Full Course For Beginners
Complete beginner course with examples (SNEK on Strike)
Lesson 1. Why Pulse exists and why it matters
1.1 What problem does Pulse solve
On Cardano there are more and more ways to earn yield:
Staking ADA
Farming LP tokens on DEXs
Lending and borrowing
Perpetuals funding fees
Other DeFi incentives
The problem is that this yield is variable. It moves up and down in a way that is hard to predict.
You cannot:
Lock in a guaranteed fixed yield for the future
Easily trade your view on where yield will go
Cleanly separate your initial principal from the future yield
Pulse solves this by taking a yield bearing position and splitting it into two tokens:
PT = Principal Token
YT = Yield Token
Together, PT plus YT always represent your full original position. This process is called yield tokenization.
Example (SNEK on Strike) You supply SNEK to Strike and receive an LP token that earns fees. The APY on this SNEK LP might be 50 percent one week and 180 percent the next week, depending on how much people trade SNEK. Pulse takes that SNEK LP token and splits it into PT SNEK (your principal) and YT SNEK (your future SNEK yield). You can now treat principal and yield separately.
1.2 Why this is important for Cardano
Pulse is the first yield tokenization platform on a UTXO chain on mainnet. This is important because it:
Creates a fixed income market on Cardano
Lets users hedge their yield risk
Turns expectations about future yield into a tradable market
Gives more ways for capital to work while staying on Cardano
In simple terms:
Risk averse users can lock in a fixed yield
Risk seeking users can take directional bets on future yield
Liquidity providers can earn fees from all of this trading
Example (SNEK on Strike) Without Pulse, your only choice with SNEK on Strike is to hold the LP position and accept whatever APY you get. With Pulse, you can lock in a fixed SNEK yield, or you can speculate on whether the SNEK LP yield will go higher or lower by trading YT SNEK. This turns one simple LP position into several different strategies.
Lesson 2. Core concepts you must understand
If you understand this section, everything else becomes much easier.
2.1 The starting point: a yield bearing asset
Pulse always starts from an asset that already earns yield somewhere else. Examples:
LP tokens from DEXs
Lending positions
Vault shares or structured products
Pulse does not create yield by itself. It restructures the yield from another protocol.
Example (SNEK on Strike) Your yield bearing asset is the SNEK LP token from supplying SNEK to Strike. Strike is where the yield is generated. Pulse only takes that SNEK LP token and turns it into PT SNEK and YT SNEK.
2.2 Splitting into PT and YT
When you deposit your yield asset into Pulse, you receive:
PT (Principal Token)
YT (Yield Token)
Intuition:
PT represents your right to the principal at maturity
YT represents the future yield between now and maturity
If you hold both PT and YT until maturity, you can always redeem the full underlying position. PT plus YT together equal your original asset.
Example (SNEK on Strike) You deposit SNEK LP worth 1000 SNEK into Pulse. Pulse gives you 1000 PT SNEK and 1000 YT SNEK. If you keep both PT SNEK and YT SNEK until maturity, you can redeem and get back the value of your original SNEK LP position.
2.3 Fixed APY vs implied APY
On Pulse you see two important numbers:
Fixed APY
Implied APY
Fixed APY is the effective annualized yield you lock in if you buy PT at the current price and hold it until maturity. If PT is cheap, your fixed APY is high. If PT is expensive, your fixed APY is lower.
Implied APY is the APY that the market believes the underlying position will earn over time. It is derived from the prices of PT, YT and the underlying.
General relationship:
If the market expects very high future yield, YT becomes more valuable and PT becomes cheaper
If the market expects low future yield, YT becomes cheaper and PT becomes more valuable
Example (SNEK on Strike) On the SNEK market you might see:
Fixed APY: 40 percent
Implied APY: 260 percent
This means that at current PT SNEK prices, if you buy PT SNEK and hold to maturity, you are locking in about 40 percent APY. At the same time, the way PT SNEK and YT SNEK are priced relative to SNEK LP tells you that the market expects the Strike SNEK LP to perform like a 260 percent APY position. That gap exists because someone is willing to pay a lot for the upside on SNEK yield, while someone else is happy to give up that upside in exchange for a safe fixed return.
Lesson 3. Main strategies on Pulse
There are three main strategy categories.
3.1 Lock in a fixed yield
Goal: you want safety and predictability.
Steps:
Tokenize your yield asset into PT and YT
Sell your YT on the market
Hold PT until maturity
Result:
You have effectively sold your future variable yield to someone else
In exchange, you lock in a fixed APY that is defined by PT price
Example (SNEK on Strike) You tokenize a SNEK LP position worth 1000 SNEK and receive 1000 PT SNEK and 1000 YT SNEK. Fixed APY is currently 40 percent. You sell all 1000 YT SNEK and receive 150 SNEK. You now mostly hold PT SNEK. By doing this, you gave up the uncertain future SNEK yield and locked in a 40 percent style return, plus you collected 150 SNEK up front.
