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Yield Tokenization

Ownership Token (OT)

OT represents ownership of the underlying asset deposited for minting. For example, 1 OT-aUSDC represents 1 USDC staked in Aave. Upon expiry, you only need OT to redeem the underlying asset 1:1.

Since OT represents ownership of the asset, OT holders are also entitled to any incentives distributed by the asset protocol, such as xJOE farming incentives, as well as any airdrops.

OT price will always be at a lower price than the underlying, and its value will appreciate towards the value of the underlying asset as time passes. As such, buying OT is akin to buying the underlying asset at a discount, since the OT will eventually be redeemable for the underlying.

Yield Token (YT)

YT entitles the holder to the future yield of the underlying asset. For example, 1 YT-aUSDC represents the yield that 1 aUSDC will generate up to expiry.

The yield generated by the asset will be distributed in real-time to the YT holder, who can then claim the yield at any time via the Dashboard.

As yield is accrued, the value of YT will decrease. Upon expiry, YT will be worth 0, as all the yield has been distributed to the respective holders.

Value of Token

If a user only mints OT and YT and does nothing else, it is functionally equivalent to holding the underlying asset - OT will return the underlying asset and YT will return the yield of the asset.

To capitalise on the split tokens, users must either trade to make a profit on price swings or provide liquidity in the OT and YT pools to earn additional APY.

Want to learn about how to make gains on Pendle? Go to the Pendle Guide section for more info.

Exchange Index

For most tokens, 1 OT does not represent 1 underlying and 1 YT does not represent the yield of 1 underlying due to the nature of yield-bearing assets.

These assets generate yield by altering the exchange index to their counterparts. For example, even if $TIME remains constant, 1 wMEMO will be worth more as time passes, since the exchange index is constantly increasing.

This adds another layer of complexity to the pricing of OT and YT. To eliminate this factor, we changed the ratio of deposited asset to OT and YT to match the exchange index.

As such, if the exchange rate was 1 wMEMO = 40 MEMO, 1 wMEMO would mint 40 OT and 40 YT. In other words, 1 OT and 1 YT represents 1 MEMO worth of wMEMO.

There are some exceptions, however.
Aave converts the yield of the asset into more aUSDC, such that 1 aUSDC = 1 USDC, so you earn yield by increasing your aUSDC balance, rather than the exchange index increasing.