# Use Cases & Examples

By the end of this article, you will have a clearer understanding of Spectra's potential benefits and flexibility and how it could become an integral part of your DeFi strategy.

### F**ixed Rate**

Lock in the APY of your yield-generating position, removing any uncertainty about future returns.

**Aave:** For instance, if you supply 1000 DAI into the Aave protocol at a 4% APY, there's no guarantee that the rate won't drop the next day, resulting in lower earnings than initially predicted.

**Solution:** Use Spectra's Fixed Rates tool to lock in that 4% rate for a specific period (e.g., 1 year).

✅ Even if Aave's DAI pool drops to 2% APY, you'll continue to earn at the initially fixed 4% rate for the remaining 1-year period. This means you could double your yield compared to users who deposited DAI at the same time but didn't lock in the rates.

**Lido:** Alternatively, suppose you hold 10 stETH with a current 5% staking rewards APY. With Spectra, you can lock in this rate for a defined period, such as six months.

✅ In this example, if the staking rewards APY decreases to 2.5%, you'll continue to earn at the initially fixed 5% rate for the next six months.

### Discounted Assets (a different way to look at Principal Tokens)

Principal Tokens (PTs) are a product of yield tokenization, offering unique opportunities due to their discounted nature.

When using the Fixed Rates tool, users receive Principal Tokens—assets with zero-coupon bond mechanics that provide a fixed return at maturity.

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Reminder: All Principal Tokens come with maturity dates. 
{% endhint %}

**Simplified Example:** Using the Fixed Rates tool at a 7% APY with 1000 USDC will return 1070 PT-USDC. These 1070 PT-USDC represent a claim on 1070 USDC, e.g., one year from now. \
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This can also be seen as buying USDC at a discount. Essentially, you are purchasing 1070 USDC for the current price of 1000 USDC, reflecting the fixed 7% return upon maturity.

Below is a rough representation of how the value of Principal Tokens develops against their underlying as they mature:

* When utilizing the Fixed Rate tool, 1070 PT-USDC will be worth 1000 USDC.
* Halfway to maturity, 1070 PT-USDC will be worth approximately 1035 USDC.
* At maturity, 1070 PT-USDC will be redeemable for 1070 USDC.

### Yield Trading

**Morpho:** If you believe the current 4% APY on the lending protocol's USDC market will rise due to market conditions, you can acquire YT-mUSDC (Morpho's interest-bearing token for USDC is mUSDC).

✅ If the implied APY increases, you are entitled to greater yield accrual than what you initially paid for those YTs.

### Liquidity Provision

Providing liquidity in Spectra offers the opportunity to earn from various yield sources:

* Pool's swap fees 
* The native yield of the interest-bearing token token
* Principal Token's fixed rate yield 
* Spectra's native APW emissions to pools 
* Incentives provided by 3rd parties

✅ It's a yield-generating strategy that allows anyone to earn more yield on top of their interest-bearing tokens.