> For the complete documentation index, see [llms.txt](https://docs.noon.capital/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.noon.capital/3.-the-yield-engine/yield-strategies/principal-tokens.md).

# Principal Tokens

Part of the yield engine. Approved by governance; discussion and analysis on the governance forum.

## <mark style="color:$primary;">What are Principal Tokens</mark>

Principle Tokens (PT) are a type of token associated with the popular DeFi protocol [**Pendle**](https://www.pendle.finance/). Pendle splits yield-bearing assets into two components: Principal Tokens (PTs) and Yield Tokens (YTs).

PTs represent the right to redeem the underlying asset 1:1 at maturity. By buying PTs at a discount, investors effectively lock in a fixed yield.

The APY of a PT reflects the market’s expectations for future yields and gradually converges towards a price of 1, meaning that one PT can be redeemed for exactly one of the underlying tokens at maturity.

For [<mark style="color:blue;">**Noon**</mark>](#user-content-fn-1)[^1], PT buying is attractive because it combines high fixed yield with deep liquidity. Our strategy focuses only on PTs backed by highly liquid, trustworthy protocols and sufficient secondary market depth.

## <mark style="color:purple;">Noon</mark> <mark style="color:$primary;">Deployment Analysis: Summary</mark>

<figure><img src="https://3816918787-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FL26rQzcNmiUZrCXkxkjS%2Fuploads%2FsmrArs0GtFiidri5qXVt%2FNOON%20Deployment%20Analysis%20PT%20buying.png?alt=media&amp;token=51918f2f-e1a8-4d5a-a471-300ba14f8346" alt=""><figcaption></figcaption></figure>

## <mark style="color:$primary;">Return generation mechanism</mark>

Principal Tokens (PTs) convert floating DeFi yields into a known rate. The rate is "fixed" in a specific, qualified sense: it is locked **only if the PT is held to maturity**, and it remains conditional on the solvency of the underlying protocol and asset. Sold before maturity, a PT's price floats with prevailing rates. The published analysis found PT rates at the time exceeded T-bill rates.

## <mark style="color:$primary;">Documents</mark>

* A full risk assessment can be found archived in <mark style="color:purple;">**Noon's**</mark> [**Governance Forum**](https://forum.noon.capital/t/risk-assessment-jaaa-clo/25/10)
* Primer: [**Principal Tokens Primer**](https://596450103-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FvawK0RJiR8PpG791Q3EH%2Fuploads%2FdnvrkW5ocFpbRinqqLw1%2FYield%20Trading-%20Principle%20Tokens%20\(PTs\).pdf?alt=media\&token=46919b2c-380e-40d6-9cf0-27890570fb25)

[^1]: