Introduction

Pendle aims to provide a market for trading the “yield to maturity” of “yield-generating tokens.” By introducing the traditional finance concept of “principal and interest separation” into the DeFi space, Pendle divides yield-generating tokens into principal and yield tokens while providing trading liquidity for both. Through Pendle, users can maximize asset utilization and achieve multiple income streams, bringing new possibilities to the DeFi market.

Project Information

Project Team

Core Team

• TN Lee: Founder, formerly a founding team member and business head at Kyber Network. In 2019, he founded Dana Labs, focusing on FPGA-customized semiconductors.
• Vu Nguyen: Co-founder, previously served as CTO at Digix DAO, specializing in Real World Asset (RWA) tokenization. Together with TN Lee, he co-founded Pendle.
• Long Vuong Hoang: Head of Engineering, holds a bachelor’s degree in Computer Science from the National University of Singapore. Joined Jump Trading as a software engineering intern in May 2021 and Pendle as a smart contract engineer in January 2021. Promoted to Head of Engineering in December 2022.
• Ken Chia: Head of Institutional Relations, holds a bachelor’s degree from Monash University. Previously interned at CIMB, Malaysia’s second-largest bank, and served as a private banking asset planning specialist at JPMorgan. Entered Web3 in 2018, serving as COO at an exchange, and joined Pendle in April 2023 as Head of Institutional Relations, responsible for institutional markets including proprietary trading firms, cryptocurrency funds, DAO/protocol treasuries, and family offices.

Funding Information

Seed Round: In April 2021, led by Mechanism Capital with participation from HashKey Capital, Crypto.com Capital, CMS Holdings, imToken Ventures, Spartan Group, Alliance DAO, Lemniscap, LedgerPrime, Parataxis Capital, Signum Capital, Harvest Finance, Youbi Capital, Sora Ventures, D1 Ventures, Origin Capital, Bitscale Capital, Fisher8 Capital, and Hongbo. Taiyang Zhang also participated, with a total amount of $3.7 million.

Private Round: In April 2023, Bixin Ventures announced an investment in Pendle, but the amount was not disclosed. In August 2023, Binance Labs announced an investment in Pendle, but the amount was not disclosed.

The funding history of Pendle indicates strong confidence from top-tier investment firms in its prospects.

Development Strength

Pendle was established in 2020 by founder Yong Ming Lau. The key milestones in the project’s development are shown in the table below:

These milestones indicate that Pendle has been making steady progress and operating the project reliably.

Operating Model

Pendle packages yield-generating tokens into SY (Standardized Yield Tokens), which are then split into two parts: PT (Principal Tokens) and YT (Yield Tokens). These can be traded separately through a customized V2 AMM. Users can utilize this system to purchase assets at a discount, go long or short on yields, and achieve low-risk fixed income.

In Pendle, the owner of SY decides to separate the yield and principal, creating PT and YT. Since YT represents the right to future yields, PT’s price is lower than the original bond (ST). PT’s value essentially represents the redemption value of the principal at maturity. As the maturity date approaches, PT’s market value gradually increases, as market participants anticipate that at maturity, PT holders can redeem PT at the value equivalent to the underlying asset (i.e., bond principal). If the bond’s face value is $100, theoretically, PT’s price should gradually return to $100. At maturity, PT holders can use PT to redeem the bond principal worth $100. Therefore, even if PT initially trades at a discount (e.g., $95), its value will gradually increase over time, eventually restoring to the full value of the underlying asset, i.e., $100.

In trading, participants are trading or hedging future yields. Selling YT means smoothing out future yield curves and cashing out early, or betting on a decline in future yields, while buying YT signifies optimism about future yields. Buying PT means purchasing at a discount and betting that yields will decline over that period.

Yield Tokenization

YT represents the right to receive all yields generated by the underlying yield token in real-time and can be manually claimed from the Pendle dashboard at any time. For instance, if a user holds 1 YT-stETH and stETH’s annual yield is 3.4%, the user will accumulate 0.034 stETH by maturity. YT can be traded at any time, even before maturity.

