With the growth of DeFi, decentralized trading platforms have been gaining attention. However, to truly attract users and improve intrinsic value, projects need to be innovative and supported by major backers. Pendle Finance is one such project. 

OVERVIEW OF PENDLE 

What is Pendle Finance? 

Pendle has introduced a unique concept in the DeFi space, creating a new market segment: DeFi Yield – Trading Protocol. Built on the Ethereum platform, Pendle Finance enables users to utilize future profits for immediate financial gain. 

For example, suppose you stake 10 stETH at an annual percentage yield (APY) of 5%. Normally, after one year, you would get a total of 10.5 stETH, including the original 10 stETH and 0.5 stETH in interest. However, instead of waiting a year to receive the total 10.5 stETH, Pendle Finance allows you to immediately receive the 0.5 stETH interest when you invest 10 stETH in the protocol. 

How Pendle Finance work?

When you stake assets in Pendle’s liquidity pool with a fixed maturity, these assets are categorized into two types of tokens: Principal Token (PT) and Yield Token (YT), optimizing management and control.

Standard Yield (SY) Token: This standard token represents yield-generating tokens wrapped in smart contracts. For example, stETH and cDAI can be converted to SY-stETH and SY-cDAI, then adjusted to match Pendle’s yield mechanism. 

Principal Token (PT): PT represents the original asset, valued after the maturity period ends. Since PT can only be converted after maturity, buying PT on Pendle Finance is usually cheaper than the original token. Users have the opportunity to buy PT at a better price than directly staking on LSD platforms. 

Holding PT is similar to holding a non-interest-bearing bond until maturity, with the unique feature that this bond can be traded like a regular asset. 

Yield Token (YT): YT represents the profit component of a basic asset. Selling YT at a fixed price on Pendle Finance helps users preserve expected interest rates, minimizing APY fluctuation risks. Buying YT is equivalent to betting on the interest rate increase of the staked asset. Owning more YT provides leverage in interest rate trading. 

• If APY increases, the user’s profit increases.  
• Conversely, if APY decreases, the user might face greater losses. 

In summary, Pendle’s operation mechanism can be understood as follows: 

Step 1: Users deposit Yield-Bearing Tokens, like stETH, into Pendle Finance. 

Step 2: Pendle wraps these tokens into SY (Standard Yield Tokens). 

Step 3: SY is divided into two types: PT (Principal Token) and YT (Yield Token). 

Step 4: PT and YT are traded through Pendle AMM. 

Example: ETH → stETH → SY-stETH → PT-stETH + YT-stETH 

REVENUE 

Pendle’s annual revenue is $347,000.  

Pendle’s revenue sources include: 

Swap Fees:  

• Fees generated by all swap transactions on Pendle’s AMM. 
• Protocol Revenue from Swap Fees: Distributed to vePENDLE voters of the corresponding group (e.g., vePENDLE owners who voted for Group X will receive all protocol revenue from Group X’s swap fees). 

YT Fees: Pendle charges a 3% fee on all profits accumulated by existing YT and all profits from SY of unconverted PT. 

88% of the protocol’s revenue comes from swap fees, and the remaining 12% from YT yield fees. 

ROADMAP 

Pendle does not have a fixed roadmap to remain flexible. 

INVESTORS 

Pendle Finance raised $15.53M through a Private round and Liquidity Bootstrapping Pool. 

• $3.7M from the Private round (price $0.13) in Q4 2021. 

Received a $2M investment from the Arbitrum Short-Term Incentive program. 

Investors: CMS Holding, Mechanism Capital, Crypto.com, Lemniscap, Defi Alliance, Spartan, Genesis Block, etc. 

On 23/08/2023, Binance Labs announced a successful investment in Pendle Finance, but the investment amount was not disclosed. 

