Q: FAQ

<h3 id="principaltokenpt">Principal Token (PT)</h3> <ol> <li>What are the main benefits of Principal Tokens? Obtaining Principal Tokens (e.g. PT-stETH) enables locking in the current APY of the respective interest-bearing token (e.g., stETH) for a fixed period until maturity. This approach provides a hedge against APY volatility, ensuring a fixed amount of underlying (e.g., ETH) is received at maturity.</li> <li>How does Spectra ensure 1:1 PT redemptions for underlying at maturity? Spectra ensures each Principal Token (PT) is backed by a quantity of interest-bearing tokens (IBTs) equivalent to a fixed amount of the underlying asset at maturity unless there is a negative yield. While the protocol doesn't hold underlying tokens directly, it maintains that 1 PT can typically be redeemed for the underlying asset at maturity, except in cases of negative yield originating from the underlying layer (a project or protocol)</li> <li>Can I sell my Principal Tokens (PTs) before maturity?</li> </ol> Principal Tokens can be sold before maturity, either back to the pool or on secondary markets. The amount of underlying received will depend on the available liquidity at the time of the transaction. <ol start="4"> <li>What happens to my Principal Tokens at maturity? At/after maturity, each PT can be redeemed in a 1:1 ratio with its corresponding underlying token. For example, 1 PT-stETH can be redeemed for 1 ETH, assuming no negative yield. After the redemption, the PT token is burned.</li> <li>Can I choose the maturity date when fixing rates?</li> </ol> A

Question 1

What is Yield?

Accepted Answer

As you navigate DeFi, the term 'yield' often pops up. In the most basic terms, yield refers to the earnings generated and realized on an investment over a particular period. These earnings can come from various activities such as:

Lending: Platforms like Aave, Compound, and Morpho.
Staking: Services such as Lido and EigenLayer.
Yield Farming: Platforms like Yearn, Harvest, and Beefy.

When you put your tokens to work on one of these platforms, you receive proof of deposit as an Interest-Bearing Token. For example, when you lend USDC to Aave, you receive aUSDC in return. This aUSDC represents your lent USDC and entitles you to the interest it accrues over time. In this case, aUSDC is the Interest-Bearing Token.

Each platform has its version of an Interest-Bearing Token. For instance, Compound Finance provides cTokens, so you would receive cUSDC from Compound when depositing USDC.

In general, an Interest-Bearing Token acts as proof of funds and entitles its holder to the accrued yield in addition to the initial investment.

Detailed Examples of Yield-Generating Activities

Lending: Lending protocols like Aave, Compound, and Morpho allow users to lend their crypto assets to earn yield. For example, when you lend USDC to Aave, you receive aUSDC in return. This aUSDC represents your lent USDC plus the interest it accrues over time. The yield is the interest you earn on your loaned assets.

Staking: Staking is a broad definition that involves lockin

Question 2

🎓Add Liquidity

Accepted Answer

After selecting the pool where you want to provide liquidity, you'll see the following:

In the upper section of the module, you will find the essential info:

Pool identifier alongside the pool's address
The pool's expiry date
Current liquidity expressed in $USD

You can choose an underlying token (e.g., USDT) or its Interest-Bearing Token (e.g., aUSDT) in the input field to get started with liquidity provision.

Underneath, the NPIM mode allows you to enter the pool in two ways:

NPIM ON: The output consists of an LP (PT<>iBT) and YT token. In most cases, this will result in slightly fewer LP tokens than the NPIM OFF way.

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Yield Tokens result from the yield tokenization process; however, they are not part of the pool composition. LP token holders remain entitled to fees from Yield Token (YT) swaps as they are driven by flash swaps utilizing the PT<>iBT pool. Read more about output composition when providing liquidity in this FAQ section.

NPIM OFF: The output consists solely of an LP Token.

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In this scenario, Principal Tokens in the LP token are directly bought from the IBT parts in the pool.

Upon entering the deposit amount (in our example, that's 100 USDT) with NPIM OFF, the lower area provides an output summary consisting solely of:

![](https://storage.crisp.chat/users/helpdesk/web

Question 3

SPECTRA

Accepted Answer

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On December 17, 2024, following SIP3arrow-up-right, the SPECTRA token was introducedarrow-up-right, replacing APW as Spectra's ecosystem token. Find the migration guide herearrow-up-right.

