Yield Derivatives on Radix: A $250m opportunity today, far more tomorrow | The Radix Blog | Radix DLT

Yield derivatives are one of the most important products in finance today. Just one kind alone, Interest Rate Derivatives (IRD), has a notional value estimated at $488 trillion of which $5 trillion is traded daily. This is roughly equivalent to the total assets of financial institutions worldwide.

Signs are pointing to yield derivatives in DeFi being the next big thing:

With so much potential, there is a real opportunity for the entrepreneurs who can take the proven model from traditional finance, replicate it in DeFi, and leverage DeFi’s inherent advantages (pg. 4-5) to outcompete and one day exceed the original.

As of right now, Radix offers entrepreneurs a $250m untapped opportunity to build the yield derivatives infrastructure for the current Radix ecosystem. But for those looking ahead to tomorrow, Radix offers entrepreneurs the only layer 1 infrastructure that has a safe enough user experience (and more) to go after the remaining $488 trillion. 

What is a Yield Derivative?

A yield derivative is a financial contract based on the interest, coupon, or dividend payment from a loan, bond, stock, or other yield-generating asset. Yield derivatives allow future cashflows to be bought or sold without needing to own the underlying asset, allowing for the tailoring – and trading – of specific kinds of financial exposures. Common examples of yield derivatives include interest rate swaps, futures, and options.

With yield derivatives:

In essence, yield derivatives allow for the creation of markets between those who need predictable cashflows, those that prefer variable or leveraged cashflows, or those that don’t need cashflows in future, but need cash now.

Yield Derivatives in DeFi Today

In DeFi today, yield comes primarily from five sources:

With so many sources of on-chain yield, a new crop of dApps are stepping in to offer yield-related derivatives products:


With $2.4 billion in TVL, Pendle.Finance is arguably the largest yield derivatives product in DeFi today. Pendle allows for an underlying yield-bearing token (such as a stETH) to be wrapped into two tokens: a Principle Token (PT), and a Yield Token (YT). Pendle calls this process yield-tokenization.

Each PT and YT has a maturity date:

The PT and YT tokens are liquid and can be traded on the Pendle AMM. 

By separating principle and yield, Pendle allows users to create assets that can provide:

Pendle has even sparked the creation of its own ecosystem, with projects such as Penpie or Equilibria building products on top of it.


Other yield derivative dApps include Notional.Finance, which allows users to earn fixed, variable, or leveraged interest, by splitting the underlying yield-bearing token into fCash tokens (the principal) and cTokens (the yield token). 

Timeless has a different twist – its yield tokens never expire. Timeless achieves this with a Perpetual Yield Token (PYT), whose holders receive the yield generated by user deposits, and a Negative Yield Token (NYT), whose market price moves in the opposite direction as the PYT. 

Spectra.finance focuses on not only supporting fixed and variable rates, but upfront yield, borrowing and lending with principal tokens as collateral, and a yield marketplace.

The Opportunity on Radix

Today, 3.75 billion XRD is staked, yielding 300m XRD per year, or around 8% APY. With Radix’s Native Liquid Staking, that’s $250m of fully liquid yield-bearing assets looking for things to do in Radix’s DeFi ecosystem. Given that no yield derivative dApps are live on Radix yet, that’s a $250m untapped opportunity to create the yield derivative pillars for Radix DeFi, replicating and perhaps exceeding the success of Pendle. 

But this is just the start. Multiple major programs this year will further ramp up the adoption of Radix by users, liquidity, and entrepreneurs, and there are likely to be more sources of on-chain yield – not just from staking – as the Radix ecosystem matures. 

For those entrepreneurs eyeing the long-term prize, the $488+ trillion yield derivative market today, they must make a choice: build on an EVM, Solana, or Cosmos infrastructure that requires their userbase to be constantly wary of frequent wallet drains, revocation of spend approvals, blind signed transactions, and seed phrases; or build on a L1 infrastructure that has spent 11 years designing a stack that solves all of these challenges natively on the L1.

To elaborate, building on Radix means:

Get Involved – Scrypto Challenge

If you’d like to build the next wave of yield derivatives dApp on Radix, see here for a Scrypto Challenge. You can win a share of $15,000 in prizes. The challenge will end on April 24th.

If you’re ready to go straight to building the next yield derivatives dApp, please get in touch with Ben at [email protected]. We’d love to see how we can support you.

Further reading: