"Yield Stripping" is a huge opportunity in DeFi.
@KentonPrescott and I will discuss this on our Twitter Spaces tomorrow
wondering what the hell is Yield Stripping?! ๐ค๐งต
@KentonPrescott and I will discuss this on our Twitter Spaces tomorrow
wondering what the hell is Yield Stripping?! ๐ค๐งต
well, most forms of yield farming provide a variable rate of yield. This means that depositors are subject to unpredictable fluctuations in their return profile. My APY on AAVE changes constantly.
but institutions need predictable cashflows. It helps in so many ways, but most importantly having FIXED INCOME helps to match your Assets vs. your Liabilities (ALM) i.e. to know how much is coming in vs. going out. As @senseprotocol notes:
Today we have a bunch of variable-yield generating assets, whether that be interest-bearing deposits such as cDAI (compound) and aUSDC (aave), or interest-bearing LP positions on Uniswap such as ETH/USD SLP.
The aim is to "strip" any of these "Underlying" yield-bearing tokens into two. e.g. deposit cDAI and mint 2 new tokens...
1. A claim on future yields (yield token, "YT")
2. A claim on ownership of the asset itself (principle token, "PT")
each with the same maturity date
1. A claim on future yields (yield token, "YT")
2. A claim on ownership of the asset itself (principle token, "PT")
each with the same maturity date
The Yield Token holder will get the yield cash flows (or sell to someone else who wants to get the yield), while the Principal Token holder can redeem those tokens 1:1 for the underlying at maturity to get back the principal
why? because then users can safely earn or borrow at a fixed rate, whilst speculators and hedgers can trade the future yield token.
eh? but how do you know what the fixed rate is going to be? because the Principle Token (PT) is always priced at a discount to the underlying asset, this implies a specific rate of return.
i.e. as long as you wait for the specified maturity (note you can sell your PT's early)
ok I'll stop there but if you want to know more tune in tomorrow and hear me and @KentonPrescott talk about how this is also a capital-efficient way to bet on stETH yield (trading realised vs. implied)
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