Pendle AMM

In the Pendle project, exchanging between SY, PT, and YT requires the use of Pendle’s V2 AMM, which is the core of Pendle Finance. Pendle’s V2 AMM is designed specifically for trading yields, with the AMM curve changing to account for yields over time and narrowing PT’s price range as maturity approaches. By concentrating liquidity within a narrow, meaningful range, the capital efficiency of trading yields improves as PT nears maturity. Moreover, the AMM allows for the facilitation of PT and YT swaps using a single liquidity pool. Through the PT/SY pool, PT can be directly traded with SY, and YT can be traded through flash swaps. Pendle’s V2 AMM design ensures that IL (impermanent loss) issues are negligible. The AMM mitigates time-related IL by pushing PT prices toward their potential value over time, releasing PT’s natural price appreciation.

Pendle’s AMM curves can be customized to meet different yield volatility tokens. Yields typically have cyclical fluctuations, oscillating between highs and lows.

VePendle

VePENDLE is Pendle’s governance token. By staking PENDLE, users receive VePENDLE. Holding VePENDLE allows participation in Pendle’s governance and voting while sharing in the protocol’s revenue. The income for VePENDLE holders includes:

• Interest collected from YT (approximately 3%) and rewards from expired PT (excess income from PTs not redeemed on time) form the base APY for VePENDLE.
• VePENDLE voters are also entitled to receive 80% of the swap fees from the voting pool.
• By depositing VePENDLE into LP pools to provide liquidity, users can earn additional PENDLE rewards, potentially increasing their yield by up to 250%.

VePENDLE obtained from staking PENDLE will unlock linearly for up to two years.

How to Obtain PENDLE

• Deposit LSTs or native asset tokens into selected PT liquidity pools to earn rewards.
• Provide liquidity by depositing VePENDLE into LP pools to earn rewards.

This structure encourages active participation and governance within the Pendle ecosystem, aligning the interests of token holders with the protocol’s long-term success.

Project Advantages:

Principle of Principal and Interest Separation By leveraging Pendle’s mechanism to separate principal and interest income, users can flexibly devise various income management strategies based on their individual circumstances:

• If a user anticipates a decrease in annualized yield, such as after an Ethereum network upgrade where ETH staking rates increase, leading to lower staking yields, they can choose to sell YT assets, effectively cashing in income in advance. At the end of the year, users can buy back YT assets and pair them with PT assets to exchange them for SY assets.
• If a user expects an increase in annualized yield, they can buy YT assets, as YT assets will appreciate in the future. Since YT assets represent yields, their value is cheaper than the principal. For example, out of 100 aUSDC tokens, the value of YT assets is $5. This allows users to potentially amplify their earnings 20 times.
• If a user expects yields to remain stable, they can provide liquidity to pools, offering liquidity to users buying and selling PT and YT assets. Meanwhile, users can earn additional transaction fees on top of their existing income.

Higher Capital Efficiency

Pendle employs an Automated Market Maker (AMM) mechanism specifically designed for yield markets. This means lower slippage during transactions, with the AMM curve adjusting over time to reflect evolving yields. As PT (Pendle Token) approaches maturity, the AMM curve narrows its price range. This design concentrates liquidity within a meaningful range as PT nears maturity, thereby enhancing capital efficiency and improving transaction yield rates.

Simplified Operations and Choices

Despite Pendle’s complex economic model involving SY, PT, and YT, and the specialized AMM for PT and YT trading, user experience with Pendle products remains straightforward and streamlined. After minting SY, users simply select quantities of PT and YT. With 42 LP pools available, including on the staking page for PENDLE, operations are user-friendly. In contrast to other projects that typically consolidate principal and interest into a single token like stETH, Pendle resolves the dilemma where users may face potential decreases in expected future staking yields while being reluctant to relinquish holding ETH. With Pendle, this issue is effectively addressed by separating principal and income, allowing users to tailor strategies based on their future expectations.

Project Model

Business Model

Pendle’s economic model revolves around two primary roles: liquidity providers and traders.

Liquidity Providers: Liquidity providers play a crucial role in Pendle’s ecosystem. The AMM mechanism forms the core operation of Pendle, requiring sufficient liquidity to maintain its functionality. SY serves as an intermediary asset in Pendle’s SWAP pools, necessitating liquidity providers to supply YT-SY/PT-SY token pairs. Liquidity providers earn rewards in the form of swap fees generated by the pool, PENDLE token rewards, and protocol incentives from underlying assets to incentivize more liquidity provision.

