> For the complete documentation index, see [llms.txt](https://docs.swivel.finance/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.swivel.finance/litepaper/zero-coupon-tokens.md).

# Principal Tokens (PTs)

### Overview

Principal tokens, ***PTs***, are ERC-20's which are redeemable 1:1 at maturity for an underlying token. 

As users lock-in fixed yields, their deposit is split into PTs and YTs (yield tokens) and the the YTs minted are sold to fuel a fixed-yield. 

This leaves the lender with an immediate fixed-yield and their minted PTs.

**Fixed-Yield Lending:**

**Alice has 1000 USDC.**\
**Alice fills Bob's order, splitting 1000 USDC into 1000 ptUSDC and 1000 ytUSDC.**\
**Alice sells 1000 ytUSDC to Bob for 50 USDC.**\
**Alice then has 1000 ptUSDC. At maturity Alice redeems her 1000 ptUSDC for 1000 USDC.**\
**This leaves Alice with 1050 USDC.**

![Lending 1000 USDC at 5% for 1 Year](/files/rtNIp2Vf02FSkyKSUGb2)

### Pricing

Given PTs represent a 1-1 redemption only upon maturity, they are discounted at a rate based on the predicted amount of interest that may have otherwise been generated until the maturity/redemption date (the YT price).

Accepting that this potential yield decreases as time passes, PTs appreciate towards par and reach par as maturity is reached.

Further, because a YT represents the predicted future yield, the discount on a PT is inversely proportional to the cost of an YT.

At maturity, PTs begin to appreciate above par, accruing the yield generated on a given money-market (e.g. Compound) until redeemed.