Strip Bonds are often preferred when users wants certainty to a future expense. => Hedged Risk + Predictable
Yield Tokenisation is a concept used by @Timeless_Fi, while bringing a new perspective of certainty on-chain.
How would Strip Bonds & Yield Tokenisation work?👇🧵
The concept of Yield Tokenisation is derived from Stripped Bonds, largely similar.
In this thread, I will cover:
1️⃣ What are Strip Bonds?
2️⃣ What is Yield Tokenisation?
3️⃣ How they are similar/different?
4️⃣ What is @timeless_fi's and its 3 key products
1️⃣ What are Strip Bonds?
Strip Bonds are also known as Zero Coupon Bonds.
A strip bond has its coupons and principal stripped off and sold separately to investors as new securities.
Coupons are stripped from the bond. Principal is the stripped bond.
It has these characteristics:
- Buyer of principal receives the amount of the face value of the bond when it matures.
- Buyer of coupons receives the interest they pay on the bond's maturity date.
- No reinvestment risk because there are no payments before maturity.
Example 1
Bob buys the principal (residual) portion of the strip bond now for $3k.
Face value of the bond is $5k, Mature in 5 years
At maturity, Bob's return on the strip bond residual = $2k
Example 2
Alice purchased the coupon bond for $120.
Face value of the bond is $5k. Mature in 5 years. Residual bond costs $3k.
Coupon rate is 4% with annual interest payout.
2️⃣ What is Yield Tokenisation? (in @Timeless_Fi context)
Yield tokenization splits a yield-bearing asset (e.g. Yearn USDC vault) and strip the yield stream out to another token.
1 underlying asset splits into 1 PYT + 1 NYT
The 2 tokens that you will receive when tokenising a yield bearing vault:
- Perpetual Yield Token (PYT) - holders receive the yield generated by the user deposits
- Negative yield token (NYT) - price of NYT moves in the opposite direction as yield rate
3️⃣ How they are similar/different?
Yield tokenisation splits the yield bearing asset into PYT and NYT
(Strip bond splits the bond into coupon and principal bonds)
Yield tokenisation allows users to "redeem" their "bond" anytime.
(Strip bonds has a fixed maturity)
4️⃣ What is @timeless_fi's and its 3 key products
Timeless is a yield tokenization protocol where the yield tokens never expire.
It borrows the Tradfi concept: Stripped Bonds, into tokenising yield bearing assets.
User deposit is split into two types of yield tokens: PYT, NYT. The assets will be deposited into a farm, and the yield earned can be claimed by the PYT holders.
By holding either only PYT or only NYT, you can build either a long position or short position on yield rates.
Timeless Finance 3 key products:
- Perpetual Yield Token (PYT) price ⬆️ when yield ⬆️
- Negative yield token (NYT) price ⬇️ when yield ⬆️
- Compounded Perpetual Yield Token (xPYT) - auto-compounds the yield earned into more PYT
