In user decisions within the DeFi fixed income track, 'liquidity' and 'yield' have always been an unavoidable 'dilemma': traditional DeFi fixed income products have long exhibited characteristics of 'polarization'—high liquidity products (such as savings staking) support anytime redemption but generally yield only 2%-3%, insufficient to cover inflation; high-yield products (such as 90-day+ lock-up LST/RWA) can yield 5%-6%, but set strict lock-up rules, with early redemption incurring punitive fees of 5%-10%, or even no redemption allowed. This 'to be flexible is to earn no money, to earn money is to be inflexible' polar dilemma has left many users with 'elastic funding needs' (such as office workers' emergency reserves and small business working capital management) hesitant—daring neither to invest in long-term lock-up products nor willing to let funds grow 'inefficiently' in savings products, ultimately leading to the difficulty of DeFi fixed income in covering the core mass demand for 'flexible growth.'
TreehouseFi's innovation is not a simple 'compromise' between liquidity and yield, but rather constructs a 'dynamic equilibrium' mechanism through the Liquidity Layering Protocol (LSP): utilizing 'smart liquidity pools' for flexible fund scheduling, replacing traditional rigid rules with 'tiered lock-up + flexible redemption,' and incentivizing user participation in liquidity optimization through 'liquidity contribution subsidies,' ultimately allowing users to enjoy 'yields close to long-term lock-ups' under 'liquidity close to savings.' All mechanisms are automatically executed based on blockchain smart contracts, with the flow of underlying funds, redemption rules, and subsidy calculations fully traceable on-chain, without centralized intervention or fictitious promises, entirely relying on the inherent characteristics of DeFi technology.
1. The 'liquidity-yield' dilemma of traditional DeFi: three major unresolved contradictions
To understand the value of TreehouseFi's equilibrium mechanism, one must first dismantle the inherent flaws of traditional DeFi fixed income in balancing liquidity and yield—these flaws are not theoretical assumptions but pain points frequently encountered by users in actual operations, directly limiting fund allocation efficiency:
1. The 'linear opposition' of liquidity and yield
Traditional products design 'liquidity' and 'yield' as strictly 'linearly negatively correlated': for every level increase in liquidity (e.g., from a 90-day lock-up to a 30-day lock-up), yield fixedly decreases by one tier (e.g., from 6% to 4.5%), and the rules are completely rigid, unable to adjust according to user actual needs. For example, if a user needs to split $10,000 into 'a $5,000 emergency reserve (needed at any time) + $5,000 idle funds (can be left for 3 months),' they would have to deposit into 'savings (annualized at 2.5%)' and '30-day lock-up (annualized at 4.5%)' respectively, leading to an overall annualized return of only 3.5%; if they want to enhance yield by also locking up the emergency funds, they would incur a 5% fee ($250) when needing urgent cash, making it a losing proposition. This 'either-or' design forces users to choose between 'yield loss' and 'liquidity risk.'
2. The 'rigid penalties' of redemption rules
To forcibly constrain the user holding period, traditional high-yield products generally set 'rigid redemption penalties': early redemption incurs either high fees (5%-10%) or direct cancellation of current yield, and the penalty rules do not differentiate 'urgency'—regardless of whether a user faces unexpected medical expenses or temporary cash flow issues, they must bear the same loss. Data from a certain DeFi platform in 2024 shows that 62% of users give up early redemption due to 'rigid penalties,' but 38% are still forced to redeem due to urgent needs, averaging a loss of 4.8% of principal per transaction. This 'one-size-fits-all' penalty mechanism neither considers users' real funding needs nor respects the core principle of DeFi's 'flexibility and autonomy.'
3. The 'static inefficiency' of liquidity pools
Traditional DeFi fixed income liquidity pools are mostly 'statically divided': funds are fixedly divided into 'savings pools,' '30-day pools,' and '90-day pools,' with funds between pools unable to interflow, leading to 'idle funds in savings pools (users dare not invest long-term), insufficient liquidity in long-term pools (users fear they cannot withdraw)' resource misallocation. For example, a certain platform's savings pool TVL long-term accounts for over 60%, but the annualized yield is only 2.8%, with extremely low fund utilization efficiency; while the 90-day lock-up pool has an annualized yield of 5.8%, but due to poor liquidity, TVL accounts for less than 20%, and high-quality yield assets go unnoticed. This 'inter-pool disintegration' static design not only wastes liquidity resources but also limits users' yield potential.
2. TreehouseFi's 'liquidity-yield' equilibrium mechanism: Three core designs of the Liquidity Layering Protocol (LSP)
TreehouseFi's Liquidity Layering Protocol (LSP) is not a 'single function module,' but a collaborative system covering 'fund scheduling - redemption rules - incentive mechanisms,' achieving 'dynamic calibration of liquidity and yield' through smart contracts, avoiding the rigid opposition of traditional products, and ensuring the safety of underlying assets and stable returns.
