PT / YT / LP Cheatsheet

What is Pendle

Pendle lets you earn better yields. We help you secure better certainty and better returns (i.e. higher APY 🔥).

1. Earn fixed yield (with PT)
2. Provide liquidity (LP) to earn extra yield with minimal or zero impermanent loss (IL)
3. Long yield (with YT)

PT & YT — a quick round-up

Imagine Pendle being a marketplace where property owners can split and trade their principal (rights to the ownership of the property) and yield (rights to rental payments) separately. You can then sell or trade the yield portion even before maturity. This creates new ways to manage and even speculate on yield.

💡 Using stETH as an example: Principal (Right to Principal of stETH) + Yield (Rights to stETH yield) = Yield-bearing asset (stETH)

Principal Token (PT)

• 1 PT lets you redeem 1 unit of the original asset at maturity date.
• PT is similar to zero-coupon bond in traditional finance.

Yield Token (YT)

• 1 YT lets you receive the yield of 1 unit of the original asset until the maturity date, claimable in real-time.
• YT is similar to detached coupons of bonds in traditional finance.

You can sell PT and YT anytime on Pendle market, with no lock or penalty, at market price. They are traded 24/7.

Perhaps the most important takeaway about PT & YT:

💡 PT Price + YT Price = Underlying Asset Price

---

PT Cheatsheet — Earn fixed yield

TL;DR	Earn guaranteed amount of your chosen asset if you hold the position until the maturity date.
Yield source	PT has a lower entry cost compared to underlying asset, its value grows over time and becomes 1:1 redeemable to the original asset at maturity date. Your realised discount becomes your fixed yield.
Volatility	Low
Investment profile	Long term
	Beginners friendly
Guaranteed	Both capital and return are guaranteed, if you hold until maturity
Underlying asset yield outlook	Bearish
Price changes	Price rises in the short term with… time Falling implied APY Rising underlying asset price (and vice versa) Note that PT is always 1:1 redeemable to underlying asset at maturity date.
Valuation	PT is cheap when Implied APY is much higher than the Underlying APY
Time to enter	If you believe the asset will generate less APY in the future, If you want to hedge against falling yields, If you feel satisfied enough with the advertised APY, If you believe PT is too undervalued
Early exit	Anytime, there’s no lock or penalty. PT always has a market price in Pendle’s AMM.
Capital efficiency	No leverage by itself. However, there are lending platforms that allow you to deposit PTs as collateral to borrow assets, or even loop-leveraging.
Other comments	PT can be a viable alternative to spot, with similar risk exposure, and the benefit of downside cushion thanks to the fixed yield realized upon redemption. PT can also be a short-yield strategy, you may profit in short-term if underlying yield goes down.

Can I profit if I early exit my PT?

When you exit early, your earnings will depend on the PT’s market price at exit. You may earn higher or lower (in extreme cases, at a loss) than the advertised APY at entry. Note that, however, PT is always 1:1 redeemable to the underlying asset at the maturity date, you do not necessarily need to sell under unfavorable short-term price moves.

YT Cheatsheet — Increase yield exposure (Long yield)

TL;DR	Increase your yield exposure (long yield). Either hold it until maturity, or buy low and sell high to turn a quick profit. You profit when either or both… the price of YT rises, the yield produced by the YT becomes bigger than your cost buying the YT
Yield source	YT receives all yield produced by the underlying asset until maturity date, claimable in real time.
Volatility	Higher
Investment profile	Short or Long term
	Intermediate to Advanced investors
Guaranteed	N/A
Underlying asset yield outlook	Bullish
Price changes	Price rises with… Rising implied APY Rising underlying asset price Rising yield/reward token asset price (if applicable to that asset) (and vice versa) Note that time works against YT — YT price gradually falls over time to zero at maturity.
Valuation	YT is cheap when Implied APY is much lower than the Underlying APY
Time to enter	If you believe the asset will generate more APY in the future, If you want to hedge against rising yield, If you want to speculate on short-term rise of yield % or yield token prices If you believe YT is too undervalued
Early exit	Anytime, there’s no lock or penalty. YT always has a market price in Pendle’s AMM.
Capital efficiency	Since YT is much cheaper than the underlying asset, you effectively get a leveraged yield exposure (typically 20x or more), with no actual borrowing involved. So there’s no liquidation or oracle error risks.

LP Cheatsheet — Earn passive extra yields providing liquidity

TL;DR	Earn extra “free” yields on top of your otherwise idle yield-bearing assets. A Pendle pool is denominated in your selected underlying asset only (PT + SY) (SY = wrapped underlying asset). There’s also no impermanent-loss (IL) concern at maturity.
Yield source	Multiple avenues: Native yields — asset’s underlying yield + PT’s fixed yield Swap fees 3. $PENDLE incentives (Optional) You can boost your APY by locking PENDLE for vePENDLE. vePENDLE holders can also boost their Liquidity Provision APY up to 2.5X.
Volatility	Low IL is minimal (pool consists of highly correlated tokens only) before maturity date. No IL at maturity date because PT in the pool will become 1:1 redeemable to underlying asset.
Investment profile	Short or Long term
	Beginners friendly
Guaranteed	APY not guaranteed but capital is guaranteed if you hold until maturity
Underlying asset yield outlook	Slightly bearish, due to some presence of PT in the pool
Price changes	Short term price change behavior is similar to PT due to some presence of PT in the pool. Note that the PT in the pool is always 1:1 redeemable to underlying asset at maturity date.
Time to enter	Anytime. Timing or underlying yield outlook aren’t very important. When implied APY is low, it is more favorable to enter with the “Zero Price Impact Mode” enabled, and vice versa.
Early exit	Anytime, there’s no lock or penalty. Your APY is also not affected if you exit early.
Comment	Can be used to hedge against falling underlying yield due to some presence of PT in the pool. Learn more about using LP as part of your yield trade.

Learn more on chapter-9-identifying-opportunities-to-long-short-yield.md