> ## Documentation Index
> Fetch the complete documentation index at: https://docs.exponent.finance/llms.txt
> Use this file to discover all available pages before exploring further.
# Yield Markets
***
Yield markets enable participants to **trade interest rates onchain** by buying or selling Principal Tokens (PT) and Yield Tokens (YT). By trading on Exponent's yield markets, users can lock fixed rates, take leveraged yield positions, or hedge existing yield exposure across SOL staking, lending, RWA, and stablecoin markets.
Learn more about the mechanics behind yield stripping and interest rate trading [here](/user-documentation/yield-stripping-swap).
## How It Works
Each Exponent yield market is derived from an underlying yield asset (e.g. JitoSOL) and split into their principal and yield components to let users choose their side of the trade.
Through these markets users can swap variable rates for:
* **Principal** Exposure (e.g. PT-JitoSOL) – essentially locking a fixed rate until maturity in exchange for foregoing the underlying variable yield.
* **Yield** Exposure (e.g. YT-JitoSOL) – all the yield generated by the underlying market, essentially paying for guaranteed streams of variable yield.
## Key Concepts
**Yield Stripping**: Exponent interest rate swap instruments are derivatives stripped from an underlying asset. When separated, each gives a specific exposure to the underlying, either principal or yield. This allows the secondary market to trade them and determine their implied rate, which represents the market’s expectation of the future realized rate.
**Market-driven Rate**: Exponent markets are market driven by an **Implied Rate**, which defines the principal or yield exposure users get when trading:
* PT-JitoSOL buyers pay for an Implied Rate they want to **lock** to hedge against the underlying
* YT-JitoSOL traders pay for an Implied Rate they plan to **outperform** with the yield generated by the underlying exposure
Because the combined value of YT and PT represents the underlying, trading one side of the market (e.g. PT-JitoSOL for fixed yield) affects the other inversely. Buying PT pushes the YT price down, and vice versa.
**Maturity**: Yield markets are traded over a fixed time period. The maturity defines when that yield period ends and when the yield derivative assets settle back to the underlying asset.
## Trading Rates on Exponent
Exponent yield markets can be traded on their individual maturity page. Users can select which exposure they want to trade:
* **Income**: for Principal Token (PT) swaps
* **Farm**: for Yield Token (YT) swaps
Trade Principal Tokens at a discount to lock in a fixed return, redeemable at par at maturity regardless of where variable rates move.
* Guaranteed fixed yield. 1 PT redeems for 1 unit of the underlying asset at maturity, with the return embedded in the purchase discount
* Best if one expects variable rates to decline or wants predictable, passive returns without active management
* PT is essentially a bet that locking today's implied rate is better than taking the variable yield over the remaining maturity
Trade Yield Tokens at an Implied APY to get leveraged exposure to the underlying variable yield and protocol points with minimal capital.
* Guaranteed stream of yields. 1 YT = the yield generated by 1 PT, whatever the price of YT is
* Best if one believe the current implied APY is undervalued and the underlying APY will realize at a higher rate at maturity
* YT is essentially a bet that the total yield distributed by maturity will exceed the cost of buying YT
## Instant vs. Limit Orders
Users can trade yield markets on Exponent in two main ways: **instant orders** and **limit orders**.
**Instant orders** execute immediately against available liquidity, either through the **Rate CLMM** or available liquidity on the **Rate Order Book**, depending on the market and routing path. They are best suited for users who want immediate execution.
**Limit orders** are placed on the **Rate Order Book** and only execute if the market reaches the user’s specified implied rate. They are better suited for users who want tighter control over execution.
| Feature | Instant Order | Limit Order |
| -------------- | ------------------------------------------------ | ------------------------------------------------------ |
| Execution | Executes immediately against available liquidity | Executes only if the market reaches the specified rate |
| Speed | Immediate | Not guaranteed |
| Pricing | Takes the best available execution at the time | User sets the execution level |
| Venues | Rate CLMM or Rate Order Book | Rate Order Book only |
| Best for | Fast entry or exit | Precise entries, exits, or passive order placement |
| Slippage risk | Higher if liquidity is thin | No rate uncertainty, but may remain unfilled |
| Fill certainty | Higher, assuming sufficient liquidity | Lower, depends on market conditions |
Instant orders prioritize execution, while limit orders prioritize rate control.
## Understanding Risks and Returns
Yield market positions carry different risk profiles depending on the instrument:
* **PT holders** face opportunity cost risk. If variable rates spike above your locked fixed rate, you miss the upside. Your principal return at maturity is unaffected.
* **YT holders** face directional risk. YT value decays as maturity approaches. If realized yield falls below the Implied APY at purchase, you receive less than your initial investment.
* **Price fluctuation before maturity** - both PT and YT prices move based on changes in Implied APY. Selling before maturity exposes you to market risk. Holding PT to maturity eliminates this.
* **Liquidity risk** - markets with low liquidity may have wide spreads. Large positions may experience slippage when exiting before maturity. At maturity, PT redeems at par regardless of liquidity.
**YT returns** depend on:
* The **realized yield** of the underlying asset until maturity
* The **Implied APY** at the time of purchase (your cost basis)
* Any **protocol incentives or emissions** distributed to YT holders
* **Time remaining** - YT value decays toward zero at maturity
A YT position is profitable when the total yield received exceeds the cost of acquiring the YT.
**PT returns** are deterministic at entry. The fixed yield equals the spread between the purchase price and par value, annualized over the remaining maturity. Full yield is realized only at maturity.
Early exit returns the current market price, which may be higher or lower.
## FAQ and Common Issues
You receive the current market price, which may be higher or lower than your entry price. The fixed rate is only fully realized at maturity. If implied rates have moved in your favor (rates dropped), your PT may be worth more than you paid.
If held to maturity, PT redeems at par - you receive your full fixed return. Before maturity, the market value can fluctuate. You can only realize a loss by selling before maturity at a lower price than you entered.
YT decays in value over time as less future yield remains. Your total return includes both the market value of YT and any yield already collected. Check your total yield claimed alongside the current YT value for the full picture.
The Implied APY is the market's consensus forward rate - what participants collectively expect the yield to average until maturity. It moves based on supply and demand for PT and YT. It is not the same as the underlying protocol's current APY.
Buy PT if you want predictable returns or believe rates will decline. Buy YT if you believe realized yields will exceed what the market currently prices.