Liquid Yield Tokens

Definition ∞ Liquid yield tokens are digital assets that represent a claim on future yield generated from underlying staked or deposited cryptocurrencies. These tokens allow users to retain liquidity while still participating in yield-generating activities like staking or lending. Holders can trade these tokens on secondary markets, effectively monetizing their future earnings or collateral without withdrawing the underlying assets. They provide flexibility and capital efficiency within decentralized finance protocols.
Context ∞ The rise of liquid yield tokens is a significant development in decentralized finance, addressing the opportunity cost of locked assets in staking or lending protocols. Debates often concern the accurate valuation of these tokens and the risks associated with their underlying yield generation strategies. Future innovations aim to broaden the types of assets that can be tokenized for liquid yield and improve their market stability.