PT
Definition
PT (Principle Token) - PT represents the principle component of a yield bearing token. 1 PT gives the right to redeem 1 underlying asset UPON maturity.
Pricing
PT's price is always cheaper than the underlying asset, it's because PT doesn't include the yield of underlying asset. Besides, PT's price is determined by markets supply and demand.
For example,
if 1 SUI = $1
1 PT sSUI is always cheaper than $1, it could be $0.98 when market demand is high and $0.92 when market demand is relatively low.
Fixed Yield
Buying and holding PT offers a fixed yield. Because upon maturity, 1 PT is able to redeem 1 underlying token.
For instance, Alice purchases 100 PT sUSDC at $0.9 each, totaling $90. After a one-year maturity period, Alice can redeem these 100 USDC, which have appreciated to a total value of $100.
The effective annual percentage yield (APY) from buying and holding PT for one year is calculated as ($100 - $90) / $90 = 11.11%. This yield is referred to as the Fixed Yield, given its fixed nature.
Selling PT Earlier
If you purchase PT that matures after 1 year, you are allowed to sell the PT before maturity. Doing so can lock in profits or enhance capital efficiency.
Alice purchases 100 PT sUSDC at $0.9 each, totaling $90. After 180 days, Alice sells the 100 PT sUSDC for $0.94 each due to increased market demand nearing maturity, amounting to $94. The net profit from this trade is $4, resulting in an APY of 9.01%.
PT Trade Opportunity
Because buying and holding PT profits a fixed yield, it is a good investment target for locking in yields and avoiding fluctuations in APY.
PT trade in practice
There's a pool on Nemo looks like this:
sUSDC, maturity 365 days
Underlying APY 8% - means that currently holding the underlying asset can yield an APY of 8%. Learn more glossary.
PT sUSDC = $0.93
Fixed APY = 7.78% - If you purchase 1 PT sUSDC for $0.93, after one year you can redeem 1 USDC, resulting in a net profit of $0.07. This calculates to a fixed yield APY of 7.78%.
Although the underlying APY of 8% is slightly higher than the fixed yield of 7.78%, you predict that future average APY may decrease to 5% due to market fluctuations. Therefore, buying and holding PT to lock in 7.78% is a good strategy.
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