Ticker: $SPECTRA

Deployed Contracts

Base: https://basescan.org/token/0x64fcc3a02eeeba05ef701b7eed066c6ebd5d4e51arrow-up-right Mainnet: https://etherscan.io/address/0x6a89228055c7c28430692e342f149f37462b478barrow-up-right Optimism: https://optimistic.etherscan.io/address/0x248f43b622ce2f35a14db3fc528284730b619cd5arrow-up-right Arbitrum: https://arbiscan.io/address/0x64fcc3a02eeeba05ef701b7eed066c6ebd5d4e51arrow-up-right

Token utility

The SPECTRA token inherits APW’s governance and utility characteristics. These include:

Vote on changes or improvements to the protocol
Ability to create a veSPECTRA Lock
Earn SPECTRA incentives for locking (as voted in SIP 0)
Gauge incenti

Question 4

Principal & Yield Token

Accepted Answer

Decentralized Finance (DeFi) is built on layers of protocols that enhance each other's functionalities. Spectra introduces a new financial layer to established protocols like Aave, Compound, or Yearn.

Take this as an example:

MakerDAO mints DAI tokens.
Aave takes DAI and wraps it into its Interest-Bearing version, aDAI.
Spectra splits Aave's aDAI into Principal Token (PT-aDAI) and Yield Token (YT-aDAI).

Principal and Yield Tokens are derivatives on top of Interest-Bearing Tokens (IBTs) supplied by liquidity providers. Below is a simplified illustration of how yield derivatives are minted on top of an interest-bearing token.

This is a simplification of how PT and YT derivatives are created.

This process, known as 'yield tokenization', separates future yield rights from the initial deposit. It unlocks new financial possibilities beyond standalone Interest-Bearing Tokens, such as:

Yield Trading
Upfront Yield
Fixed Rate
Discounted Assets

Main Characteristics

Principal Token:

Represents the initial deposit, also known as the principal
Redeemable 1:1 for underlying at maturity; trading at a discount until maturity, provided no negative yield.
Adheres to ERC-20 token standard; freely transferable

Yield Token:

Represents the right to future yield
Accrues yield for its holder
The value of the YT itself

Question 5

FAQ

Accepted Answer

Principal Token (PT)

What are the main benefits of Principal Tokens? Obtaining Principal Tokens (e.g. PT-stETH) enables locking in the current APY of the respective interest-bearing token (e.g., stETH) for a fixed period until maturity. This approach provides a hedge against APY volatility, ensuring a fixed amount of underlying (e.g., ETH) is received at maturity.
How does Spectra ensure 1:1 PT redemptions for underlying at maturity? Spectra ensures each Principal Token (PT) is backed by a quantity of interest-bearing tokens (IBTs) equivalent to a fixed amount of the underlying asset at maturity unless there is a negative yield. While the protocol doesn't hold underlying tokens directly, it maintains that 1 PT can typically be redeemed for the underlying asset at maturity, except in cases of negative yield originating from the underlying layer (a project or protocol)
Can I sell my Principal Tokens (PTs) before maturity?

Principal Tokens can be sold before maturity, either back to the pool or on secondary markets. The amount of underlying received will depend on the available liquidity at the time of the transaction.

What happens to my Principal Tokens at maturity? At/after maturity, each PT can be redeemed in a 1:1 ratio with its corresponding underlying token. For example, 1 PT-stETH can be redeemed for 1 ETH, assuming no negative yield. After the redemption, the PT token is burned.
Can I choose the maturity date when fixing rates?

A

Question 6

🎓Trade Yield

Accepted Answer

Here, you can convert your crypto, such as USDT, into Yield Tokens (YT), which encapsulate the right to the future yield of the corresponding interest-bearing token.

In the top area, you will find the essential details of the pool used for the exchange, including the YT's expiry date and current liquidity.

The tabs below, Buy / Sell, change the intent of the desired action.

A YT purchase can be made by providing an underlying or interest-bearing token.

The bottom part of the drawer provides the following output details:

The number of YT units received alongside their current USD market value
Min Output - you will not receive less than the displayed amount of YT
Notional Value Traded—Under the hood, when buying/selling one YT, one PT has to be bought/sold. The notional value encapsulates the total USD value of assets traded to execute the swap.
Implied APY - Current market prediction of an asset's future yield.
Fee - considers Notional Value Traded

To initiate the swap, token approval [Approve] is required, followed by a swap confirmation [Buy YT] or [Sell YT].

Questions?

View this FAQ section on Yield Tokens.

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