Glossary

Terms and acronyms used throughout the Jetty documentation.

Financial Terms

Adverse Selection

When one party to a trade has better information than the other. Also called toxic flow: trades from informed counterparties that systematically extract value.

Curve Engine

The pricing system that maintains an 8-knot term structure (1d, 3d, 7d, 14d, 30d, 60d, 90d, 180d) and produces rates for any tenor from 1 to 180 days by interpolation. Trades execute through a stateless 3-tranche Impact Kernel that determines price impact based on concentrated liquidity mechanics. The engine stores no persistent AMM price state; markets store only the knot values and impact configuration.

AUM / TVL (Assets Under Management / Total Value Locked)

Total value of assets deposited by LPs. Capped by the pool's max LP equity setting.

BPS (Basis Points)

1/100th of a percent. 100 bps = 1%, 10000 bps = 100%. Used for fees, margins, and rate changes throughout the protocol.

DV01 (Dollar Value of 01)

The dollar change in position value for a 1 basis point move in rates. DV01 accounts for both notional size and time to maturity, which means it normalizes risk across different tenors. A large short-dated position and a small long-dated position can have the same DV01.

EWMA (Exponentially Weighted Moving Average)

A moving average that gives more weight to recent observations. Used in the protocol for volatility tracking. Each new rate change is blended with the running estimate, with recent changes weighted more heavily.

Funding

Periodic payments between position holders based on rate index changes. Long positions profit when the floating rate rises; short positions profit when it falls. Settlement is lazy: funding accrues continuously but is only realized when a position is touched.

Health

The difference between account equity and maintenance margin requirement. A non-negative health means the account is solvent. Negative health makes the account eligible for liquidation.

Inventory

The pool's net directional exposure. When traders are net long, the pool has short inventory (and vice versa). High inventory means concentrated directional risk for LPs.

Liquidation

Forced closure of an undercollateralized position. Incurs a penalty that goes entirely to the LP pool.

LP (Liquidity Provider)

Deposits capital into the pool, takes the counterparty side of all trades, earns fees and spread PnL, bears directional and adverse selection risk.

Maker

In this protocol: a trader executing a risk-reducing trade (closing or reducing a position). Pays lower fees because they reduce pool exposure.

Mark Rate

The reference rate used for mark-to-market calculations and deviation checks. Derived from per-knot Largest-Wins TWAPs of recent trades, initialized at market creation. The mark rate at any tenor is interpolated from the two bracketing knot marks.

MTM (Mark-to-Market)

Unrealized P&L based on the difference between the current mark rate and the position's entry rate, scaled by notional and remaining time to maturity. Used for health checks and liquidation eligibility.

NAV (Net Asset Value)

LP equity in the pool. The real value backing all outstanding LP shares after accounting for trader collateral, protocol fees, realized PnL, unrealized MTM, and bad debt. Used for share pricing on deposits and withdrawals.

Notional

The face value of a swap position. A $1M notional position has $1M of rate exposure before time adjustment.

OI (Open Interest)

The sum of absolute notional across all positions in a market, regardless of direction. Measures total market activity and exposure.

Oracle

An external data source that provides the rate index for funding settlement. In this protocol, oracles track cumulative funding indices (e.g., perp funding rates, borrow APRs). Updated by pool authority with sanity bounds on rate-of-change.

Settlement

The process of converting rate index changes into realized P&L. Happens automatically before each position modification and is idempotent (settling twice has no additional effect).

Slippage

The difference between expected execution rate and actual execution rate, caused by the trade consuming depth through the Impact Kernel's liquidity tranches. Larger trades push further through the Core, Mezzanine, and Tail tranches, experiencing progressively more slippage.

Taker

In this protocol: a trader executing a risk-increasing trade (opening or increasing a position). Pays higher fees because they add pool exposure.

TWAP (Time-Weighted Average Price)

Average rate weighted by time, computed from a ring buffer of observations. Resists single-trade manipulation better than spot price because each time bucket can only be updated once by the largest trade in that bucket.

VWAP (Volume-Weighted Average Price)

Average execution rate weighted by volume within a single trade. Used for TWAP updates and deviation checks.

Volatility

Rate variance over time, measured via EWMA of squared rate changes. High volatility increases adverse selection risk and triggers higher fees.

Protocol-Specific Terms

Circuit Breaker

Market status that restricts trading. Normal allows all trades, ClosingOnly allows only risk-reducing trades, and Halted allows only liquidations.

Deviation Band

Maximum allowed distance between execution rate and mark TWAP. Trades outside the band are rejected. Only applies to risk-increasing trades; exits are always allowed.

Inventory Fee

Additional fee charged when the pool has directional imbalance. Scales with the ratio of the pool's net DV01 to the DV01 cap.

Margin Floor

Minimum margin requirement that scales with rate level and time to maturity. Ensures adequate margin even for low-rate or short-maturity positions where the BPS-based margin alone would be too small.

Risk Budget

LP capital available for risk-increasing trades after subtracting the DV01 reserve. Determines how much additional exposure the market can accept.

Risk Weight

Per-market multiplier for pool-wide cap calculations. Higher weight means the market's exposure counts more heavily against pool-level limits.

Utilization

Ratio of reserved capital to allocated capital. High utilization triggers depth reduction, making it progressively more expensive to add risk.

Math & Scaling

WAD

Fixed-point scaling factor of 10^18. 1 WAD represents 1.0 in decimal. All rate and ratio calculations use WAD scaling to avoid floating point.

WAD^2

Square of WAD (10^36). Used for variance calculations where two WAD-scaled values are multiplied.

Q64.64

Fixed-point format with 64 integer bits and 64 fractional bits. Used internally by the Impact Kernel for sqrt-price calculations, with 256-bit intermediates where needed for division and square root operations.

Checked Arithmetic

Mathematical operations that explicitly handle overflow and underflow rather than wrapping silently. All protocol math uses checked operations.

Ceiling / Floor Rounding

• Ceiling: Round up (e.g., fees charged to trader)
• Floor: Round down (e.g., shares minted to depositor)

The protocol always rounds in favor of LPs and the protocol treasury.

Position Direction

Pay Fixed / Receive Floating (Long)

Positive notional. Trader pays a fixed rate, receives the floating rate index. Profits when rates rise.

Receive Fixed / Pay Floating (Short)

Negative notional. Trader receives a fixed rate, pays the floating rate index. Profits when rates fall.

Risk-Increasing

A trade where either OI or DV01 increases. Subject to all fees, margin checks, deviation checks, and cap enforcement.

Risk-Reducing

A trade where both OI and DV01 decrease. Reduced fees, no margin checks, no deviation checks, no cap enforcement. Exits are always allowed.

Margin Levels

Initial Margin (IM)

Collateral required to open or increase a position. Set higher than maintenance margin to provide a buffer against immediate liquidation.

Maintenance Margin (MM)

Minimum collateral to avoid liquidation. When health drops below zero (equity falls below MM), the position becomes liquidatable.

Equity

Total account value: collateral plus realized PnL plus unrealized mark-to-market plus pending funding.

Account Types

Pool

Central liquidity vault. PDA derived from shares mint. Holds all LP capital, risk parameters, and a registry of up to 16 markets.

Market

A tradeable swap instrument defined by an oracle and rolling window configuration. Each market has its own curve engine state (8-knot term structure), per-knot Mark TWAP, fee parameters, and risk caps. The pool takes the other side of all trades.

Margin

Per-user collateral account with up to 16 embedded positions across different markets. Collateral is shared across all positions.

RateOracle

Cumulative funding rate index updated by pool authority with sanity bounds on rate-of-change.