Sense Finance

Sense Finance is a yield-stripping protocol that decomposes yield-bearing assets into zero-coupon Principal Tokens and Yield Tokens for fixed-rate and yield-trading use cases. Verify on-chain activity before relying on it. Sense was a yield stripping protocol on Ethereum that split a yield bearing Target asset into Principal Tokens and Yield Tokens for a defined Series with a Maturity, where PT plus YT always equals the underlying and PT redeems 1:1 at maturity while YT becomes worthless after it (Sense docs, core concepts). Sense described the mapping in explicitly bond terms: "PTs are like zero-coupon bonds, delivering a single cash flow at maturity" and "YTs are like floating rate bonds" (Sense, Designing Yield Tokens). It traded through Sense Space, a custom fixed-rate AMM adapting the YieldSpace invariant so that both pool assets could be yield bearing, and used Rolling Liquidity Vaults to automate maturity rolls (Sense, Introducing Sense Space, Sense docs, RLV, Why Sense). This protocol is sunset. On 26 October 2023 the team wrote that "After 18 months of operation, we've made the decision to sunset the Sense Protocol and open-source the UI", telling users to withdraw by 1 December 2023 (Sunsetting Sense).

Early yield-tokenization design (Sense Space AMM); confirm current activity levels before treating its markets as live.

- Sense Divider (yield stripping): Core Sense v1 contract that takes any yield-bearing asset (a 'Target', e.g. stETH or cUSDC) via an adapter and splits it into two fixed-term ERC-20 tokens for a given maturity: a Principal Token (PT, 'sP' prefix) that redeems 1-for-1 for the underlying at maturity, and a Yield Token (YT, 'sY' prefix) that claims the yield accrued until maturity. Combining PT+YT reconstitutes the Target. - Sense Space AMM: A custom fixed-rate automated market maker (a YieldSpace implementation) where PTs and YTs trade. Its key innovation is that LPs deposit the yield-bearing Target itself as the quote asset rather than the underlying; accrued Target yield is excluded from the YieldSpace invariant and reserved for LPs, so LP capital keeps earning even when no trading occurs. Space is deployed on Balancer V2 vault infrastructure and includes a TWAP oracle. - Adapters: Permissionless connector contracts that onboard a specific yield-bearing asset into Sense (e.g. Lido stETH, Compound cUSDC). Adapters define how a Target's scale/underlying is read, enabling anyone to add new fixed-income markets without core-team approval. - Roller / Auto-Roller (RLV): A Roller Liquidity Vault that automatically rolls liquidity from an expiring PT/YT series into the next maturity, letting LPs maintain continuous fixed-income exposure without manually migrating at each rollover. Audited separately by Sherlock and Fixed Point Solutions in late 2022.

- Systemic: The protocol is deprecated: the Sense Core team ceased all contributions in October 2023 and stopped hosting the front-end on December 1, 2023. Remaining PTs/YTs and Space LP positions rely on immutable, unmaintained contracts with no team support, no active UI, and effectively no liquidity; any residual value must be interacted with directly on-chain. - Smart Contract: Sense is a complex yield-stripping system (Divider, adapters, Space AMM built on Balancer V2, and the Auto-Roller vault). Despite multiple audits, unmaintained immutable contracts cannot be patched, so any latent bug in the Divider, adapters, or Space math is permanent and unmitigable now that the team has stepped away. - Collateral: Each fixed-income market depended on the specific yield-bearing Target it wrapped (e.g. Lido stETH, Compound cUSDC). Adapters were permissionless, so a poorly-chosen or compromised Target could impair the PT/YT of that series; PT redemption value is only as sound as the underlying Target and its adapter's scale accounting. - Oracle: Space integrated a TWAP oracle and adapters read a Target's 'scale' to value redemptions and yield accrual. Manipulation or mispricing of the Target scale or the Space TWAP could distort PT/YT valuations and enable mispriced trades or unfair redemptions. - Reserve / Depeg: Because Targets were assets like stETH, a depeg of the underlying yield-bearing asset (e.g. stETH trading below ETH) would directly reduce the redemption value of the corresponding Principal Tokens, transmitting the underlying's peg risk to Sense fixed-income holders.

- Instrument shape: similar in that "PTs are like zero-coupon bonds, delivering a single cash flow at maturity"; "YTs are like floating rate bonds"; differs in that Zero-coupon bond and FRN, the two halves of a stripped coupon bond - Underwriting: similar in that None. Series were created per Target asset with adapters, and PT plus YT always equalled the underlying; differs in that Strip issuance against an existing security, not a credit decision - Collateral: similar in that Debtless. Sense was explicitly a "debtless stripping protocol", so no borrowing position backed the split; differs in that STRIPS separation, which creates no leverage, unlike a repo-financed strip - Rate setting: similar in that Implied fixed rate derived from the PT discount, traded on Sense Space, a YieldSpace-invariant AMM adapted so both pool assets can be yield bearing; differs in that Yield curve implied from strip prices on a dealer platform - Settlement: similar in that PT redeems 1:1 at maturity; settlement runs through Divider.settle with a grace period and an MEV-style settlement reward, and Rolling Liquidity Vaults automate the roll into the next series; differs in that Bond redemption at par with an agent-run settlement process and automatic reinvestment - Recourse on default: similar in that None. Risk sits in the Target asset and the adapter; deprecated adapters were flagged in the docs; differs in that Collateral risk only, no issuer to pursue - Regulation: similar in that Operated by Sense Finance, Inc. under a Terms of Service last modified 19 January 2022, with no securities registration disclosed; differs in that An unregistered platform, unlike a broker-dealer running a strips desk