eip: 5089
title: Principal Token Standard
description: A standard for principal tokens (zero-coupon tokens) that are redeemable for a single underlying ERC-20 token at a future timestamp.
author: Julian Traversa (@JTraversa), Robert Robbins (@ robrobbins), Alberto Cuesta Cañada (@alcueca)
discussions-to: Principal Token Standard by alcueca · Pull Request #5089 · ethereum/EIPs · GitHub
status: Draft
type: Standards Track
category: ERC
created: 2022-05-01
requires: 20, 2612
Abstract
Principal tokens represent ownership of an underlying [EIP-20] token at a future timestamp.
This specification is an extension on the [EIP-20] token that provides basic functionality for depositing
and withdrawing tokens and reading balances and the EIP-2612 specification that provides
[EIP-712] signature based approvals.
Motivation
Principal tokens lack standardization which has led to a difficult to navigate development space and diverse implementation
schemes.
The primary examples include yield tokenization platforms which strip future yield leaving a principal
token behind, as well as fixed-rate money-markets which utilize principal tokens as a medium
to lend/borrow.
This inconsistency in implementation makes integration difficult at the application layer as well as
wallet layer which are key catalysts for the space’s growth.
Developers are currently expected to implement individual adapters for each principal token, as well as adapters for
their pool contracts, and many times adapters for their custodial contracts as well, wasting significant developer resources.
Specification
All Principal Tokens (PTs) MUST implement [EIP-20] to represent ownership of future underlying redemption.
If a PT is to be non-transferrable, it MAY revert on calls to transfer or transferFrom.
The [EIP-20] operations balanceOf, transfer, totalSupply, etc. operate on the Principal Token balance.
All Principal Tokens MUST implement [EIP-20] optional metadata extensions.
The name and symbol functions SHOULD reflect the underlying token’s name and symbol in some way, as well as the origination protocol, and in the case of yield tokenization protocols, the origination money-market.
All Principal Tokens MAY implement [EIP-2612] to improve the UX of approving PTs on various integrations.
Definitions:
- underlying: The token that Principal Tokens are redeemable for at maturity.
Has units defined by the corresponding [EIP-20] contract. - maturity: The timestamp (unix) at which a Principal Token matures. Principal Tokens become redeemable for underlying at or after this timestamp.
- fee: An amount of underlying or Principal Token charged to the user by the Principal Token. Fees can exist on redemption or post-maturity yield.
- slippage: Any difference between advertised redemption value and economic realities of PT redemption, which is not accounted by fees.
Methods
underlying
The address of the underlying token used by the Principal Token for accounting, and redeeming.
MUST be an EIP-20 token contract.
MUST NOT revert.
- name: underlying type: function stateMutability: view inputs: [] outputs: - name: underlyingAddress type: address
maturity
The unix timestamp (uint256) at or after which Principal Tokens can be redeemed for their underlying deposit.
MUST NOT revert.
- name: maturity type: function stateMutability: view inputs: [] outputs: - name: timestamp type: uint256
convertToUnderlying
The amount of underlying that would be exchanged for the amount of PTs provided, in an ideal scenario where all the conditions are met.
Before maturity, the amount of underlying returned is as if the PTs would be at maturity.
MUST NOT be inclusive of any fees that are charged against redemptions.
MUST NOT show any variations depending on the caller.
MUST NOT reflect slippage or other on-chain conditions, when performing the actual redemption.
MUST NOT revert unless due to integer overflow caused by an unreasonably large input.
MUST round down towards 0.
This calculation MAY NOT reflect the “per-user” price-per-principal-token, and instead should reflect the “average-user’s” price-per-principal-token, meaning what the average user should expect to see when exchanging to and from.
- name: convertToUnderlying type: function stateMutability: view inputs: - name: principalAmount type: uint256 outputs: - name: underlyingAmount type: uint256
convertToPrincipal
The amount of principal tokens that the principal token contract would request for redemption in order to provide the amount of underlying specified, in an ideal scenario where all the conditions are met.
MUST NOT be inclusive of any fees.
MUST NOT show any variations depending on the caller.
MUST NOT reflect slippage or other on-chain conditions, when performing the actual exchange.