Traders: Pendle users act as traders, engaging in PT and YT transactions to achieve discounted asset purchases, speculate on yield rates, and secure low-risk fixed-income opportunities to generate profits.

Primary Revenue Streams

• YT Fees: Pendle charges a 3% fee on all earnings generated from YT (Yield Tokens). Additionally, Pendle collects fees from all unclaimed SY earnings from PT.
• Trading Fees: Pendle charges a 0.1% fee on transaction amounts.

Token Model

Token Distribution: The current circulating supply of PENDLE is 155,807,014.67 tokens. The team’s tokens (13.75 million) have already been fully unlocked. The supply decreases weekly by 1.1% until April 2026, after which a 2% annual issuance rate will be used for incentives.

Token Empowerment: Pendle’s token design draws inspiration from Curve’s Ve model, providing additional empowerment to enhance value.

• Governance Functionality: Users stake PENDLE to obtain vePENDLE, enabling them to propose on-chain proposals and participate in voting, directly influencing project decisions.
• Incentive Value: Beyond staking PENDLE, users earn additional economic benefits. Pendle charges a 3% fee on all YT earnings, with 100% of this fee distributed to vePENDLE holders. VePENDLE voters also have the right to receive 80% of the interest swap fees from the voting pool.

Token Price Performance

Based on Coingecko data, PENDLE has increased more than 16 times over the past year since July 2023 (from a low of $0.465 to a high of $7.538). Primary trading venues include Binance, Bybit, and other leading exchanges.

Total Value Locked (TVL)

The current TVL stands at $3.693 billion.

Despite a significant decrease in Pendle’s TVL since June 27, 2024, the overall TVL still maintains around $3 billion, positioning Pendle among the leaders in the DeFi sector.

Token Staking Rate

The locked amount of Pendle tokens is 55,873,398, with a staking rate of 36.02%. The growth rate of staked tokens remains stable, but the current pace of staking growth is insufficient to push Pendle into a deflationary state.

Major Factors Influencing Token Price

On June 27, 2024, Blast conducted a token airdrop, distributing tokens in a manner that displeased whale users. Specifically, Blast announced that the top 0.1% of users (approximately 1,000 wallets) would linearly receive a portion of the airdrop over six months. Major exchanges such as Binance and OKEX did not list the Blast token, resulting in diminished market expectations for its price.

While the Blast incident itself is largely unrelated to Pendle, it directly impacted market confidence in token projects. Users significantly reduced their expectations for token projects, leading to decreased motivation to participate in token staking mining. Most Pendle users primarily seek to achieve “multiple benefits from one investment,” where pure traders leverage YT to amplify their positions, and SY providers hedge their risks. However, with declining yield expectations and market prices, YT’s APY has also dropped significantly. Consequently, users have withdrawn collateral assets such as ETH from Pendle, causing Pendle’s TVL to drop nearly 50% in four days, thereby adversely affecting the price of PENDLE.

Project Risks

Project Risks As a DEX project, Pendle’s primary risks include smart contract vulnerabilities:

• Smart Contract Bugs: Solidity-based smart contracts are susceptible to coding vulnerabilities.
• Parameter Configuration Risks: Pendle contracts feature numerous adjustable parameters, such as fee rates and reward proportions. Improper parameter settings can degrade user experience or compromise fund security.
• Contract Upgrade Risks: Contract upgrades are necessary to meet evolving demands. However, without robust upgrade testing and version management processes, new contract versions risk destabilizing system integrity.

Conclusion

Pendle introduces traditional finance’s interest separation model into the crypto space, allowing crypto asset holders to lock in future yield rates and realize early returns. This enhances liquidity and flexibility in the interest rate market. Participants engage in flexible interest rate market trades while accruing project tokens, maximizing their interests. This innovative mechanism provides crypto holders with new income streams and injects more vitality and opportunities into the market.

However, Pendle is currently heavily impacted by the Blast airdrop event, compounded by unfavorable overall market trends, resulting in users abandoning token staking mining choices and causing significant declines in Pendle’s TVL and token price.

In summary, as a DEX in the interest rate market, Pendle opens new doors for traders and arbitrageurs. While Pendle currently faces challenges due to market conditions, if future market trends improve and token prices recover, leading to an increase in YT’s APY, Pendle could still experience another period of growth.