Defi Fixed Yield
GOEMON collaborates with multiple DeFi fixing yield protocols, but we are primarily integrated with Pendle at the moment. Here is a detailed document to help you understand fixed yield on Pendle.
DeFi zero-coupon bond
Pendle enables fixing yields by creating a structure similar to zero-coupon bonds in DeF. A zero-coupon bond is a type of bond that does not pay any interest to the bondholder during the life of the bond. Instead, the bond is sold at a deep discount to its face value, and the bondholder receives the full face value when the bond matures. The difference between the purchase price and the face value is the investor’s return or profit. For example, if you buy a zero-coupon bond for $800 that has a face value of $1,000 and matures in 3 years, you will receive $1,000 at maturity and earn a profit of $200 for the 3 years of investment.
Again, you don’t need to hold bonds to maturity, you can sell them on the open market at any time at market price.
Additional reading: Coupon Bond Vs. Zero Coupon Bond: What's the Difference? (investopedia.com)
Where does the yield come from?
Principal Token (PT) in Pendle, are equivalent to zero-coupon bonds. You buy the PT (PT-stETH in this example) at a lower price than the underlying asset (stETH in this example). Your PT can be redeemed 1:1 for the underlying asset (stETH in this example) at or after the maturity date. In other words, the price difference is your yield at maturity.
FAQ
Am I locked until the maturity date? Can I exit early?
You are not locked at all, you can exit at any time by selling your position (which is a PT) at market price on Pendle’s AMM (through “Pendle Trade” interface).
Do I earn less or even lose money if I exit early?
It depends on the market price of PT (after deducting trading fees and slippage). The market price is driven by buyers'/sellers' activities, and generally, if the market expects the asset to generate higher APY%, PT price may drop in the short term. Conversely, if the market expects the asset to generate lower APY%, PT price may rise in the short term.
However, note that time works in your favor in this strategy because PT price gradually closes its gap to the underlying asset (in other words, the PT price relative to the underlying asset increases over time), and eventually becomes 1:1 to the underlying asset at maturity date. So you don’t need to worry even if PT price fluctuates in the short term. You may even take early profit by exiting early when PT price rises too.
More detail infos from here.
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