> For the complete documentation index, see [llms.txt](https://praxis-4.gitbook.io/praxis/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://praxis-4.gitbook.io/praxis/documentation/how-it-works/two-pools.md).

# 2 Pools

Choose between predictable yield and elevated upside — without ever risking your principal.

DeFi yield is unpredictable. The APY you see when you deposit is a current snapshot, not a promise. It shifts constantly based on liquidity, borrowing demand, market conditions, and protocol utilisation.

2 Pools lets you choose how to handle that uncertainty. You pick a strategy: smoother returns or higher upside and Praxis redistributes yield between depositors accordingly.

## Two sides

When you allocate YT into a 2 Pools market, you choose one of two sides:

**Stable** — you give up some upside in exchange for more predictable returns. When actual vault APY falls below the target, Stable pool depositors receive a larger share of yield, pulling their effective rate closer to the target.

**Elevated** — you accept more variance in exchange for higher potential returns. When actual vault APY exceeds the target, Elevated depositors capture the surplus.

The **target APY** is set at pool creation by the pool operator or protocol governance. It acts as the calibration point — the level at which both sides receive equal yield.

{% hint style="info" %}
**\[GRAPHIC — pool split flow]** Diagram showing: actual vault APY → compared to Target → yield redistributed toward Stable (when APY < target) or Elevated (when APY > target). Replace with illustrated flow diagram.
{% endhint %}

## The mechanic in practice

Assume a pool with a **3% target APY**. Here is how yield is redistributed across different market conditions:

| Actual vault APY  | Stable receives | Elevated receives |
| ----------------- | --------------- | ----------------- |
| 2% (below target) | \~2.5%          | \~1.5%            |
| 3% (at target)    | 3%              | 3%                |
| 4% (above target) | \~3%            | \~5%              |

Stable's return is smoothed toward the target. Elevated's return is amplified in either direction. The exact amounts depend on pool balance and the redistribution curve, but the direction is always the same.

{% hint style="info" %}
**\[GRAPHIC — yield curves]** Two-line chart: X-axis = actual vault APY, Y-axis = received APY. Stable curve flattens at the target; Elevated curve steepens above it. Replace with a clean chart.
{% endhint %}

## Entry cost

2 Pools markets are self-regulating.

When one side becomes clearly more attractive (say, vault APY is running hot and everyone piles into Elevated) the pool becomes imbalanced. The more imbalanced it gets, the more it costs to join the inflated side. That cost is paid in yield and distributed to the underrepresented side, making it more attractive and pulling the pools back toward balance.

The practical result: **late depositors cannot free-ride on a trend**. If the market has already priced in a favourable outcome, entering costs a small portion of your future yield up front.

{% hint style="info" %}
**\[GRAPHIC — entry cost curve]** Chart showing entry cost rising as pool imbalance increases toward one extreme, dropping to zero at equal balance. Replace with a clean chart.
{% endhint %}

## Your principal is never involved

2 Pools operates entirely on YT.

Whatever the state (whether Stable or Elevated performs better), your original deposit remains in the vault, continues earning, and is fully redeemable via your PT at any time.

{% hint style="success" %}
You are choosing how your yield is distributed, not whether your principal is safe.
{% endhint %}

***

<a href="https://base.praxis.cc" class="button primary" data-icon="arrow-up-right">Try it in the app</a>

<a href="/praxis/documentation/advanced/two-pools.md" class="button secondary" data-icon="book-open">Deep dive: 2 Pools mechanics</a>