing contract. The downside is that when there are losses, those are shared among depositors as well. These losses can occur in any of these cases:

Pool dynamics

The liquidity pool can be designed to incentivize and penalize traders to rebalance the ratio of existing assets to a target ratio. For instance a pool might target a 50/50 ratio but the current ratio is 30/70, where one asset is over-weight. The liquidity pool will issue additional pool tokens to new depositors of the under-weight asset as an incentive; or redeem existing pool tokens for additional assets to depositors that withdraw the over-weight asset. It is possible that incentives are not offset by penalties, and the dilution (from issuing additional tokens) is incurred by existing depositors/pool token holders. This reduces the redemption value per token and results in a negative yield rate.

Secondary market discount

Some pool tokens have withdrawal queues for when the owner wants to redeem them for the underlying assets. These queues can be as short as 1hr to multiple days. To circumvent this issue, Exponential trades the pool token in secondary markets to give you access to liquidity as fast as possible. Usually, the primary redemption mechanism and the secondary market result in the same outcome for you. In rare occasions, the pool token may trade at a discount in secondary markets, which means the redemption value is lower than what it would be using the primary redemption mechanism, and results in a negative yield.