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 OK
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.