ADVISORS 

• Loi Luu | Co-founder & CEO of Kyber Network 
• Tiantian Kullander | Co-founder of Amber Group 
• Soravis Srinawakoon | Co-founder & CEO of Band Protocol 
• Kevin Tseng | Co-founder & CEO of NAOS Finance 
• YY Lai | Partner at Signum Capital 

DEVELOPMENT TEAM 

The project is developed by members from Singapore, Malaysia, and Vietnam, including: 

• TN Lee: Co-founder of Pendle Finance and Kyber Network. 
• Anton Buenavista: Currently responsible for Ecosystem Growth at Pendle Finance, with over 5 years of experience as a programmer in technology and blockchain companies like Intel, Kyber Network. 
• Jeffrey Soong: Lead Front-end Developer at Pendle Finance, with years of experience as a programmer in companies like Babylist, Tastebean. 
• Long Vuong Hoang: Head of Engineering at Pendle Finance, formerly an intern programmer at Jump Trading LLC and FPT Software. 

TOKENOMICS 

• Total max supply: 258.45M $Pendle 
• Circulating supply: 236.89M $Pendle 
• Market cap: $296,584,976 
• FDV: $323,526,722 

$PENDLE is the native token, with a permanent inflation rate of 2% (adopting the inflation model from Synthetic). 

As of 10/2022: 

• Ecosystem Fund: 19.2% 
• Team (Vested): 5.7% 
• Incentives: 10% 
• Circulating: 65.1% 

All tokens have been distributed to the TEAM, with most used to encourage liquidity to avoid token inflation (vetoken mechanism).  

Weekly inflation as of October 2022 is 667.705, decreasing by 1.1% weekly until April 2026, stopping at 2% per year. 

The current TVL of $PENDLE is $187M. Previously, around the time Ethereum switched to the POS mechanism, along with the Shanghai Upgrade event and the rise of the LSD trend, Pendle experienced a significant increase in TVL. 

After the launch of RWA, Pendle’s TVL grew from $117M to $161M, accounting for over 16% of Pendle’s total TVL. 

Currently, the market is quite poor, so Pendle’s TVL, in particular, and LSDFi, in general, are showing signs of stagnation. 

However, in the long term, as the demand to stake $ETH for profit becomes stronger in a Bullrun, funds will return, and the LSDFi trend will explode again, bringing money back into Pendle. 

Token Use Case 

Pendle Finance uses a veTokens model similar to many DeFi platforms today. The veToken model of Pendle has some characteristics: 

• vePENDLE will be locked for a maximum of 2 years, and its value will decrease over these 2 years. 
• All protocol revenue is shared with vePENDLE holders. 
• vePENDLE holders have voting rights to direct incentives to different pools, thus earning more profits. 
• If you are an LP (Liquid Provider) and hold vePENDLE, you will receive more rewards. 

Potential and Development Motivation of Pendle 

Hedging or leveraging APY: Pendle Finance offers a tool to explore deeper liquidity for LSD projects, simultaneously creating a new market that allows users to leverage the APY of their staked assets. 

=> Diversification of investment tools, attracting users. 

vePENDLE Mechanism: $PENDLE reward tokens will be locked to receive $vePENDLE, with the usual functions of a veToken like: 

• Using vetokens to vote and receive rewards for asset pairs. 
• Participating in project governance voting. 
• Holding $vePENDLE helps increase the $PENDLE reward when providing assets to liquidity pools (up to 250% based on the value of held $vePENDLE). 

=> Pendle’s innovation comes from applying cross-chain technology and Layer Zero protocol. Rewards are distributed to all holders in Pendle’s liquidity pool. 

Ecosystem Development: The improved model brings many applications for LSD trend products. Pendle is currently collaborating with major projects like GMX, LayerZero, Balancer, AuraFinance, RocketPool, allowing Liquidity Providers (LPs) to provide liquidity simultaneously on multiple platforms. 

Pendle Launches Real World Asset Products: 

• Pendle Finance has officially entered the RWA market with two assets: sDAI from Spark Protocol and fUSDC from Flux Finance, part of the MakerDao and OndoFinance ecosystems. 

• Additionally, Pendle Finance is actively integrating Liquid Staking Tokens (LST) and RWA to increase liquidity for the protocol. 

In summary, Pendle is a highly regarded project and is seen as a long-term investment worth considering, exemplifying the potential for the growth of DeFi in the future.