1. Dynamic liquidity pool: Breaking 'inter-pool disintegration,' achieving flexible fund scheduling
In response to the pain points of traditional liquidity pools' 'static inefficiency,' the LSP protocol designs a 'three-tier dynamic liquidity pool'—'basic liquidity pool,' 'flexible supplement pool,' and 'long-term yield pool,' allowing funds between pools to be automatically transferred based on real-time liquidity needs without user manual operation, with all scheduling logic open-source and verifiable:
• Basic liquidity pool: Undertakes the 'instant redemption' function, with a default allocation of 20% of ecological funds, annualized at 4.0% (higher than the traditional savings product level of 2.5%-3%), supporting 'arrival within 10 minutes, zero fees,' to meet users' emergency needs. The funds in the pool are primarily connected to high liquidity assets (such as USDC staking, short-term government bonds RWA), ensuring quick monetization upon redemption;
• Flexible supplement pool: Undertakes the 'liquidity buffer' function, allocating 60% of ecological funds, annualized at 4.8% (close to traditional 30-day lock-up product yields), users can choose '7-day flexible lock-up'—redeeming during the lock-up period incurs a 0.5% fee (far lower than the traditional 5%), while redeeming after the 7-day lock-up incurs zero fees. When the basic liquidity pool funds are insufficient (e.g., daily redemption volume exceeds 10% of the pool's funds), the smart contract will automatically transfer funds from the flexible supplement pool to the basic liquidity pool to replenish liquidity, and the short-term yield of the flexible supplement pool after the transfer is subsidized by the ecosystem (with the subsidy coming from the excess yield of the long-term yield pool), ensuring that the earnings of users in the pool are not affected;
• Long-term yield pool: Undertakes the 'yield enhancement' function, allocating 20% of ecological funds, annualized at 5.5% (equivalent to traditional 90-day lock-up product yields), users must lock in for 30 days, but during the lock-up period, they can 'stake assets to the flexible supplement pool' for additional liquidity—for example, a user depositing $10,000 in the long-term yield pool can stake to generate $8,000 in 'liquidity vouchers,' which can circulate in the flexible supplement pool (such as for staking loans, exchanging short-term rights), not affecting long-term yields while obtaining additional liquidity.
This 'dynamic scheduling' mechanism allows funds within the ecosystem to no longer be fixed in a certain pool, but to flow flexibly according to user redemption needs—data shows that TreehouseFi's basic liquidity pool daily average redemption satisfaction rate reaches 100%, with the fund transfer response time of the flexible supplement pool being less than 1 minute, and the proportion of long-term yield pool users obtaining additional liquidity through 'liquidity vouchers' reaches 78%, completely resolving the resource mismatch caused by traditional 'inter-pool disintegration.'
2. Tiered lock-up and flexible redemption: Replacing 'rigid penalties' to match users' real needs
In response to the pain points of the traditional redemption rule's 'rigid penalties,' the LSP protocol introduces the 'tiered lock-up + flexible redemption' rule, dynamically linking redemption costs with 'holding time' and 'redemption amount,' which not only restricts short-term frequent redemptions but also guarantees users' urgent needs. All rules are automatically executed by smart contracts, leaving no room for manual adjustments:
• Tiered lock-up: When users deposit funds, they can independently choose from three lock-up levels of '1 day/7 days/30 days,' with different levels corresponding to different annualized rates (1-day level 4.0%, 7-day level 4.8%, 30-day level 5.5%), and supports 'level upgrades'—for example, if a user initially chooses the 1-day level (annualized 4.0%), they can upgrade to the 7-day level (annualized 4.8%) after holding for 3 days, and after upgrading, interest is calculated directly at the new level without needing to relock, meeting the user's need for 'increasing idle fund time.'
• Flexible redemption fee rate: Redemption fees decrease inversely with 'holding time'—1% if redeemed within 1 day; 0.5% if redeemed between 1-7 days; 0.1% if redeemed between 7-30 days; zero fee if redeemed after holding for 30 days. If users redeem due to emergencies such as 'medical issues, unemployment,' they can upload credible proof on-chain (e.g., medical bill hash, unemployment certificate on-chain), and once approved, the fee is fully waived, with the ecosystem's 'emergency guarantee fund' subsidizing the day's lost earnings;
• Redemption limit protection: To avoid large redemptions impacting liquidity, the LSP protocol sets a 'daily per-user redemption limit' (the basic liquidity pool's daily redemption cap is 50% of the user's holdings), and any excess automatically enters the 'scheduled redemption queue,' prioritized for payment the next day, while still accruing interest at the original annualized rate during the scheduled redemption period—for example, if a user holds $10,000, they can redeem a maximum of $5,000 from the basic liquidity pool in a day, with the remaining $5,000 scheduled for redemption the next day, still earning approximately $0.55 in interest that day, thus avoiding traditional 'redemption failure' or 'interrupted yield' issues.
