pSOL

Overview

A principal SOL token (pSOL) is an SPL token that represents the principal component of a fixed-term bond. At maturity, it is redeemable 1:1 for the original deposit. pSOLs do not generate any yield. All yield produced by the principal is distributed to ySOL token holders.

At launch, Pye will support single-strip bonds only. We have plans to include multi-strip bonds, zero-coupon bonds and vesting bonds in future releases. For more information visit Types of Bonds .

​Minting

When a user stakes with Pye, they are issued Principal Tokens (pSOL) and Yield Tokens (YSOL) representing their principal and future yield, respectively. To calculate the amount of pSOL tokens that will be issued we use the following formula:

$$PSOL_{mint} = P \cdot 1$$

where:

• $PSOL_{mint}$ is the number principal tokens to mint,

• $P$ is the principal amount in native units (eg. SOL),

As the formula suggests, pSOLs are minted 1:1 to the number of tokens deposited as defined by the constant 1.

​Pricing

For a single-strip bond, where the bond is stripped into two component cash flows (coupon and principal), the present value of the principal strip $PV_{principal-strip}$ is given by:

$$PV_{principal-strip} = \frac{P}{(1+y)^T}$$

where:

• $P$ is the principal repayment,
• $T$ is the time in years until the principal is repaid,
• $y$ is the discount rate or yield.

The present value (PV) of the principal strip of a single-strip bond decays over time, even though it is redeemable for 100% of the principal at maturity. As time $T$ decreases (i.e., as the bond approaches maturity), the denominator $(1+y)^T$ becomes smaller, which means the present value $PV_{principal}$ increases towards the face value $P$. However, before reaching maturity, the present value of the principal strip is always less than the face value.

This is mainly due to the effect of discounting and time value of money. We calculate the present value of this future redemption by discounting it using the prevailing market interest rate or yield $y$.

​Redeeming

At maturity, pSOL token holders can redeem their pSOL tokens for the underlying principal pro rata. To calculate the repayment we use:

$$PSOL_{redeem} = \frac{PSOL}{1}$$

where:

• $PSOL$ is the number of principal tokens being redeemed,
• $PSOL_{redeem}$is the principal being repaid (eg. SOL).