# Market Interpretation

Inspired by Uniswap, Timeswap uses a unique 3 variable constant product equation:

$X\times Y\times Z=K$

Where $X$

= Principal Pool, Y = Interest rate Pool, $Z$

= Collateral factor PoolThe market interpretation for variables

$X , Y, Z$

is as follows:

$X$

= Principal Pool, where lenders & liquidity providers deposit their assets

$Y$

= Interest Rate Pool such that ratio $\frac{Y}{X}$

is equal to the maximum interest rate per second of a pool for a particular token pair at the time of the transaction for the remaining duration of the pool

$Z$

= Collateral factor Pool such that ratio $\frac{Z}{X}$

is equal to the minimum CDP of a pool for a particular token pair at the time of the transaction for the remaining duration of the pool**Let's deep dive into how to use market interpretation with an example:**

Alice wants to initialize a DAI-ETH pool with a maturity time of 6 months. She wants to lock 10,000 DAI and expects an annual return of 15% and a CDP of 167% for the given pair and duration.

$X=10000$

DAI

$\frac{Y}{X}=\frac{0.15}{31556926}$

(annual interest rate expectation of 15% & number of seconds in a year = 31556926s)
This means $Y=\frac{0.15}{31556926}\times10000=0.0000475$

$\frac{Z}{X}=1.67$

(CDP of 167%), such that the value of$Z$

is ETH equivalent in DAI
Assuming the price of ETH at the time of pool creation by Alice was 4000DAI, this means the value of $Z=\frac{10000*1.67}{4000}$

= 4.175 ETHSo Alice can do pool initialization for the DAI-ETH pool with a duration of 6 months, such that variables

$X=10,000,Y=0.0000475,Z=4.175,K=1.98$

Last modified 11mo ago