The Yield Protocol is a standard for a token that settles based on the value of a target asset on a specified future date, and which is backed by some quantity of a collateral asset. We call these tokens “yTokens.”

You can create yTokens by depositing collateral, then sell them to effectively borrow (and short) the target asset. Buying yTokens is economically similar to lending the target asset. The effective “interest rate” received by yToken holders is determined by the discount at which yTokens currently trade, as well as the time to maturity.

yTokens can also be used as a building block for more sophisticated products. While each maturity of yTokens has a fixed expiration date, you could build a perpetual product on top of it, by implementing a pool that invests in short-term yTokens and automatically rolls them over upon expiry.