3.2 Bet on yield going higher or lower
Goal: you want to speculate on where yield is heading.
You can use YT and PT in different ways.
A. Trade YT to bet on yield outperforming or underperforming expectations
If you think future yield will be higher than the market expects, you buy YT
If you think future yield will be lower than the market expects, you sell YT or short YT if the product supports it
YT is a pure bet on future variable yield.
Example (SNEK on Strike) Implied APY for SNEK LP is 260 percent. You believe the next month will be extremely volatile with heavy SNEK trading and that the true realized APY will feel more like 400 percent. You buy YT SNEK. If volatility and fees really explode, the market will raise its expectations and implied APY will go higher. That pushes YT SNEK price up. You can then sell YT SNEK later at a profit.
B. Trade PT to express a view on fixed rates and risk appetite
PT price and fixed APY move in opposite directions.
If you think people will want safety and fixed returns soon, you expect PT demand to rise and PT price to go up, which reduces fixed APY
If you think people will chase aggressive yield and ignore fixed returns, you expect PT to get cheaper and fixed APY to rise
PT trades are closer to fixed income and interest rate trades.
Example (SNEK on Strike) Right now fixed APY is 40 percent. You think SNEK hype will calm down and people will shift from risky farming to safer fixed yield. You buy PT SNEK now. Later, demand for PT rises, PT price goes up, and fixed APY drops to 25 percent. You can sell your PT SNEK at a higher price and capture that move.
3.3 Provide liquidity and earn fees
You can also provide liquidity in pools that connect:
PT and the underlying
YT and the underlying
PT and YT
As a liquidity provider you:
Deposit tokens into a pool
Let traders swap between these assets
Earn a share of the swap fees
Example (SNEK on Strike) You provide liquidity to a PT SNEK and YT SNEK pool. As traders move between PT SNEK and YT SNEK to adjust their exposure to fixed and variable yield, they pay trading fees. You receive a share of these fees. If SNEK yield expectations change often, trading activity increases and your fee income can grow.
Lesson 4. How Pulse works under the hood
You do not need deep math, only the high level flow.
You deposit a yield bearing token into a Pulse smart contract
That contract holds the position in the underlying protocol which continues to earn yield
Pulse mints PT and YT that represent your claim on the position
PT and YT can trade freely in markets
At maturity, the contract knows how much the underlying position is worth
If you bring back PT plus YT, you redeem the full underlying asset
Prices in the liquidity pools provide fixed APY and implied APY information to the market
The key point is that Pulse is non custodial and fully on chain. You are always interacting with smart contracts.
Example (SNEK on Strike) You deposit SNEK LP into the Pulse contract. The contract keeps the SNEK working inside Strike so you keep earning fees at Strike. Pulse then gives you PT SNEK and YT SNEK. Over time, Strike generates SNEK yield. At maturity, the contract calculates the final value of the SNEK LP position. If you return both PT SNEK and YT SNEK, you redeem the entire SNEK LP value, including all yield that has been generated.
Lesson 5. Getting ready to use the dapp
5.1 What you need before starting
You will need:
A Cardano wallet that the Pulse dapp supports
Some ADA to pay transaction fees
The yield bearing token you want to tokenize
Example (SNEK on Strike) You set up a supported Cardano wallet and connect to Strike. You supply SNEK to Strike and receive SNEK LP tokens. You now have SNEK LP and some ADA in your wallet. You are ready to go to Pulse.
5.2 Connecting to the dapp
Steps:
Open the Pulse dapp in your browser
Click Connect wallet
Choose your wallet and approve the connection
The dapp now shows your balances and available markets.
Example (SNEK on Strike) After connecting, the dapp shows a SNEK market where the underlying is SNEK supplied to Strike. You see your SNEK LP balance available to tokenize.
Lesson 6. Step by step: using Pulse for the first time
6.1 Tokenizing your yield asset into PT and YT
Generic steps:
Go to the Markets or Tokenize section
Select the market that matches your yield asset
Review maturity date, fixed APY and implied APY
Click Tokenize or Mint PT and YT
Enter the amount you want to tokenize
Confirm in your wallet
After the transaction you will hold PT and YT instead of your original token.
Example (SNEK on Strike) You open the SNEK market and see:
Maturity in 3 months
Fixed APY 40 percent
Implied APY 260 percent
You click Tokenize, enter 1000 SNEK LP and confirm. Now your wallet shows 1000 PT SNEK and 1000 YT SNEK. Your SNEK LP is held by the Pulse contract.
6.2 Locking in a fixed yield
Steps:
After tokenizing, go to the Trade section for that market
Select the pair that lets you sell YT for the asset you want (for example YT against ADA or SNEK)
Decide how much YT to sell
Review your effective fixed APY based on PT price
Confirm the trade
Result:
You mostly hold PT
You have locked in a fixed APY until maturity
Example (SNEK on Strike) You hold 1000 PT SNEK and 1000 YT SNEK. You decide to sell all 1000 YT SNEK for 150 SNEK. You now hold 1000 PT SNEK plus 150 SNEK cash. This means you gave up the future variable SNEK yield and now you are basically in a fixed yield position defined by PT SNEK and the 40 percent fixed APY that the market is pricing.
