YT
Definition
YT (Yield Token) - YT represents the yield component of a yield bearing token. 1 YT gives the right to continually receiving the yield of 1 underlying asset UNTIL maturity.
Pricing
YT's price is also determined by market supply and demand.
For example,
If 1 SUI = $1, the current underlying APY is 5%, maturity in 365 days.
Therefore, the fair price for 1 YT sSUI should be around $0.05, because currently, 1 YT sSUI can receive approximately $0.05 worth of yield from staked sSUI within one year.
Long Yield / Leveraged Yield
The yield of buying and holding YT is called Long Yield, since it essentially bets on the increase of the underlying yield, as known as YT APY.
For example, Bob buys 100 YT sUSDC at a price of $0.05, totaling $5. Over a one-year maturity period, Bob continuously receives yields from 100 staked USDC, totaling $5.5.
The actual APY from buying and holding YT for one year is ($5.5 - $5) / $5 = 10%, known as the YT APY.
YT Trade Opportunity
Because when APY rises, YT can help you increase your earnings even more, it's a good time to buy YT when you predict that the future underlying APY will be higher than it is now.
YT trade in practice
There's a pool on Nemo looks like this:
sUSDC, maturity 365 days
PT sUSDC = $0.96, Fixed APY = 4.17%
YT sUSDC = $0.04, Long yield APY = 25%
Based on the above market information, 2 different traders have adopted varying trading strategies:
Alice buys 40 USDC, spending $40
Bob buys 1000 YT sUSDC, spending $40
If the average underlying APY remains at 5% within the 1-year maturity.
Net Profits: $2
APY: 5%
Net Profits: $10
APY: 25%
If the average of underlying APY increase to 6.5% in the next year
Net Profits: $2.6
APY: 6.5%
Net Profits: $25
APY: 62.5%
If the future APY drops to 3.5%.
Net Profits: $1.4
APY: 3.5%
Net Profits: $-5
APY: -12.5%
In the example above, we can see that the greater the profits, the greater the accompanying risks. Therefore, the key to YT trading depends on the future fluctuation of underlying APY.
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