Yield Tokenization

Yield Tokenization is a process where yield-bearing tokens are divided into two distinct components: the yield and the principal. The yield component represents the future income generated from the underlying asset, while the principal component represents the original amount invested or the underlying asset's base value.

Benefits of Yield Tokenization

1. Risk Mitigation: By isolating the yield, investors can earn predictable fixed yields with the principal component, removing risks associated with yield fluctuations. (e.g. earn fixed yield on stETH)

2. Maximizing capital efficiency: Investors can free up the principal for leveraged yield exposure, eliminating the risk of liquidation or oracle errors from borrowing. (e.g. bet on stETH yield going up by purchasing more yield)