Comment on page
| Principal Tokens
Principal Tokens (PTs) are interest-rate derivatives built on top of interest-bearing tokens like $stETH or $xSUSHI. With zero coupon mechanics, they trade at deep discounts and offer full face-value profits at maturity.
For example, a $1000 PT can cost the investor $950. They simply must wait until its maturity (e.g., 1 year) to redeem its full value.
At PT purchase, buyers precisely know their return on investment, providing them with a level of predictability and stability often absent in DeFi.
Principal Tokens are redeemable 1:1 at maturity for the underlying token.
For example, if you buy 670 USDC PTs for 651.17 USDC today, you can redeem 670 USDC at PTs' maturity.
You can also redeem or sell PTs at any time before maturity at YieldFlipper.
#1 DeFi users who earn on their assets (e.g., ETH, USDC) with Aave or Compound are exposed to variable APR.
Example: At Aave, users deposit ETH and receive an interest-bearing token aETH in return.
#2 APWine 2.0 (coming soon!) lets those users fix APR on their interest-bearing aETH, e.g., for 12 months, to hedge from the interest rate volatility.
Example: User fixes APR on aETH via APWine at current 2% APR and, in return, receives Principal Tokens. Principal Tokens are redeemable 1:1 to the underlying asset at maturity. Until maturity, Principal Tokens trade at a discount.
Moreover, sellers who managed to secure a high APR on a given asset that currently prints a lower APR natively can sell it at a premium in addition to accrued value.