01Core model

How a Silo market works

A Silo market pairs a tokenized asset with a quote asset such as USDG. Liquidity providers deposit one asset, the other asset, or both. Those deposits become the inventory available to traders.

Example pool inventoryNVDA / USDG

NVDA Stock Tokens: $50,000
USDG: $50,000
Total pool TVL: $100,000

When a trader buys NVDA, the trader sends USDG into the pool and receives NVDA. When a trader sells NVDA, the trader sends NVDA into the pool and receives USDG. The inventory changes as each trade is executed.

Silo provides the contracts and market structure. It does not need to purchase all assets in every market. A protocol treasury might supply a small amount while external LPs and professional market makers supply the majority.

A trade, step by step

The example pool above holds $50,000 of NVDA and $50,000 of USDG. Following one buy through the market shows what each participant receives and where the fee goes.

1
The trader submits USDG
A buyer sends USDG into the market and asks for NVDA in return.
2
The fee is applied
The market's current fee is taken from the trade and credited to the bins the trade uses, rather than being added to the trader's output.
3
Inventory leaves the active bin
NVDA is drawn from the active bin at that bin's price. If the trade is larger than the bin holds, the market moves up to the next bin and continues there.
4
The pool's mix changes
The market now holds more USDG and less NVDA, and the active bin has moved up if the trade consumed a level completely.
5
Positions update
Every position funding a bin the trade passed through has converted some NVDA into USDG and earned a share of the fee.

A sell runs the same path in reverse. USDG leaves the bins below the market, NVDA enters, and the active bin moves down.

Two things are worth separating in that sequence. From the trader's side, one transaction happened at one average price. From the LP's side several distinct things happened: inventory was sold, the composition of the position changed, a fee was earned, and the position may now sit at the edge of its range or outside it altogether. The trader's experience is a single number. The LP's experience is a change of state, and it persists after the trade is over.

That asymmetry is why the interface shows an LP more than it shows a trader. A trader needs the quote and the fee. An LP needs to know what the position now holds, whether it is still earning, and how far the market has to move before it stops. Those are different questions, and a market that answers only the first is not usable by the people supplying it.

Capital can be reused by the market

A pool with $50,000 in TVL can process $500,000 in daily volume because the same inventory may facilitate many trades. TVL measures deposited capital. Volume measures executed trading activity. Neither metric substitutes for the other.

The ratio between the two is a rough measure of how hard the capital is working. A pool turning over its TVL ten times in a day is being used continuously and generates fees on that basis. A pool with the same TVL and almost no volume generates nothing, however substantial the deposit figure looks. Neither number describes the other, and quoting the larger one because it is larger is the most common way analytics mislead.

The quote asset

Every market pairs a tokenized asset with a quote asset. USDG is the reference quote asset in these examples because a stable unit makes prices, fees, and position value legible. A market can be configured with a different quote asset, and that choice changes what an LP is exposed to when inventory converts.

Base assetThe tokenized asset the market exists to trade, such as an equity, Treasury, fund, or commodity token.

Quote assetThe unit prices are expressed in, and the asset an LP holds when the market trades above their range.

PairThe two together, with a bin step and fee configuration that belong to that market alone.

The quote asset determines what an LP is left holding in the case they may care about most. A market quoted in USDG leaves an LP holding a stable unit when the market trades above their range, which is a recognizable outcome that can be assessed directly. A market quoted in a volatile asset leaves them holding that asset instead, so the position carries two exposures at once and the second is easy to overlook at the moment the range is chosen.

What a deposit becomes

A deposit does not sit in a single balance. It is placed into the bins the LP selected, and the position is described by that placement rather than by a single number.

RangeThe bins the position covers, from its lowest price level to its highest.
DistributionHow much of the deposit sits in each bin inside that range.
CompositionHow much of the position is currently the base asset and how much is the quote asset.
Accrued feesThe share of trading fees the position has earned but not yet withdrawn.

Describing a position by those four properties rather than by a dollar figure is not pedantry. A position worth $10,000 today could be entirely the base asset, entirely the quote asset, or any mix between, and it could be earning steadily or earning nothing at all. The dollar figure is identical in every one of those cases, which makes it the property that tells an LP the least about what they are holding.

Where fees come from

Traders pay a fee to access pool liquidity. That fee accrues primarily to the liquidity providers whose bins were used, which means fee income follows activity rather than deposit size alone. A large position parked far from the market can earn nothing while a smaller position at the active price earns steadily.

Fees follow the bins that traded

Fee income is not spread across the pool in proportion to deposit size. It is credited to the bins a trade actually used, then shared among the positions funding those bins. Two positions of identical size in the same market can earn very different amounts over the same day.

At the active priceEarns from most trades, and converts between assets most often.

Near the active priceEarns whenever the market moves far enough to reach it.

Far from the marketEarns nothing until price travels to it, however large the deposit is.

The practical consequence is that fee yield follows placement and competition rather than size. Liquidity placed where the market actually trades earns a share of real activity, but so does everyone else placing liquidity in the same bins, and the fee is divided among all of them. A bin nobody else has funded pays its whole fee to whoever is there, which is why liquidity tends to spread itself out even with nobody coordinating it.

What a Silo market does not do

The market structure is deliberately narrow. Several things an LP might expect from a managed product sit outside it.

It does not move a positionA range stays where the LP put it until the LP changes it. Moving with the market is a decision the LP makes, not something the pool does on their behalf.
It does not hedgeNothing offsets the inventory an LP takes on when the market trades through their bins.
It does not guarantee an exit priceA withdrawal returns whatever the position holds at that moment, in whatever mix trading has left it.
It does not value the underlyingA reference price is context for the market, not a claim about what the token is worth or what it can be redeemed for.