If you're an investor looking for better returns than stablecoins without going full degen, you may be interested in a new category of yield-bearing cryptoassets called Liquid Yield Tokens (LYTs). These tokens combine the earning potential of traditional yield strategies with the composability of DeFi lego pieces.

What are Liquid Yield Tokens (LYT) 

A Liquid Yield Token (LYT) is an ERC-20 token that embeds yield to holders, where the reserves are denominated in stablecoins and yield is derived from income-generating strategies that serve as the reserve collateral backing the LYT. Unlike traditional staking or yield farming where assets are locked in smart contracts, LYTs maintain secondary market liquidity that allows holders to buy or sell the LYTs without locking or redeeming their capital from the underlying vault. 

You can think of LYTs as “yield-bearing wrappers” for deposits into yield-generating strategies:

1. You deposit stablecoins like USDC or USDT into a protocol.

2. The protocol deploys that capital into yield-generating strategies, such as DeFi lending or RWA-backed investments.

3. In return, you get an LYT that represents your share of those reserve assets plus the ongoing yield they generate.

Key Traits of Liquid Yield Tokens (LYT) 

Here are the key features that make Liquid Yield Tokens (LYT) distinct from stablecoins, liquid staking tokens, and other yield-bearing assets.

1. The LYTs passively accrue yield

The value of your LYT holdings grow over time and accrues yield through an increasing token price or through receiving additional tokens (rebasing). This yield is often variable and depends on the performance, cash flows, and prices of the assets backing the reserves.

Here’s an example to help put this concept into perspective: 

Alice starts the year holding $1,000 worth of a LYT. By year-end, the LYT intrinsically accrues yield so the price of the LYT rises by 10%, making her holdings worth $1,100 which represents a $100 gain, entirely from price appreciation, with no rebasing or new tokens issued.

2. LYTs Are Not Stablecoins

LYTs are not stablecoins like USDC or USDT, which are designed to remain pegged to a fiat currency. Users of LYTs should not expect that the secondary market price of a LYT will always remain pegged. Each LYT's redemption capabilities, combined with their reserve management strategy, will influence its price volatility in the secondary market. Instead of the typical user experience with stablecoins where the value of your holdings is fixed, the value of your LYT holdings increases over time as yield accrues due to the performance of the underlying yield sources.

3. Liquid Secondary Market

Unlike some yield products where funds are locked in a vault or smart contract for a fixed or open term, LYTs can typically be traded on a secondary market at any time. This gives holders the flexibility to exit or rebalance their portfolio without waiting for a maturity date or funds to unlock. Importantly, LYTs must maintain a sufficient reserve of liquid assets in order to meet redemption requests if the secondary market price dips below the underlying value of the reserves.

4. Reserve Assets are Denominated in Stablecoins

Liquid Yield Tokens (LYT) are backed by collateral denominated in stablecoins, which sets them apart from liquid staking tokens like Lido's stETH or Jito's jitoSOL. Those are backed by ETH and SOL tokens respectively, which are staked to participate in securing the Ethereum or Solana networks. 

LYTs, on the other hand, use their stablecoin collateral for yield strategies, often in DeFi, CeFi, or RWA asset rather than staking to secure blockchain networks.

Introducing SIERRA as a Liquid Yield Token 

The Sierra Protocol reimagines money by issuing SIERRA, a Liquid Yield Token (LYT) built to deliver the best user experience across DeFi, CeFi and TradFi. Instead of dealing with hidden fees, banking delays and price inflation, SIERRA holders experience a new form of money that is universally accessible, self-custodial, transparent and growing in value through intrinsic yield. By holding SIERRA, users passively earn industry-leading yield, compounded daily without any lock-ups, hidden fees, or requirements to stake or claim rewards.

Backed by USDC deployed into a diversified portfolio of real-world financial assets (RWAs) and blue-chip DeFi yield sources, SIERRA delivers stable risk-adjusted returns, deep liquidity, and utility through integrations across CeFi and DeFi.