Yield Tokenization Process
Last updated
Last updated
Yield tokenisation refers to the process of dividing a yield-bearing asset into two distinct components: the principal and the yield.
A yield-bearing asset is an asset that generates returns over time, such as stTON, DeDust LP Tokens, or STORM SPLs. To better understand yield tokenisation, consider a real-world example of a rental property. A property generates rental income, making it a yield-bearing asset. Now, imagine that the property is split into two parts:
Ownership rights of the property – This represents the principal.
Rights to the rental income – This represents the yield.
At any point, the two components—principal and yield—can be combined to recreate the whole asset. For example, with stTON:
Principal Token (PT) represents the right to the principal stTON (equivalent to invested TON).
Yield Token (YT) represents the right to claim the yield generated by the stTON.
When you tokenise yield, you gain the ability to trade or sell the yield (YT) and principal (PT) portion before maturity, providing new opportunities for managing yield or speculating on future returns.
For example, if the maturity ends in one year:
Buying PT: You can purchase the PT at a discounted price compared to the full value of the property. After one year, the PT can be redeemed for the base asset (TON). The increase in value from the discounted purchase price to its full value represents your fixed yield.
Buying YT: Alternatively, you can buy the YT (rights to the rental income) and collect yield for a year. If you buy YT for $5000, you’ll profit if the yield exceeds $5000 by the end of the year, or incur a loss if it yields less. This lets you speculate on yield trends without purchasing the entire asset.
In FIVA, users can split and trade both principal and yield separately. Both PT and YT can be sold at any time before maturity with no lockup periods.
When you stake or deposit tokens in DeFi pools, you receive a yield-bearing position in return. In FIVA, this position is split into two distinct components:
Yield Token (YT): Represents the right to receive yield from the underlying protocol.
Principal Token (PT): Represents the underlying amount of the asset invested in the underlying protocol.
The USDT value sum of PT and YT should equate to its Underlying as they’re individual parts of a whole. You can redeem the underlying by depositing equal amount of PTs and YTs. On maturity, PT can be redeemed for its underlying without its YT counterpart (This is because matured YT have 0 value as they no longer generate yield).
PT and YT can be minted from the underlying asset.
PT and YT can be redeemed back into the underlying asset.
YT holders can claim accrued yield in real-time.
PT holders can redeem the underlying asset at a 1:1 ratio without YT.
You can buy and sell PT and YT on the open market using the FIVA AMM. PT and YT always have a market price, allowing continuous trading opportunities.
Since one unit of the underlying asset mints one PT and one YT, and one PT plus one YT redeems one unit of the underlying asset, the relationship between their prices is straightforward. The FIVA AMM ensures that this price relationship remains balanced at all times.