Definition ∞ Yield tokens are digital assets that represent the future interest or income generated from an underlying financial instrument. These tokens are created by splitting a principal asset, such as a tokenized bond or a staked cryptocurrency, into its principal and yield components. They allow investors to trade the future income stream independently, offering new strategies for managing interest rate risk or speculating on future returns. This separation provides enhanced financial granularity.
Context ∞ The discussion around yield tokens is prominent in decentralized finance, particularly in protocols offering fixed-income products or advanced liquidity provision strategies. A key debate involves accurately pricing these future income streams and managing the risks associated with their underlying assets, especially in volatile markets. Future developments will likely see increased sophistication in yield token designs and their integration into broader digital asset lending and borrowing ecosystems, expanding financial product offerings.
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