16 May 2023
Deep Dive into Pendle Finance: Redefining DeFi with Future Yield Trading
Pendle Finance is a decentralized finance (DeFi) protocol that enables the trading of tokenized yield. The platform allows users to tokenize the interest they make from staking a token and sell these future yields. Pendle offers a wide range of supported crypto assets, cross-chain compatibility, and a core technology called Yield Tokenization. The protocol also features a Pendle AMM designed for yield trading with concentrated liquidity, dual fee structure, and negligible impermanent loss concerns.
As the DeFi landscape expands, understanding and navigating the plethora of new platforms can be daunting. Every week there seems to be another promising innovation or campaign.
Recognizing this, we've crafted an in-depth exploration of Pendle Finance. In essence, Pendle Finance is a DeFi protocol that creates a marketplace for yield trading. This article explores Pendle Finance, a platform that lets you trade future yield. Pendle Finance's unique system enables users to tokenize and trade their future profits, leveraging a unique AMM system specially designed for this purpose. We'll delve into Pendle's innovative features, the team driving its development, funding milestones, and how it addresses crucial issues in DeFi, such as liquidity and volatility. This article aims to comprehensively understand Pendle Finance's role and impact on the DeFi landscape, underlining its value proposition and why it's emerging as a significant player in this rapidly evolving sector.
Pendle Finance (website) allows users to tokenize and trade future yields from their yield-generating assets. In simple terms, Pendle lets users separate the future yield (income) from their assets and trade it with others. This way, users can lock in profits, receive upfront cash, or gain exposure to future yields from different assets. The platform offers an Automated Market Maker (AMM) designed specifically for yield trading, making it easier for users to manage their yield exposure and actively trade in the DeFi market.
Pendle Finance is great for active DeFi users, especially those who provide liquidity to DEXs. This platform offers several benefits. For example, liquidity providers can profit from selling their future yield or protect themselves from expected future changes in yields. Traders can directly invest in the future yield, which lets them manage their investments better and have more control over these profit markets. Pendle Finance is a great tool for those who want to make the most out of the DeFi space.
Pendle Finance brings several exciting new ideas to the world of DeFi. One of these is Yield Tokenization. This is like wrapping up your assets that generate profits into a standard form, then dividing it into two parts: the original money you put in (principal tokens) and the future profits (yield tokens). This process lets users trade their future profits and manage their investments more effectively.
Another innovation is the custom V2 Automated Market Maker. This system is designed specifically for trading these principal and yield tokens, making it easy for users to trade these tokens.
Pendle Finance uses a decentralized governance framework. This means users who hold a stake in Pendle can help make decisions about the platform's future and growth. This makes users feel more involved and invested in the platform's success.
Pendle Finance has strong backing, having raised $3.5 million in a private investment round to fuel the next stage of its platform's development. This funding came from many reputable investors, such as Spartan Group, HashKey Capital, imToken Ventures, Mechanism Capital, and Alliance DAO, highlighting the strong belief in Pendle Finance's potential.
While the information on the team is limited due to their choice to remain anonymous, they are a small but talented group of about 12 individuals, according to LinkedIn. The founder of Pendle, TN Lee, previously worked at Kyber Network, bringing valuable experience and insights to the project. Despite the team's decision to remain anonymous, their work so far reflects a high level of expertise and a clear vision for the future of DeFi.
To truly grasp how Pendle operates and creates a profitable market in the digital finance world, it's important to understand specific terms unique to this platform. Terms like SY (Standardized Yield), PT (Principal Token), and YT (Yield Token) are fundamental to Pendle's workings. A handbook on yield trading can be found here to help clarify how Pendle operates. Once you're acquainted with these terms, we can delve deeper!
If you own profit-generating tokens, like aUSDC,stEth, SLP, and gOHM, you can deposit these into Pendle. The platform transforms these tokens into a Standardized Yield (SY) token. This kind of token simplifies interactions with the profit-generating mechanism of the asset, and it's divided into two parts: the Principal Token (PT) and the Yield Token (YT). This means that those who deposit profit-generating tokens into Pendle can create both a principal and yield token.
The yield token can be utilized in various ways. For instance, you can deposit the YT into Pendle's automated trading system to contribute funds to the platform. In return, you'll earn swap fees and other Pendle incentives. Pendle also enables you to sell your YT for immediate cash, allowing you to set interest rates and lock in profits immediately. Alternatively, Pendle users can buy yield tokens directly without owning a profit-generating token.
With the yield token, which signifies the owner's right to potential profits, Pendle creates an efficient profit market. Traders, or new owners, can participate in future yield trading. They can enhance their profit exposure when the market is bullish and safeguard themselves against profit risks when it is bearish. Traders can gain exposure to future yield, enhancing their yield exposure in bullish conditions and hedging against yield risks during bearish conditions.
However, it's crucial to remember that the YT can only be traded until it expires. When a yield token matures, it ceases to generate profits. However, while it is being traded, it continues to generate profits for its holder. Pendle enables users to maximize their yield in fluctuating markets by increasing yield exposure during bull markets by buying more YT and hedging against yield downturns during bear markets by buying more PT. This way, users can trade and hedge future yields, and the tokenization of future yield may also allow it to be used as collateral.
Moreover, Pendle allows users to purchase assets at a lower cost than the market rate. This is possible because the system splits the yield-generating asset into a PT and a YT. As a result, the asset's value is divided, and the price of the PT becomes lower. When the predetermined expiry date is reached, the PT can be swapped for the underlying yield-generating asset. It's important to note that you can opt to cash in even before this expiry date arrives. If you don't own the YT, you can acquire the asset for less than its market price.
Pendle Finance splits the yield from yield-bearing assets, giving users better prices than those on any exchanges. Users can buy assets at a discount and control their yield by either longing yield or hedging their yield exposure. The choice is theirs. However, the discount is made up for by capturing future expected yields on the principle amount. For example, Pendle Finance is letting investors purchase ether at a 5.88% discount, which can be claimed on December 26, 2024, when the discount will be made up for by capturing future expected yields on the principle amount. Therefore, users cannot immediately sell these assets against their market value and make a profit.
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Pendle Finance has its token, $PENDLE, which is crucial in managing the system's value and operation. PENDLE has a market cap of over $46 million at the time of writing, and when PENDLE tokens are staked and locked, they become vePENDLE (or vote-escrowed PENDLE), used for governance.
The vePENDLE token is the one that manages Pendle's operations. It helps the system become more decentralized and stable while keeping the price of PENDLE steady by creating a demand for it. To get vePENDLE, users must stake and lock their PENDLE tokens. The value of vePENDLE and its power in governance depends on how much PENDLE is staked and how long it is locked for (up to two years). The value of vePENDLE decreases over time and becomes worthless at the end of the lock-in period. At that point, users can unlock their staked PENDLE.
Pendle collects a 3% fee from all the Yield Tokens (YT) profits. This fee is given to vePENDLE holders. Also, any profits from matured Principal Tokens (PTs) that aren't claimed will be shared among vePENDLE holders. VePENDLE holders can make decisions about where incentives should go by voting. They decide which pools should receive incentives, rewarding Liquidity Providers (LPs) in the collection they vote for. When they vote for a pool, vePENDLE owners can receive 80% of the swap fees gathered, divided among all the voters.
Pendle has amassed over $65 million in total value locked (TVL) on their platform at the time of writing. Of this, $38 million is locked on the Ethereum network, $26 million on Arbitrum, and just under $1 million on Avalanche. The TVL of Pendle really started taking off at the start of 2023 and currently shows no signs of stopping.
As for social media presence, Pendle Finance has 5.5k Twitter followers. Other social platforms where Pendle Finance is active include Discord, Telegram, and Medium.
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Based on its current traction, Pendle Finance has integrated with popular decentralized exchanges like Camelot. It also supports other DeFi platforms, including Compound and Aave. Pendle Finance's unique features, such as yield tokenization, decentralized governance framework, and innovative fee structure, set it apart from competitors. Pendle Finance has the potential to become a leading protocol in the DeFi ecosystem in the coming years as it continues to innovate and expand its offerings.
In essence, Pendle Finance is a DeFi protocol that creates a marketplace for yield trading. The protocol allows users to tokenize and trade future yields generated via yield-generating protocols such as Aave and Compound.The protocol is deployed on the Ethereum network and EVM-compatible chains such as Arbitrum and Avalanche. Pendle Finance's primary goal is to give users the opportunity to trade future yield. Pendle has amassed over $65 million in total value locked (TVL) on their platform at the time of writing. Pendle has the opportunity to become a bluechip in the DeFi space as they are the only trusted platform, where future yield is tradable.
The platform's token, PENDLE, further enhances its ecosystem by providing a means for governance and offering additional incentives to its holders. The unique concept of vote-escrowed PENDLE (vePENDLE) adds another layer of value to the token, further driving demand and offering additional revenue streams to its holders. This token model rewards longterm stakers of Pendle, as they will continuously earn rewards from yield trading.
Pendle's integration with popular DeFi platforms and exchanges and its growing social media presence showcase the platform's expanding influence and potential for wider adoption. Despite its relatively recent entry into the market and not having any competition.
Pendle Finance represents a promising development in the DeFi landscape. Its unique features and innovative approach to yield tokenization have the potential to redefine how users interact with yield-generating assets. As it continues to develop and refine its offerings, Pendle Finance could play a significant role in shaping the future of DeFi.
Disclaimer: Nothing on this site should be construed as a financial investment recommendation. It’s important to understand that investing is a high-risk activity. Investments expose money to potential loss.