Yield Tokenization
Splitting a yield-bearing asset into a separate principal token (the right to the original deposit) and a yield token (the right to the income it generates), which can then be traded independently.
Yield tokenization splits a yield-bearing asset — such as a staked token or a deposit in a lending pool — into two separate, independently tradable components: a principal token, representing the right to redeem the original underlying deposit at a future maturity date, and a yield token, representing the right to whatever income that deposit generates between now and maturity. This lets a holder sell off one component while keeping the other, rather than being forced to hold the combined, bundled asset as a single unit.
This structure lets a user take very different views using the same underlying yield-bearing asset: selling the yield token locks in a fixed, known return by effectively selling away future variable yield for an upfront payment today, while buying a yield token separately lets a user speculate specifically on that yield's future direction without needing to hold or fund the full principal position at all. Yield tokenization is conceptually similar to interest rate swap (see Kaavon's "Interest Rate Swap" glossary definition) products, but implemented by literally splitting ownership into two tradable tokens rather than through a derivative contract.
Examples
- A holder of a yield-bearing deposit might sell their yield token separately to lock in a fixed, known return today, while retaining the principal token's right to redeem the original deposit at maturity.
- Yield tokenization lets a user speculate purely on a yield-bearing asset's future income by buying only its yield token, without needing to hold or fund the full underlying principal position.