Yield Bearing Tokens (YBTs)

TLDR: Yield-bearing tokens are a type of ERC-20 tokens that can generate yields simply by holding them. The tokens can also be traded like all the other ERC-20 tokens.

Our theory relies on the fact that most products onchain will tend to YBTs; Balancer built their V3 to focus on YBTs and Pendle went in 18 months from 15m dollars in TVL to 7b using the magic of DeFi money legos and YBTs.

As the name implies, yield-bearing tokens are LP tokens that generate yields. The pioneer decentralized lending protocol Compound introduced interest-bearing tokens, cTokens, in DeFi for the first time.

Example of Compound Yield Bearing Tokens

Simply put, a cToken in Compound is the proof of ownership of the loan and can be used to claim your deposit. The value of cToken grows over time as the protocol collects payment from token borrowers. Compound requires users to deposit at least a certain amount of underlying tokens before getting cTokens at a 1:1 ratio.

If that’s still tricky to understand, here is an example of how it works.

Let’s say you supply 1,000 DAI to the Compound protocol, when the exchange rate is 0.020070; you would receive 49,825.61 cDAI (1,000/0.020070).

A few months later, you decide it’s time to withdraw your DAI from the protocol; the exchange rate is now 0.021591:

Your 49,825.61 cDAI is now equal to 1,075.78 DAI (49,825.61 * 0.021591)

You could withdraw 1,075.78 DAI, which would redeem all 49,825.61 cDAI

Or, you could withdraw a portion, such as your original 1,000 DAI, which would redeem 46,315.59 cDAI and keep the rest of the 3,510.01 cDAI in your wallet.

With Compound, the exchange rate for cTokens increases over time – guaranteeing each cToken becomes convertible into an increasing amount of its underlying asset, even while the number of cTokens in your wallet stays the same.

If you have understand this and how YBTs enables you to get some yield in a cost efficient way...you are ready to dive into SAFUs Yield Distribution Framework