This 'flexible rule' protects ecological liquidity while considering user needs—if a user deposits $10,000 and chooses a 30-day lock-up (annualized at 5.5%), and after holding for 10 days needs to redeem $5,000 due to unexpected medical expenses, they only pay a 0.1% fee ($5), with the remaining $5,000 continuing to earn interest at 5.5%, compared to traditional products where 'redeeming $5,000 incurs a $250 fee,' reducing costs by 98% while meeting urgent needs.
3. Liquidity contribution subsidy: Incentivizing user participation to optimize ecosystem liquidity structure
In response to the problem of traditional ecosystems where 'users passively accept liquidity rules,' the LSP protocol designs a 'liquidity contribution subsidy' mechanism that allows users to actively participate in liquidity optimization and receive additional earnings, with subsidy funds sourced from ecosystem service fees, and all issuance records publicly disclosed on-chain:
• Long-term holding subsidy: Users who choose a 30-day lock-up and hold until maturity receive an additional 0.3% 'liquidity stability subsidy' (paid in USDC) on top of the basic annualized 5.5%, encouraging users to hold long-term and reducing the impact of short-term redemptions on liquidity;
• Liquidity voucher usage subsidy: After users stake assets from the long-term yield pool to generate 'liquidity vouchers,' if they use the vouchers to participate in 'liquidity mutual assistance' in the flexible supplement pool (such as providing guarantees for other users' short-term loans), they can receive a subsidy of 0.5% of the voucher amount per month, which is directly added to the voucher value, enhancing users' willingness to participate in liquidity optimization;
• Staggered redemption subsidy: The ecosystem sets 'low peak redemption periods' (daily from 2 AM to 4 AM, lowest Gas fees, and least redemption demand), users redeeming during this period can enjoy a 50% fee reduction, and additionally receive a 0.1% 'staggered subsidy,' guiding users to spread out redemption times to avoid liquidity pressure from concentrated redemptions.
This 'subsidy incentive' mechanism transforms users from 'receivers of liquidity rules' to 'co-builders of liquidity'—data shows that the maturity rate of TreehouseFi's 30-day lock-up users reaches 89%, with 65% participation in mutual assistance using liquidity vouchers, and the proportion of redemption volume during low peak periods increased from 15% to 40%, continuously optimizing the ecological liquidity structure, with additional user earnings increasing by an average of 1.2%-1.5% per month.
3. Industry value: The transformation of DeFi fixed income from 'polarization' to 'balanced inclusiveness'
TreehouseFi's 'liquidity-yield' equilibrium mechanism is not only to optimize its own product experience but also provides a transformation path for the entire DeFi fixed income track from 'polarization to balanced inclusiveness'—its core value lies in breaking the traditional product perception that 'liquidity and yield cannot be obtained simultaneously,' allowing DeFi fixed income to cover a wider range of 'elastic funding needs' user groups:
For users, the equilibrium mechanism means 'no longer sacrificing yield for flexibility'—emergency reserves for office workers can be deposited in a 7-day lock-up (annualized at 4.8%), enjoying returns close to long-term lock-ups while being able to redeem urgently at a 0.5% fee; small business owners can flexibly switch between 1-day and 7-day levels for their working capital, upgrading the lock-up level as idle time extends and quickly redeeming when funds need to rotate, improving fund allocation efficiency by over 40% compared to traditional products.
For the industry, the equilibrium mechanism promotes the transition of DeFi fixed income from 'niche high-risk' to 'mass stable'—traditional DeFi fixed income is characterized by 'polarization,' with user groups mostly consisting of 'high-risk tolerance professional investors' (willing to accept long-term lock-ups) or 'conservative users insensitive to yield' (willing to accept low-yield savings); while TreehouseFi's equilibrium mechanism allows 'risk-neutral users with elastic funding needs' (such as housewives, freelancers) to participate, greatly broadening the user base and pushing the industry's user structure from 'pyramid top' to 'olive shape.'
For the ecosystem, the equilibrium mechanism creates a positive cycle of 'liquidity and yield promoting each other'—users are willing to hold long-term due to the 'flexibility and yield,' leading to stable growth in ecosystem TVL, attracting more high-quality high-yield assets (such as compliant RWA, leading LST) for integration, further enhancing basic annualized returns; high-yield assets also attract more user participation, leading users to participate in liquidity optimization (such as long-term holding and staggered redemption), which makes ecosystem liquidity more stable, forming a closed loop of 'more users → higher yield → better liquidity → more users.'
Of course, the equilibrium mechanism also faces challenges—such as the pricing accuracy of assets in dynamic liquidity pools and the on-chain proof review efficiency of flexible redemption rules—but TreehouseFi's practice has proven that when DeFi fixed income no longer sees 'liquidity' and 'yield' as opposing forces but achieves dynamic equilibrium through technical mechanisms, it can truly reach the masses with 'elastic funding needs,' which is the core essence of DeFi's inclusive finance. This may be TreehouseFi's greatest insight for the industry: the value of DeFi lies not in 'creating high-yield hype' but in 'using technology to solve users' real dilemmas,' allowing more people to enjoy the wealth appreciation opportunities brought by blockchain under the premise of 'controllable risk and flexibility.'
