yTokens

yTokens represent the yield portion of a yield-bearing asset. In the case of LSTs, the yield is derived from staking rewards.

When a cToken is refracted into a pToken and a yToken, the yToken represents the yield portion of the cToken.

If you hold a yToken, you can claim the yield rewards at any time up until the yToken’s maturity date. Once a yToken reaches its maturity date, its worth drops to zero, and no more rewards can be claimed.

Variable yield

yTokens have variable yield, as staking rewards can vary depending on external factors. Unlike pTokens, the anticipated yield for yTokens can fluctuate over their maturity periods.

For example, suppose you purchase 1 yAtom, which represents the yield portion only of 1 cAtom (an Atom LST). If the estimated yield for staking Atom is 20% APY, and the maturity of yAtom is 1 year, over the year you may expect to claim 0.2 Atom given the current APY. However, if Atom staking yields a higher APY in the future, you will be able to profit more from the higher rates. Likewise, if Atom staking yield decreases during yAtom’s maturity period, you may be earning less than the anticipated yield.

Shorts and longs

Because of their potential variation in yield, the open market price of yTokens is based on their anticipated yield and their time to maturity.

If a yToken holder anticipates the token’s yield over its maturity period to be worth less than the current price of the yToken, they can sell their token, effectively shorting their position.

If a yToken holder anticipates the yield of their token over its maturity period to be greater than the current price of the token, they are longing their position.

Use cases

What are the use cases for yTokens?

• Trade: speculate on changes in yield or the market pricing of yield.
• Arbitrage: merge yAtom with a corresponding amount of pAtom to receive cAtom and profit off of price differences.
• Earn variable yields: Hold yAtom to earn Atom yield at a fraction of the cost of Atom.