Trading yield: how Pendle sliced the interest into PT and YT

Pendle did to DeFi yield what the bond market did to coupons decades ago: it sliced a yield-bearing asset into principal and interest - and let them trade separately.

The slicing mechanics

Deposit a yield-bearing asset (an LST, a yield stable) - receive two tokens: PT (principal token) - the right to take the principal at the maturity date, and YT (yield token) - all of the asset's income until that date. PT trades at a discount to par - buy and hold to maturity = you have locked the rate. YT is a pure bet on future yield: it rises - you earn multiples, it falls - YT burns toward zero at maturity.

Who gets what

• For rate-lockers: PT is crypto's rare fixed-income instrument: a known rate to a known date, no floating-APY surprises.
• For speculators: YT is leverage on yield without liquidations: recent seasons' main instrument for betting on points programs (the income "in points" of a future drop).
• For LPs: PT/base-asset pools - yield with moderate IL (the pair converges to parity at maturity).

The risks: a contract layer on top of the base asset, the liquidity of specific markets into maturity dates, and above all for YT - you can simply be wrong about the future rate. This is no longer "farming" but a full-fledged market of rate expectations - with all its opportunities to faceplant.