Pendle

Pendle splits a yield-bearing asset into two tokens. The asset is first wrapped into a standardized yield token, SY, and then minted into a principal token, PT, and a yield token, YT. The documentation compares this to bond stripping: PT behaves like a zero-coupon bond while YT is the detached stream of coupon payments. Both can be traded on Pendle. [1]

PT can be acquired at a discount to its accounting asset and redeemed one-to-one at maturity, and that appreciation is what defines its fixed yield. PT holders forgo the variable yield and any points, which go entirely to YT holders. YT streams the underlying yield to its holder until maturity, and its value trends towards zero as maturity approaches, reaching zero when it expires. [2]

Liquidity pools are set up as PT paired with SY. The AMM curve shifts over time to reflect accrued yield and narrows PT’s price range as maturity nears, which mitigates time-dependent impermanent loss. Liquidity providers earn PT fixed yield, the underlying SY yield, swap fees and PENDLE incentives. [4]