Introduction

In a market where most DeFi stablecoin yields have compressed to mere low-single digits, Spectra Finance offers a refreshing alternative for yield-hungry investors. Spectra is an EVM-based protocol for interest rate derivatives that allows users to trade and fix the yield on their crypto assets. The platform (formerly known as APWine) has strong backing from notable crypto investors, with its seed round being led by Delphi Ventures. Spectra’s smart contracts have undergone security audits, including a Code4rena audit contest and others, which can be found here. The product suite spans fixed-rate yield vaults and yield trading tools, all accessible through an easy-to-use app, similar to that of Pendle, which also offers similar markets. Spectra has amassed over $102 m in TVL at the time of writing and has a few fixed-rate vaults yielding double-digit percents with at least $800k liquidity.

There are a number of different products offered by Spectra but given the current markets, we are mainly interesting in fixed yield PTs. Let’s dive in.

Fixed Rate Vaults

Spectra’s fixed-rate vaults allow users to lock in a guaranteed yield on a set of markets including stablecoins for a set duration, allowing users to lock in a more predictable yield. Under the hood, the protocol uses a principal-yield token mechanism: when you deposit a yield-bearing stablecoin (i.e an Aave aUSDC or other interest-bearing token) into Spectra, it is split into a Principal Token (PT) and a Yield Token (YT). The PT represents your principal with a fixed return at a future maturity date, while the YT represents the rights to the variable yield that accrues over time. By buying and holding the PT until maturity, you effectively exchange away the volatile future yield to a counterparty (the YT buyer) and secure a fixed APR for yourself. At maturity, PTs can be redeemed 1:1 for the underlying stablecoin, locking in the promised interest. To read more, checkout their official docs.

Given ongoing market volatility, opportunities that earn yield but do not take directional market risk are currently attractive. However, there are other risks to consider:

• Counterparty risk is foremost – the fixed yield is only as good as the underlying yield source generating it. Spectra is a marketplace on top of other protocols; users must trust the project or strategy producing the yield for each vault. For example, a fixed vault might rely on Aave, Resolv, or other protocols. If that underlying protocol or stablecoin faces trouble, it could impact the payout.
• Smart contract risk (mitigated by Spectra’s audits and use of AMMs like Curve) and the possibility of negative yield events – if the underlying interest-bearing token loses value (i.e. a loss in the strategy), the redeemable value of PTs would drop proportionally.
• Liquidity risk is worth noting: while you can sell your PT early before maturity for an early exit, you will likely receive less than the full principal (since you forfeit some of the future interest). In practice, you should be prepared to hold PTs until their maturity date to earn the advertised fixed APR.

Each vault’s fixed rate and duration are set by market forces (supply/demand between yield seekers and speculators), and many of the stablecoin PT markets on Spectra currently offer double-digit annualized yields with decent liquidity relative to the other high yield stable markets on Spectra. Below, we show a few of Spectra’s fixed-rate vault offerings on stablecoins, along with their current yields, terms, liquidity, and yield source counterparties:

There are many fixed rates markets offered by Spectra but we highlighted a few with yields above 14% APR on stable assets, relatively soon maturity dates and decent liquidity without taking on too much counterparty risk. These rates reflect the value that speculators (YT holders) are willing to pay to take on the variable yield exposure that PT holders shed. Spectra simply provides the marketplace to make this possible, matching those who want stability with those willing to bet on yield fluctuations. In our case, we care about the fixed yield.

Risks

Exiting the above pools early can potentially lead to losses. The best case scenario is that you either want to hold the PT until the maturity or, if wanting to leave prematurely, you think that yields will be lower than what they are currently. In short, holding until maturity ensures full redemption, but premature exits carry risk depending on yield fluctuations and protocol stability. Additionally, each market has its own risk profile across the stablecoins being used and their underlying mechanisms, counterparty risk of the underlying, and general smart contract risk of Spectra. It has been around for quite some time with audits and $ 100 m+ of TVL, but still worth noting for the end user.

Conclusion

For active market participants looking to earn yield while remaining heavily in stables, Spectra’s fixed-rate stablecoin vaults present a compelling opportunity to park stables for double-digit yields. Pendle is the main home to YT/PT markets as noted by their TVL and liquidity across its markets. Still, Spectra does have quite competitive yields on a bit less liquidity, offering compelling yields for farmers at the time of writing. The user experience is relatively straightforward, especially for those familiar with Pendle: choose a vault, deposit stablecoins to mint PTs, then sit back and earn a fixed return.