Principal Token & Yield Token
Principal Tokens (PTs) and Yield Tokens (YTs) are the core components of the Spectra protocol.
Decentralized Finance (DeFi) is built on layers of protocols that enhance each other's functionalities. Spectra introduces a new financial layer to established protocols like Aave, Compound, or Yearn by creating Principal Tokens and Yield Tokens.
Let us see an example:
MakerDAO mints DAI tokens.
Aave takes DAI and wraps them into its Interest-Bearing version, aDAI.
Spectra splits Aave's aDAI into Principal Token and Yield Token.
Principal Token represents the initial deposit, also known as the principal.
Yield Token represents the right to future yield.
As such, Principal and Yield Tokens are financial derivatives on top of Interest-Bearing Tokens (IBTs).
On the above example, a user deposits aUSDC to Spectra. The protocol splits the IBT (aUSDC) into PT and YT.
This process, known as 'yield tokenization', separates future yield rights from the initial deposit. It unlocks new financial possibilities beyond standalone Interest-Bearing Tokens, such as:
Yield Trading
Upfront Yield
Fixed Rate
Discounted Assets
Maturity date
All Principal Tokens and Yield Tokens come with a maturity date (or expiry).
Expiries provide clear timeframes for when these tokens can be redeemed or their rights exercised, enabling more precise financial planning for users, traders, and liquidity providers.
👍 Users are presented with maturity dates when interacting with Spectra tools.
PT-Example: A holder of 1050 USDC-PT maturing on December 5th, 2024, can redeem the tokens for 1050 USDC. Except in negative yield scenarios, PTs are redeemable 1:1 with the underlying token at maturity. Users can also sell PTs before maturity; however, the amount they receive depends on market factors such as available liquidity and prevailing market prices.
YT-Example: A holder of 50 USDC-YT, with a maturity date on December 5th 2024, is exposed to APR volatility throughout that period. In particular, YT now works as an access right for claiming the stream of yield generated by the associated PT. Hence, YT holders can continuously claim the (already) generated yield via Spectra's interface.
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