6.3 Taking a directional bet on yield with YT
Steps to bet that yield will be higher than expected:
Go to Trade
Choose the pair where you can buy YT with ADA or the underlying
Enter the amount of YT to buy
Confirm the transaction
If actual yield is higher than the market expected, YT price should rise.
Example (SNEK on Strike) Implied APY is 260 percent. You believe there will be a huge campaign for SNEK trading on Strike and the real yield will effectively feel like 400 percent. You buy 2000 YT SNEK. After a few weeks, trading activity explodes and the market raises implied APY to 350 percent. YT SNEK price increases. You sell your 2000 YT SNEK at a higher price and capture the difference as profit.
6.4 Trading PT like fixed income
Steps:
Go to the market page
Look at the current fixed APY
If you think fixed APY is attractive and will later fall, you buy PT
If you think fixed APY is too low and will likely rise, you may sell PT that you already hold
PT trading is about changing risk between fixed and floating yield.
Example (SNEK on Strike) Fixed APY is 40 percent. You think in a month the implied APY for SNEK will fall to something like 150 percent because volatility will drop. When that happens, many users will want safety and will buy PT, which pushes PT price up and fixed APY down. You buy PT SNEK now. Later, fixed APY drops to 25 percent, PT SNEK is more expensive, and you sell for a capital gain.
6.5 Providing liquidity
Steps:
Go to the Liquidity or Pools section
Choose a pool that you understand, such as PT and YT or PT and the underlying
Review total value locked and fee rate
Click Add liquidity
Provide the required token amounts
Confirm the transaction
You earn fees from traders who use that pool.
Example (SNEK on Strike) You add liquidity to a PT SNEK and YT SNEK pool with equal value of each token. Every time traders switch between PT SNEK and YT SNEK to adjust their exposure to fixed and variable yield, they pay fees. You collect a share of those fees proportional to your share of the pool.
Lesson 7. Reading the interface like a pro
When you look at any Pulse market, get used to reading:
Maturity date
Fixed APY
Implied APY
Liquidity depth for PT, YT and the underlying
Your PT and YT balances
Any open liquidity positions
Example (SNEK on Strike) On the SNEK market page you might see:
Maturity: 90 days from now
Fixed APY: 40 percent
Implied APY: 260 percent
Liquidity: enough depth to support medium sized trades
You check your wallet and see 500 PT SNEK, 200 YT SNEK, and an LP position in the PT YT pool. From this, you know part of your SNEK exposure is fixed, part is speculative on yield, and part is earning fees as a liquidity provider.
Lesson 8. Risk overview
Key risks:
Smart contract risk
Pulse and the underlying protocols might have bugs
Underlying protocol risk
If the protocol generating yield suffers a failure, PT and YT are affected
Market risk
Yield can be very volatile
PT and YT prices can move sharply
Liquidity risk
Thin liquidity can cause high slippage
Leverage risk
If leveraged YT trading is offered, gains and losses can be magnified
Example (SNEK on Strike) If SNEK hype dies and trading volume on Strike falls, implied APY will drop. YT SNEK can lose a lot of value. PT SNEK will adjust through a lower fixed APY and different pricing. If at the same time liquidity is shallow, trying to exit a large YT SNEK position in one trade can cause a lot of slippage. A new user should start with small amounts and avoid high leverage until they understand these dynamics.
Lesson 9. Quick FAQ
Q: If I hold both PT and YT to maturity, do I lose anything A: No. If you keep PT and YT for that series, you can redeem the full underlying position.
Example (SNEK on Strike) If you tokenize 1000 SNEK LP into PT SNEK and YT SNEK and never trade them, at maturity you can redeem and get back the full SNEK LP value as if you had never tokenized.
Q: Where does the yield come from A: From the original protocol. Pulse does not create yield. It only restructures it.
Example (SNEK on Strike) All SNEK yield in the Pulse SNEK market still originates from Strike and its trading activity. Pulse only splits that yield into principal and yield components.
Q: Who is on the other side when I lock a fixed APY A: Users who want to buy YT and take on the variable yield risk.
Example (SNEK on Strike) When you sell YT SNEK to lock in fixed SNEK yield, you are selling your future SNEK yield to someone else. That trader is paying you today to get exposure to the upside of SNEK LP yield.
Q: Can I exit before maturity A: Yes. You can trade PT and YT on the market at any time, subject to liquidity.
Example (SNEK on Strike) If you hold PT SNEK and decide to exit early, you can sell PT SNEK back into the pool. Your outcome will depend on PT price at that moment, not only on the final yield at maturity.
For more questions please join us on Discord.
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