What Is Principal token?

A principal token (PT) is a token representing the redemption value of an investment, separated from its income or rewards before a specified date. On Pendle, that date is called maturity. Redemption is measured in the market’s accounting asset, the asset named in brackets in its market listing; it is not necessarily one unit of the token deposited or one US dollar.

Hypothetical example

Suppose a PT costs 0.95 units of its accounting asset and can be redeemed for 1 unit at maturity. Buying 100 PT costs 95 units and returns 100 units if redemption succeeds: a gain of 5 units, or about 5.26% over the holding period, before fees. This is not an annualised rate or a current offer. A fall in the accounting asset’s dollar price can still cause a dollar loss, and selling the PT before maturity may produce a different result.

The redemption terms do not remove risks from the underlying investment or its software. Borrowing to buy PT adds changing interest costs and liquidation risk; see the worked example under recursive looping. See Pendle’s principal-token documentation.