A Principal Token (PT) is the right to redeem one unit of a yield-bearing asset on a fixed date, and a Yield Token (YT) is the right to every unit of yield that asset produces until that date. Pendle mints both from a single deposit, so PT plus YT always equals the underlying, and the choice between them is the choice between a fixed return and a leveraged bet on the variable one. Everything else in yield tokenization follows from that split.
The split in one table
| Principal Token (PT) | Yield Token (YT) | |
|---|---|---|
| What you own | The asset itself, claimable at maturity | The asset's yield, points and rewards until maturity |
| How it earns | Bought at a discount, redeemed at full value | Collects the income stream as it accrues |
| Price behaviour | Rises toward 1.0 as maturity approaches; falls if implied yield rises | Falls toward zero as maturity approaches; rises if yield expectations rise |
| Value at maturity | One unit of the underlying | Zero, after the last yield is distributed |
| Who buys it | Fixed-rate savers, treasuries, anyone who wants certainty | Rate speculators, point farmers, anyone who wants leverage on yield |
| Main risk | Selling before maturity when implied yield has risen | The realized yield coming in below what you paid |
The two prices are linked by arithmetic. If PT trades at 0.95 of the underlying, YT must trade at 0.05, and the implied yield the market is quoting is the return that turns 0.95 into 1.0 over the time left. Buy PT and you accept that implied yield; buy YT and you bet against it.
A worked example in ETH
Suppose a Pendle market on wstETH, the wrapped form of stETH from Lido, has twelve months left and an implied yield of 4 percent. A holder deposits 10 wstETH, which becomes 10 PT-wstETH and 10 YT-wstETH. The market prices PT at roughly 0.9615 wstETH each and YT at roughly 0.0385.
A saver who wants a guaranteed 4 percent sells the 10 YT for about 0.385 wstETH and keeps the 10 PT. After twelve months the PT redeems for 10 wstETH; together with the 0.385 already collected, the saver has locked in the 4 percent regardless of what the Ethereum staking rate did in between. If staking yield fell to 2.5 percent, the saver won. If it rose to 5.5 percent, the YT buyer won instead.
A speculator with the opposite view does the reverse. For the 0.385 wstETH that ten YT cost, the speculator receives the full staking yield on 10 wstETH for a year, roughly 26 times the exposure per unit of capital. At a realized 5.5 percent that is about 0.55 wstETH of yield for 0.385 paid, a 43 percent return on the position; at 2.5 percent it is 0.25 received for 0.385 paid, a loss of about a third. The leverage is built in, and so is the decay: a YT held to maturity is worth exactly the yield it collected and nothing more.
Which side to take
Fixing a rate you like
PT is the tool for anyone whose problem is uncertainty. A treasury that needs a known return on a stablecoin balance, a leveraged trader who wants the yield side of a position pinned, or a saver who thinks rates are about to fall all buy PT and hold it to maturity. Held that way, the fixed yield is a contract term, and the only remaining exposure is to the underlying asset and to Pendle's contracts.
Levering the variable rate
YT suits a trader who expects the realized yield to beat the implied yield, whether because a new points program is starting, because funding rates on the synthetic dollar behind sUSDe are rising, or because a staking rate is about to reprice. The position is capital efficient and time-limited, which is why YT positions are managed like options: sized small, watched daily, and closed before the decay does the work for you.
Farming points through YT
Points seasons were the trade that made Pendle famous in 2024. When a protocol distributes points to depositors ahead of a token launch, Pendle's YT holders receive the points attached to the entire deposit for a fraction of its cost, which is how leveraged restaking point farming worked. The bet is that the eventual airdrop will be worth more than the YT premium paid, and that the token actually launches before maturity.
Providing liquidity
The fourth option is to supply PT and the underlying to Pendle's AMM and earn swap fees plus PENDLE incentives. Liquidity providers hold a position that behaves mostly like PT with extra fee income, and they carry the usual pool risks. Twenty percent of every swap fee in the pool goes to them under the fee model described in the PENDLE tokenomics.
Maturity, redemption and rolling over
- Watch the date. Every Pendle market has a fixed maturity, shown on the market page. PT converges to the underlying's value as it approaches; YT converges to zero.
- Redeem PT. After maturity, PT redeems one-for-one for the underlying asset through the Pendle app. There is no deadline, but the fee documentation notes that yield generated by unredeemed matured positions is redirected to the protocol treasury, so waiting only costs you.
- Claim YT yield. Yield and points accrue to YT continuously and can be claimed at any time before or after maturity; the YT itself expires worthless once the last distribution is made.
- Roll into the next market. Most assets have several maturities listed at once. A saver who wants to stay fixed sells or redeems the expiring PT and buys the next maturity, accepting whatever implied yield the new market quotes.
- Exit early if needed. Both tokens trade on the AMM before maturity. Early PT sales realize the current implied yield rather than the one you locked, which is where fixed-rate positions can lose money.
What can go wrong
The most common loss on the PT side comes from selling early. If implied yields rise after you buy, the market discounts PT more deeply and your position shows a loss even though holding to maturity would have delivered the fixed rate in full. The most common loss on the YT side is simpler: the yield you were paying for arrives below the implied rate, and the token decays faster than it earns.
Both tokens inherit every risk of the underlying asset. A synthetic dollar that loses its peg, a liquid staking token that trades at a discount, or a points program that is cancelled will hit PT and YT holders alike, because at maturity PT redeems for the asset, whatever it is then worth. CoinGecko's guide to Pendle is a useful primer on those layers of risk. Liquidity is the last consideration: thin markets in long-dated maturities can make early exits expensive, and the swap fee scales with days to maturity. None of this changes the fee that funds PENDLE buybacks, which is one reason the token's outlook, examined in the PENDLE price prediction, tracks activity across both sides of every market rather than the fortunes of either side.
Frequently Asked Questions
Can you lose money holding PT?
Held to maturity, PT delivers the fixed yield locked at purchase and loses money only if the underlying asset itself loses value, for example a stablecoin depeg or a staking token trading below par. Sold before maturity, PT can show a loss whenever implied yields have risen since purchase, because the market applies a larger discount. The fixed return is a promise about the maturity date; between now and then the price can move.
What happens to YT at maturity?
YT expires worthless at maturity after its final yield distribution. All the value a YT holder receives arrives as yield, points and rewards accrued during the life of the market, which can be claimed at any time. A YT bought at 0.05 that collected 0.07 of yield made money; one that collected 0.03 did not, and the token itself has no residual value either way.
Which is better, PT or YT?
PT is better for anyone who wants a known return and can hold to maturity; YT is better for anyone who expects yield to exceed the market's implied rate and can accept a total loss on the position. They are two sides of the same market rather than competing products, and the implied yield quoted at any moment is the price at which the two views balance.
Two tokens, one yield curve
Pendle's split turns a vague question, what will this asset earn, into two instruments with prices, and the spread between them is a live quote for the yield curve of DeFi's largest assets. Fixed-rate buyers and yield speculators keep that quote honest by trading against each other, and the protocol collects a fee on the way through.
PENDLE, the token that captures those fees, is listed on LeveX against USDT. Buy PENDLE on spot, take a leveraged view with PENDLE perpetual futures, or read the next guide in Crypto in a Minute.