Exponent: Onchain Interest Markets

The Exponent Thesis

Exponent is a yield exchange protocol on Solana for fixed-rate and leveraged yield farming. Users can exchange yield-bearing assets (e.g., Jito’s VRTs / SOL LRTs, lending positions, LP tokens, etc.) for a fixed return or amplified exposure to their yield.

We believe that Exponent is best positioned to dominate the Solana yield market – the fastest-growing sector in the ecosystem – with topline liquidity increasing at an annualized rate of nearly 600%. The founding team (ex-Squads, Kamino, Solana Foundation) cares deeply about product, security, design, and user experience and understands the foundation for building a great protocol. The team’s deep ties in Solana DeFi also present a significant strategic advantage, as evidenced by Exponent PTs being onboarded as collateral on Kamino, Drift, and Loopscale before its main competitor, RateX. In this regard, we view PT integrations in money markets as the most compelling avenue for Exponent to expand its market share and own its vertical.

It’s essential to note that this thesis represents a significant shift from the views expressed in our RateX report back in February, when Exponent had ~$8M in liquidity vs. ~$32M for RateX. RateX has executed slowly on its distribution strategy, failing to receive listings for its PT assets on the leading money markets due to pending third-party audits. Meanwhile, Exponent PT markets across Kamino and Drift have surpassed $60M in deposits and $20M in borrows, driving new inflows and liquidity back to the yield trading protocol. The chart below shows that Exponent recently flipped RateX in TVL, now commanding a 60% market share ($126M vs. $87M).

Zooming out, we are witnessing a clear trend of maturation within Solana DeFi, marked by growing interest from institutional and other sophisticated market participants. The Exponent team informed us that they've seen an increasing demand from these players, initially from whales and now from large DeFi funds that were previously active primarily on the EVM. Fixed rates are a crucial component for these funds' portfolio construction, and Exponent is working on protocol updates (Exponent v2) to better support their needs.

In sum, as Solana DeFi matures, participants require more than passive exposure to variable yields and need tools for active yield management. Interest rate swaps serve both ends of the spectrum: