Section 1.0
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1.0 Section
Yield Tokenization and Bond Stripping
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Yield Tokenization and Bond Stripping
In traditional finance, bond stripping is the practice of separating the principle
and coupon payments of a debt obligation and selling the two components separately.
The principle represents the bond itself, while the coupon represents the interest
rate of the bond.
Yield Tokenization emulates this process onchain by stripping a yieldbearing asset
into two components:
YT
Yield Token
PT
Principle Token
100 ATOM Staked
After (3) Months
Principal
100 ATOM
+
Yield
0.5 ATOM
100 stATOM
Yield bearing Position
100 ATOM
Principal Tokens
100 PT stATOM
After (3) Months
100 ATOM
Principal
99.501 stATOM
Yield Tokens
100 YT stATOM
After (3) Months
0.5 ATOM
Yield
0.499 stATOM
Section 1.1
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1.1 Section
How does Yield Tokenization Work?
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How does Yield Tokenization Work?
When a user stakes a token in any DeFi protocol, they will receive some amount of
yield. With Yield Tokenization, the staked position is separated into its two
components, YT and PT.
Let's say a user stakes their tokens for 3 months:
By holding PT
a user can redeem the principal amount (token value) after maturity. In this
case, after 3 months.
By holding YT
a user can receive the yield of the staked token(s) after maturity. In this
case, after 3 months.
Yield bearing Position
100 stATOM
Principal Tokens
100 PT stATOM
Can redeem the Principal after maturity
Yield Tokens
100 YT stATOM
Can redeem the Yield after maturity
99.501 stATOM
0.499 stATOM
Section 2.0
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2.0 Section
Yield Tokenization in Detail
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Yield Tokenization in Detail
For every yieldbearing position, there is the underlying asset. In this example, we
will use ATOM. Maturity in this context is defined as the length of time the
underlying asset is staked. The Fixed Yield vault will allow users to deposit stATOM
(Stride liquid staked ATOM) which will then be separated into its components. Since
the underlying asset for stATOM is ATOM, it can be inferred that manipulating an
stATOM position is the same as manipulating an ATOM position.
i
Through yield tokenization:
1 stATOM
XX* PT stATOM
+
100 YT stATOM
PT st ATOM
The principal amount of the underlying asset (ATOM)
YT stATOM
The yield generated by the underlying asset (ATOM)
$
PT
Price +
YT
Price = Underling Asset Price
Let's say a user stakes their tokens for 3 months:
Before Maturity
a user can use 1 underlying asset to mint XX PT + 1 YT
 The amount of PT a user can mint decreases as we approach maturity, this value is represented as XX
 The value of PT stATOM increase as we approach maturity
After Maturity
the yield for the position has been earned, therefore:
 Yield earned from holding YT can be redeemed at maturity
 YT value will have appreciated due to autocompounding
 After maturity, 1 PT can be redeemed for the underlying asset 1:1 without needing YT
Additionally, PT and YT can be bought and sold openly on the secondary market,
Introducing the opportunity for Yield Trading.
A
Before Maturity
You can mint XX* PT and 1YT from 1 units
of the underlying asset.
Yield bearing Position
100 stATOM
mint
Maturity:December 2023
XX* PT stATOM
*The value of PT stATOM increases as we approach maturity, with a max value
of xx=1
100 YT stATOM
Maturity:December 2023
B
Before Maturity
You can sell on the secondary market to receive the underlying asset
Maturity:December 2023
XX* PT stATOM
Maturity:December 2023
100 YT stATOM
Must sell on
Gluon AMM
XX* ATOM
*Value determined by
current market rate
C
After Maturity
YT holders
can redeem any yield accrued after maturity.
1st January
Buys 100 YT stATOM
Maturity December 2023
Maturity
Maturity
After Maturity
Redeems Yield
from 100 ATOM
D
After Maturity
PT holders can redeem underlying assets 1:1
without YT
1st January
Buys 100 PT stATOM
Maturity December 2023
Maturity
Maturity
After Maturity
Redeems
from 100 ATOM
C
Before Maturity
You can buy and sell PT and YT on the open market using Gluon AMM. (This is
Yield Trading) As such, PT and YT will always have a market price.
NOTE: YOU CAN NOT CLAIM YIELD UNTIL AFTER MATURITY
Section 2.1
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2.1 Section
How YT values change over time
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How YT values change over time
In Yield Tokenization protocols without autocompounding yield, a user can redeem
yield at any time prior to maturity. In autocompounding yield tokenization
protocols such as Gluon Trade, the yield autocompounds and is reflected as a steady
increase in the value of YT, proportional to the yield earned.
As a result of this continuous increase in the value of YT, the protocol must offset
this value by decreasing the amount of PT minted by a deposit, also based until time
to maturity.
Without Autocompounding Yield:
 PT increases in value as we approach maturity, PT minted remains 1:1
 YT decreases in value as we approach maturity, YT minted remains 1:1
With Autocompounding Yield:
 PT increases in value as we approach maturity, PT minted decreases as we approach maturity
 YT increases in value as we approach maturity, YT minted remains 1:1
(Since YT accumulates value over time, this can be considered as a principal
accumulated by YT)
Section 2.2
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2.2 Section
How PT values change over time
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How PT values change over time
Remember our formula:
1 ATOM
XX PT stATOM
+
1 YT stATOM
At maturity
1 PT stATOM
1 ATOM
This means the maximum PT that can be minted is 1:1 with the underlying ( XX = 1 ).
Please note in real world use XX value will fluctuate, and it may be impossible to
mint the max value of XX.
In circumstances when YT has already accumulated some principal value, the protocol
will mint PT less than 1:1 with its underlying component. ( XX < 1 )
Example:

99 stATOM = 100 ATOM = 99 PT stATOM + 100 YT stATOM
(YT has already accumulated 1 ATOM worth of additional principal)  At Maturity: 99 PT stATOM = 99 ATOM
 At Maturity: 100 YT stATOM = Yield Earned + Additional yield earned from autocompounding = 99 stATOM  99 ATOM
Section 3.0
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3.0 Section
Interest Rate Swaps and Fixed Yield Tranche
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Interest Rate Swaps and Fixed Yield Tranche
First, let’s discuss Interest Rate Derivatives: a financial instrument with a value
based on some underlying interest rate or interest bearing asset. These instruments
can include futures, options, swaps, and more.
Swaps, or Interest Rate Swaps (abbreviated IRS) is a type of derivative where one
stream of future interest payments is exchanged for another based on a specified
principal amount.
Separately, a Tranche is a segment created from a pool of assets, with these
segments being divided up based on risk, time to maturity, and other
characteristics.
Therefore, a Fixed Yield Tranche is a type of Interest Rate Swap in which the
interest generated from a specified principal amount is swapped for a guaranteed
fixed yield. Users wishing to earn FY without exposure to variable yield can simply
acquire FY directly (without first acquiring the underlying asset). Additionally,
with Fixed Yield, there is zero default risk (no impermanent loss).
Fixed Yield = FY
Fixed Yield = FY
Section 3.1
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3.1 Section
Where does Fixed Yield come from?
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Where does Fixed Yield come from?
How is it Calculated?
How is it Calculated?
Remember that with Yield Tokenization, a yieldbearing asset is split into its
underlying components, PT & YT. As a staked position approaches Maturity, a YT
continues to increase in value, with all yield earned also being redeemable at
Maturity. Meanwhile, PT grows in value until it is equal 1:1 with the underlying
asset (at Maturity).
FY represents this change in value for PT. Since PT and YT can be traded on the open
secondary market, users can simply purchase PT without YT.
Buying PT directly (long PT) earns the user fixed yield if they hold the position
until its Maturity date. Buying PT directly (prematurity) will always be cheaper
than buying the underlying asset, and the realized discount becomes the fixed yield.
You can buy or sell Principal Token (PT) in the Gluon AMM. PT Price is determined by
market demand and supply
Buys or Sells PT
Gluon AMM
1 PT stATOM =
0.99 ATOM
Example: a user is buying PT for ATOM liquid staked
in Stride (stATOM), also known as PT stATOM. Since PT stATOM does not include the
yield component, PT stATOM will always be cheaper than 1 stATOM.
This is true for all PT.