MUST NOT revert unless due to integer overflow caused by an unreasonably large input.
MUST round down towards 0.
This calculation MAY NOT reflect the “per-user” price-per-principal-token, and instead should reflect the “average-user’s” price-per-principal-token, meaning what the average user should expect to see when redeeming.
- name: convertToPrincipal type: function stateMutability: view inputs: - name: underlyingAmount type: uint256 outputs: - name: principalAmount type: uint256
maxRedeem
Maximum amount of principal tokens that can be redeemed from the owner balance, through a redeem call.
MUST return the maximum amount of principal tokens that could be transferred from owner through redeem and not cause a revert, which MUST NOT be higher than the actual maximum that would be accepted (it should underestimate if necessary).
MUST factor in both global and user-specific limits, like if redemption is entirely disabled (even temporarily) it MUST return 0.
MUST NOT revert.
- name: maxRedeem type: function stateMutability: view inputs: - name: owner type: address outputs: - name: maxPrincipalAmount type: uint256
previewRedeem
Allows an on-chain or off-chain user to simulate the effects of their redeemption at the current block, given current on-chain conditions.
MUST return as close to and no more than the exact amount of underliyng that would be obtained in a redeem call in the same transaction. I.e. redeem should return the same or more underlyingAmount as previewRedeem if called in the same transaction.
MUST NOT account for redemption limits like those returned from maxRedeem and should always act as though the redemption would be accepted, regardless if the user has enough principal tokens, etc.
MUST be inclusive of redemption fees. Integrators should be aware of the existence of redemption fees.
MUST NOT revert due to principal token contract specific user/global limits. MAY revert due to other conditions that would also cause redeem to revert.
Note that any unfavorable discrepancy between convertToUnderlying and previewRedeem SHOULD be considered slippage in price-per-principal-token or some other type of condition.
- name: previewRedeem type: function stateMutability: view inputs: - name: principalAmount type: uint256 outputs: - name: underlyingAmount type: uint256
redeem
At or after maturity, burns exactly principalAmount of Principal Tokens from from and sends underlyingAmount of underlying tokens to to.
Interfaces and other contracts MUST NOT expect fund custody to be present. While custodial redemption of Principal Tokens through the Principal Token contract is extremely useful for integrators, some protocols may find giving the Principal Token itself custody breaks their backwards compatibility.
MUST emit the Redeem event.
MUST support a redeem flow where the Principal Tokens are burned from owner directly where owner is msg.sender or msg.sender has EIP-20 approval over the principal tokens of owner.
MAY support an additional flow in which the principal tokens are transferred to the Principal Token contract before the redeem execution, and are accounted for during redeem.
MUST revert if all of principalAmount cannot be redeemed (due to withdrawal limit being reached, slippage, the owner not having enough Principal Tokens, etc).
Note that some implementations will require pre-requesting to the Principal Token before a withdrawal may be performed. Those methods should be performed separately.
- name: redeem type: function stateMutability: nonpayable inputs: - name: principalAmount type: uint256 - name: to type: address - name: from type: address outputs: - name: underlyingAmount type: uint256
maxWithdraw
Maximum amount of the underlying asset that can be redeemed from the owner principal token balance, through a withdraw call.
MUST return the maximum amount of underlying tokens that could be redeemed from owner through withdraw and not cause a revert, which MUST NOT be higher than the actual maximum that would be accepted (it should underestimate if necessary).
MUST factor in both global and user-specific limits, like if withdrawals are entirely disabled (even temporarily) it MUST return 0.
MUST NOT revert.
- name: maxWithdraw type: function stateMutability: view inputs: - name: owner type: address outputs: - name: maxUnderlyingAmount type: uint256
previewWithdraw
Allows an on-chain or off-chain user to simulate the effects of their withdrawal at the current block, given current on-chain conditions.
MUST return as close to and no fewer than the exact amount of principal tokens that would be burned in a withdraw call in the same transaction. I.e. withdraw should return the same or fewer principalAmount as previewWithdraw if called in the same transaction.
MUST NOT account for withdrawal limits like those returned from maxWithdraw and should always act as though the withdrawal would be accepted, regardless if the user has enough principal tokens, etc.
