Principal Tokens vs Yield Tokens: What to Expect as Spectra Arrives on Flare

As Spectra prepares to deploy on Flare, we're covering the main concepts it introduces to users of the network in a series of blog posts. In the first post in this series, "Floating Yield vs. Fixed Rate Yield", we explored the pros, cons, and intricacies of these two approaches to generating yield on your assets. We briefly touched on two powerful new financial tools: Principal Tokens (PTs) and Yield Tokens (YTs).

These unlock new ways to interact with tokens like sFLR or FXRP, either by locking in predictable fixed returns or by gaining amplified exposure to floating yield and rewards.

Here’s how it works, and how you can benefit.

What’s under the hood?

To understand Principal and Yield Tokens, it helps to know what is happening behind the scenes. Not because you need to do it yourself, but to understand what backs the assets you are interacting with.

At a root level, the Spectra protocol splits any Interest-Bearing Token (IBT), like sFLR, into two yield derivatives:

• PT: Principal Token, representing fixed-rate exposure

• YT: Yield Token, representing floating-rate exposure

This split is automatic. Spectra handles the minting under the hood.

These derivatives are fully backed by the interest-bearing token locked inside the protocol and represent its two core value components: the principal and the rights to its future yield.

This separation is what enables two very different strategies for users, which we will now explore.

Principal Tokens = Predictable, Fixed Returns

Principal Tokens are for users who want to lock in a known outcome, such as buying discounted sFLR today and redeeming it for full value at a later date.

Example:

• You pay 0.91 sFLR for a PT

• You redeem 1.00 sFLR at maturity

• That is a roughly 9.9 percent fixed return

  
  

This is ideal for users who want clarity on outcomes and prefer not to worry about interest rate fluctuations or incentive schedules.

Safety Note: Spectra adjusts PT redemption ratios in edge cases, for example insolvency of the protocol that issues the IBT, to protect the solvency of the Spectra platform. So while PT returns are fixed, they are not guaranteed.

Yield Tokens = Amplified Exposure to Yield and Points

Yield Tokens are for users who want to increase their exposure to the variable upside of an interest-bearing token, such as its floating yield or any associated points or reward programs.

When you buy a YT, you are not buying the underlying token. You are buying its future yield output until maturity. This includes both the native APY and, when applicable, external incentives like points or airdrops.

Example:

• You pay 1 FLR

• You receive the yield and points rights of 20 sFLR

• That is a 20x exposure to the upside

In other words, with just 1 FLR, you gain the yield and points-generating power of 20 sFLR units.

There is a trade-off. YTs market value decays to zero at maturity. You do not get back the initial 1 FLR, only the yield and rewards that 20 sFLR generate.

If the yield is strong or incentives and rewards hefty, your return can scale with it, and the upside can be substantial, which makes Yield Tokens so exciting.

How to Access These Tokens

The Spectra App will offer two clear product pages titled Fixed Rates and Yield Leverage, where PT and YT tokens can be obtained respectively in a similar fashion to how you would trade on Uniswap.

For example: Pay 1 FLR → Receive 20 YT-sFLR units

And yes, you guessed it — it will be possible to swap back a YT or PT token anytime before their maturity back to the pool, if for any reason you want to exit the position. Just like on Uniswap.

We hope this helped clear up some doubts about all these concepts introduced by Spectra. DeFi innovations like Principal and Yield Tokens represent a significant leap forward in how we think about yield generation, but they also require time and patience to fully understand. We will keep putting out new articles to educate the Sceptre community so you can use your sFLR in an informed manner when Spectra arrives. Follow us on X, Telegram and Discord to stay updated.