After buying 1 PT stATOM at a discounted price (0.9 stATOM), User can redeem 1
stATOM for his PT upon maturity. This is a fixed return (fixed yield) since the
amount of stATOM redeemable at maturity is fixed.
Buys 1 PT stATOM
at 0.9 stATOM
1 Year Later
User gets 11% APY
Maturity
Maturity
Redeems 1 stATOM
Section 4.0
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4.0 Section
Yield Trading
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Yield Trading
Active Yield Trading can be enabled by taking advantage of the following trading
types withing the IRS module:
Earning Fixed Yield (with PT)
Long Yield (with YT)
Provide Liquidity (LP) to earn extra
yield with zero impermanent loss
yield with zero impermanent loss
Section 4.1
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4.1 Section
Earning Fixed Yield (with PT)
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Earning Fixed Yield (with PT)
Since the value of FY is determined directly based on the price difference between
PT and the underlying asset, FY is a long PT position. When buying PT directly, the
user will always be able to buy PT at a discount, since they will not be acquiring
the PT component.
1 PT stATOM
When Buying Directly
0.99 ATOM
FY Earned:
0.01 ATOM
Buying and holding PT for Fixed Yield is more than just earning guaranteed yield. By
removing YT from the equation, the user can remove their exposure to variable yield
risk. A long PT position is a short YT position. Therefore, if the market expects
yield to decrease, the price of PT increases.
Example:
 If a user holds a long PT position, and the yield for the underlying asset decreases below the value of the APY guaranteed by the PT position, the user will net an additional profit on their position.
 The user can then sell their PT prior to Maturity to secure their profit, which is known as Active Yield Trading.
When should a user buy PT?
Naturally, buying PT when it is cheaper will guarantee a higher FY. If FY is higher
than their prediction for the future yield of the underlying asset, it is probably a
good time to acquire PT.
(If a user expects YT to drop, or the yield of the underlying asset to decrease,
acquire PT since long PT = short YT).
Section 4.2
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4.2 Section
Long yield (YT)
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Long yield (YT)
Acquiring YT tokens gives the user the right to the yield of underlying asset until
maturity. If the underlying asset generates more yield than the original purchase
price of the YT token, the holder will have secured a profit on their position.
Profit:
=
Future Yield

YT Cost
If the price of YT rises,
the user can also secure a profit on their position.
the user can also secure a profit on their position.
The user can sell their YT prior to maturity to secure their profit, which is known
as Active Yield Trading.
YT price always grows from the yield on underlying asset.
Leverage Yield with YT?
Leverage Yield positions occur when a user decides to acquire YT alone instead of
simply holding the underlying asset. If the user believes that APY will increase
over time, they can use the capital gained by not acquiring the underlying asset
to instead increase (leverage) their yield exposure.
 In example, let's say YT is trading at 1/10 the value of the underlying asset. Therefore 10 YT = 1 underlying asset. A user has enough capital to purchase either 1 underlying asset or 10 YT.
 If the user acquires the underlying asset, they will earn the yield generated from 1 unit of that asset, therefore they will earn a yield equal to 1 YT.
 If the user acquires 10 YT instead, they will earn the yield generated from 10 units of that underlying asset.
 If yield generated by the underlying asset decreases between the time of purchase and maturity, the value of YT decreases, and the position will result in a loss.
 Therefore, leveraging yield with YT is higher risk and subject to higher volatility, but can result in higher profits.
Section 4.3
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4.3 Section
Provide Liquidity (LP) to earn extra yield with zero impermanent loss
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Provide Liquidity (LP) to earn extra yield with zero impermanent loss
A user can earn extra yield on top of their otherwise idle yieldbearing assets by
providing liquidity with PT. No IL at Maturity date because PT in the pool can
become 1:1 redeemable with the underlying asset.
Of course, APY is not guaranteed but capital is guaranteed when held to Maturity.
Users can exit at any time without penalties. Since there is PT in the pool, this
strategy can be seen as slightly bearish (remember long PT = short YT), therefore
providing liquidity can provide some protection against falling yields in the
underlying asset.
Additionally, since all three token types (underlying asset, PT tokens, and YT
tokens) are traded within the same pool, Liquidity Providers can earn from swap fees
for all 3 tokens.
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