MUST be inclusive of withdrawal fees. Integrators should be aware of the existence of withdrawal fees.
MUST NOT revert due to principal token contract specific user/global limits. MAY revert due to other conditions that would also cause withdraw to revert.
Note that any unfavorable discrepancy between convertToPrincipal and previewWithdraw SHOULD be considered slippage in price-per-principal-token or some other type of condition.
- name: previewWithdraw type: function stateMutability: view inputs: - name: underlyingAmount type: uint256 outputs: - name: principalAmount type: uint256
withdraw
Burns principalAmount from owner and sends exactly underlyingAmount of underlying tokens to receiver.
MUST emit the Redeem event.
MUST support a withdraw flow where the principal tokens are burned from owner directly where owner is msg.sender or msg.sender has [EIP-20] approval over the principal tokens of owner.
MAY support an additional flow in which the principal tokens are transferred to the principal token contract before the withdraw execution, and are accounted for during withdraw.
MUST revert if all of underlyingAmount cannot be withdrawn (due to withdrawal limit being reached, slippage, the owner not having enough principal tokens, etc).
Note that some implementations will require pre-requesting to the principal token contract before a withdrawal may be performed. Those methods should be performed separately.
- name: withdraw type: function stateMutability: nonpayable inputs: - name: underlyingAmount type: uint256 - name: receiver type: address - name: owner type: address outputs: - name: principalAmount type: uint256
Events
Redeem
from has exchanged principalAmount of Principal Tokens for underlyingAmount of underlying, and transferred that underlying to to.
MUST be emitted when Principal Tokens are burnt and underlying is withdrawn from the contract in the EIP5089.redeem method.
- name: Redeem type: event inputs: - name: from indexed: true type: address - name: to indexed: true type: address - name: amount indexed: false type: uint256
Mature
The Principal Token has hit maturity, and a a state change has been recorded on the Principal Token contract for the first time post-maturity.
- name: Mature type: event inputs: - name: timestamp indexed: true type: uint256
Rationale
The Principal Token interface is designed to be optimized for integrators with a core minimal interface alongside optional interfaces to enable backwards compatibility. Details such as accounting and management of underlying are intentionally not specified, as Principal Tokens are expected to be treated as black boxes on-chain and inspected off-chain before use.
[EIP-20] is enforced as implementation details such as token approval and balance calculation directly carry over. This standardization makes Principal Tokens immediately compatible with all [EIP-20] use cases in addition to EIP-5089.
All principal tokens are redeemable upon maturity, with the only variance being whether further yield is generated post-maturity. Given the ubiquity of redemption, the presence of redeem allows integrators to purchase Principal Tokens on an open market, and them later redeem them for a fixed-yield solely knowing the address of the Principal Token itself.
This EIP draws heavily on the design of [EIP-4626] because technically Principal Tokens could be described as a subset of Yield Bearing Vaults, extended with a maturity variable and restrictions on the implementation. However, extending [EIP-4626] would force PT implementations to include methods (namely, mint and deposit) that are not necessary to the business case that PTs solve. It can also be argued that partial redemptions (implemented via withdraw) are rare for PTs.
Backwards Compatibility
This EIP is fully backward compatible with the [EIP-20] specification and has no known compatibility issues with other standards.
For production implementations of Principal Tokens which do not use EIP-5089, wrapper adapters can be developed and used, or wrapped tokens can be implemented.
Reference Implementations
TBA
Security Considerations
Fully permissionless use cases could fall prey to malicious implementations which only conform to the interface in this EIP but not the specification, failing to implement proper custodial functionality but offering the ability to purchase Principal Tokens through secondary markets.
It is recommended that all integrators review each implementation for potential ways of losing user deposits before integrating.
The convertToUnderlying method is an estimate useful for display purposes,
and do not have to confer the exact amount of underlying assets their context suggests.
As is common across many standards, it is strongly recommended to mirror the underlying token’s decimals if at all possible, to eliminate possible sources of confusion and simplify integration across front-ends and for other off-chain users.
Copyright
Copyright and related rights waived via [CC0]