Principal Token & Yield Token
Principal Tokens (PT) and Yield Tokens (YT) are the core components of the Cronox protocol.
Decentralized Finance (DeFi) is built on layers of protocols that enhance each other's capabilities. Cronox introduces a new financial layer to protocols such as Aave, Compound, or Yearn by creating Principal Tokens (PTs) and Yield Tokens (YTs).
Let's see an example:
MakerDAO mints DAI tokens.
Aave takes DAI and wraps them into its interest-bearing version, aDAI.
Cronox splits Aave's aDAI into Principal Token (PT) and Yield Token (YT).
Principal Token represents the initial deposit (also known as the principal).
Yield Token represents the right to future yield.
Principal Tokens and Yield Tokens are financial derivatives on top of interest-bearing tokens.
In the example above, a user brings aUSDC to Cronox. The protocol splits the interest-bearing token (aUSDC) into Principal Tokens and Yield Tokens.
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
Refer to the previous chapter for more information on these concepts.
Maturity date
All Principal Tokens and Yield Tokens come with a maturity date.
Maturities 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 Cronox tools.
PT-Example: A holder of 1050 USDC-PT maturing on December 5th, 2024, can redeem the tokens for 1050 USDC. PTs are redeemable 1:1 with the underlying token, but only 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. Yield Tokens are not 1:1 redeemable with the underlying token at maturity, as their value decreases towards 0 as it approaches maturity. The captured yield comes as an interest-bearing token, claimable via Cronox's interface.
However, what if you require more granular control of time horizons?
The next chapter explores Future Yield Tokens (FYT).
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