Yield Tokenization
Pendle's core innovation: take a yield-bearing asset (like stETH earning ~3.5% staking yield) and split it into two tradeable tokens. The Principal Token (PT) represents the underlying value at maturity. The Yield Token (YT) captures all the yield generated until maturity.
🔀 Split & Merge Simulator
Input Asset
10 stETH
PT Value
9.81 stETH
YT Value
0.19 stETH
Implied Fixed Rate
3.86%
PT + YT
= 10 stETH ✓
📐 How the Split Works
Yield-Bearing Asset
10 stETH (earning ~4% APY)
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Pendle Router wraps into SY (Standardized Yield)
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Principal Token (PT)
Redeemable for 10 stETH at maturity
Trades at discount → the discount IS your fixed yield
Yield Token (YT)
Receives all staking yield until maturity
Value decays to 0 at maturity (like an option)
💡 Key Insight: PT + YT = Underlying (Always)
1 PT-stETH + 1 YT-stETH = 1 SY-stETH = 1 stETH
This invariant is enforced by the protocol. You can always merge PT + YT back into the underlying asset. This creates an arbitrage floor — if PT + YT ever trades below the underlying, arbitrageurs buy both and merge for profit. Similarly, if PT + YT trades above, they split the underlying and sell both pieces.
🐂 BULLISH ON YIELD?
Buy YT — you get leveraged yield exposure. If APY goes up, YT value increases.
🔒 WANT FIXED YIELD?
Buy PT at discount — guaranteed return at maturity regardless of rate changes.