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 Liquidity pool (LP) tokens that earn rewards and 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 into principal and yield components, 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 ETH can be staked through Pryzm and converted into a cToken called cETH. The cETH can then be refracted and separated into pETH, representing the underlying staked ETH, and yETH, representing the yield generated from staking ETH.

Maturity

When refracting a cToken, users must select a maturity date, which is when the pTokens and yTokens will reach full maturity. On this date, pTokens can be redeemed for the corresponding value of yield-bearing assets, paid out in cTokens. yTokens will continue to earn rewards until the maturity date, after which they will no longer generate 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.