Pendle Finance is a decentralized finance (DeFi) protocol focused on tokenizing yield. By splitting yield-bearing assets into Principal Tokens (PTs) and Yield Tokens (YTs), the platform offers investors the flexibility to align their strategies to their personal preferences and goals.
Yield tokenization allows investors to manage their DeFi returns more efficiently, while Pendle’s Automated Market Maker (AMM) solution is specifically designed to facilitate swaps between tokenized yield assets.
The platform has been deployed onto well-established blockchains, including Ethereum and Arbitrum to ensure it has ample liquidity, accessibility, and a secure ecosystem for optimizing yield strategies. To protect users, Pendle has hired multiple independent cybersecurity firms to audit the protocol.
Key Takeaways
- By tokenizing yield, Pendle Finance offers users a new approach to managing investment strategies.
- As part of the ecosystem, users can take advantage of an AMM tailored to facilitate tokenized yield asset trading.
- Staking the native PENDLE token allows stakers to participate in community governance and receive a portion of protocol revenue via vePENDLE.
Pendle Finance in a Nutshell
Pendle Finance is a DeFi protocol that enables users to tokenize and sell future yields. The platform divides wrapped yield-bearing assets via the SY token standard into Principle Tokens (PTs) and Yield Tokens (YTs). While the prior stands for the underlying yield-bearing instrument’s principal portion, which can redeemed for the accounting asset at a 1:1 ratio upon maturity, YTs represent the asset’s yield component, which generates its holder yield until maturity.
| Feature | Description |
| Yield Tokenization | Splits yield-bearing assets into Principal Tokens (PTs) and Yield Tokens (YTs) to execute different yield management strategies. |
| Automated Market Maker (AMM) | Custom-designed for trading tokenized yield assets. |
| Multichain Protocol | Accessible on multiple blockchain networks, including Ethereum, Arbitrum, BNB Chain, Mantle, and Optimism. |
Pendle offers multiple strategies for yield management, from fixed returns and liquidity provision (LPing) to speculative bets on future yield movements. As a result, the protocol provides investors greater stability among volatile yields and empowers them with the ability to optimize their yield and hedge against potential downturns amid bear market conditions.
A Deeper Look Into Pendle Finance’s Core Mechanics
By taking a unique approach, Pendle Finance provides more control to investors, allowing them to manage yield more efficiently and with additional stability. The protocol leverages the following core mechanics to achieve this goal:
| Mechanism | Description |
| Dividing Yield-Bearing Assets | Yield-bearing assets are divided into two parts: Principal Tokens (PTs), which represent the initial investment, and Yield Tokens (YTs), which entitle the holder to yield from the underlying asset until maturity. |
| Automated Market Maker (AMM) | The platform offers PT and YT swaps via an Automated Market Maker (AMM) tailored specifically for tokenized yield asset trading. It ensures the necessary liquidity for swaps with a design that minimizes the risks of impermanent loss. |
| Community Governance | Holders of the native PENDLE tokens may opt to lock in their assets for vote-escrowed PENDLE (vePENDLE), the project’s community governance system. It grants users the right to vote on governance-related issues and receive a portion of the earnings from the protocol. |
Pendle Finance’s Tokenomics and the PENDLE Token
PENDLE is Pendle Finance’s native token, which has the following key features:
- Allocation for the Team: Tokens allocated to the development team were vested until April 2023. Team allocations represent 5.7% of the total PENDLE supply.
- Reduced Weekly Emissions: Starting at 667,705 tokens weekly in October 2022, new PENDLE emissions decrease by 1.1% each week until April 2026 to curb inflation.
- Fixed Post-2026 Inflation: An established inflation rate of 2% per annum after April 2026 minimizes the impact of emissions on PENDLE’s price while providing the necessary capital to foster the ecosystem’s growth via various community incentives.
In terms of Pendle Finance’s tokenomics, it is important to mention the vePENDLE framework and its most important features, which include:
- Community Governance: Holding vePENDLE, which they can receive after locking PENDLE, enables users to participate in governance and receive a portion of the platform’s revenue streams, including fees from trading.
- Stimulating Liquidity: Holders of vePENDLE tokens have the ability to incentivize liquidity in pools they vote for.
- Revenue-Sharing: Pendle shares the revenue generated via the AMM, yield fees, and a portion of yield from unredeemed PTs with vePENDLE holders, incentivizing Pendle users to actively participate in community governance.
At the same time, Pendle Finance creates value in two ways:
- Yield Trading: The platform’s yield tokenization mechanism separates yield from the principal, allowing users to trade YTs and PTs via Pendle’s AMM.
- Fixed Yield: Separating YTs and PTs enables the holders of yield-bearing tokens to have increased control over their assets and earn a fixed, predictable APY on their tokens.
While PENDLE is designed to combat inflation in the long run, vePENDLE incentivizes PENDLE holders to actively participate in the project’s community governance mechanism.
Is Pendle Finance Secure?
With over $4.6 billion in total value locked (TVL) and a 24-hour PENDLE volume surpassing $120 million, Pendle Finance is the top 7th DeFi protocol by TVL across all blockchains. Besides being a prominent player in the sector, the Pendle team puts an emphasis on the security of the ecosystem.
To keep its users safe, Pendle Finance has been audited by multiple independent auditors, including Ackee Blockchain, Dedaub, Dingbats, cmichel, WatchPug, lleastwood, and Wardens from Code4rena.
The results are transparently shared on the project’s official GitHub repository. Regular audits help Pendle Finance identify and mitigate potential security threats, as well as keep the project’s code and smart contracts free of vulnerabilities, bugs, and errors.
Conclusion
By tokenizing yield and splitting yield-bearing assets, Pendle Finance empowers DeFi investors with greater flexibility and control over their yield. With fixed returns, the protocol also provides more stability in a market where yield rates are highly volatile.
While Pendle’s AMM is designed to foster decentralized PT and YT trades, the vePENDLE framework incentivizes community engagement in governance. Simultaneously, regular audits by independent firms and security professionals help the protocol secure its users’ funds.
Frequently Asked Questions (FAQ)
What is Pendle Finance’s primary use case?
Pendle Finance is a decentralized platform that offers its users the chance to manage and trade yield efficiently. It does so by enabling the separation of yield-bearing assets into two components: Principal Tokens (PTs) and Yield Tokens (YTs).
Who founded Pendle Finance?
Pendle Finance was co-founded by TN Lee, Vu Nguyen, GT, and YK. The platform’s mainnet first launched on Ethereum in June 2021.
What blockchain does Pendle Finance reside on?
Pendle has been deployed on the following blockchains: Ethereum, Arbitrum, Optimism, BNB Chain, and Mantle.
What are the primary features of Pendle Finance’s PENDLE token?
You can find PENDLE’s key features and functionalities below:
– Participate in community governance by staking PENDLE and receiving vePENDLE.
– Receive a share of protocol revenue through vePENDLE.
– Team allocations are subject to vesting.
– New PENDLE emissions decrease by 1.1% each week until April 2026.
– After April 2026, PENDLE’s annual inflation rate is set at 2% to facilitate ecosystem incentives.
WRITTEN
Benjamin Vitaris
Seasoned crypto, DeFi, NFT and overall web3 content writer with 9+ years of experience. Published in Forbes, Entrepreneur, VentureBeat, IBTimes, CoinTelegraph and Hackernoon.
