cTokens and Refraction

Yield is the return or reward that a user can earn on a base or principal asset. In the case of LSTs, the yield is generated from staking rewards. Assets like LSTs that represent the principal and rewards in a single token are called yield-bearing assets. Other yield-bearing assets include LP tokens that earn rewards, compounding tokens, and even bonded stablecoins.

On Pryzm, yield-bearing assets like LSTs are called Collateral Tokens, or cTokens. Users can bond assets in Pryzm to turn them into cTokens. These cTokens represent any yield-bearing token, such as LP tokens, LSTs, or Real World Assets (RWAs). They consist of a principal and a yield.

Yield-bearing cTokens consist of two parts in one token:

• A principal asset: a base asset that is staked or locked.
• Yield: generated rewards that grow over time.

Yield-bearing assets represent an evolution in financial technology. But what if you could uncouple an asset's yield from its principal?

This is the power of Pryzm: separating yield-bearing assets a principal and a yield, and allowing them to be traded freely.

Refraction

Just as a prism can separate white light into its different colors, Pryzm can refract cTokens into principal (pTokens) and yield (yTokens).

1. Assets on Pryzm can be converted into cTokens which bear yield.

2. The cTokens can then be refracted to separate them into their component parts:

   • pTokens or Principal Tokens represent the underlying principal portion of the yield-bearing asset.
   • yTokens represent the yield portion of a yield-bearing asset. In the case of LSTs, the yield is derived from staking rewards.

For example, an asset like Atom can be staked through Pryzm and converted into a cToken called cAtom. The cAtom can then be refracted and separated into pAtom, representing the underlying staked Atom, and yAtom, representing the yield generated from staking Atom.

Maturity

When refracting a cToken, a user must select a maturity date, or the date on which the pTokens and yTokens reach full maturity. For pTokens, the maturity date represents the date at which it can be redeemed for an equivalent amount of cTokens. For yTokens, rewards can be collected up until the maturity date. After a yToken reaches maturity, it will no longer bear yield.

Visit the pToken or yToken pages to learn more about how these assets work. To learn more about maturity, visit the Maturity page.

To learn how to refract your assets, visit the refracting guide.