DeFi protocols are constantly innovating to offer users more dynamic instruments. Pendle Finance is a decentralized finance (DeFi) project pioneering yield tokenization on Ethereum, enabling users to trade yield and earn fixed yield on their assets.
More recently, Pendle Finance, launched by co-founder TN Lee, has gained billions of dollars in deposits from its liquid restaking (LRT) products. Users are able to tokenize yield on LRTs, earning them staking yield and EigenLayer points along the way. It can be a powerful way to earn extra yield while holding onto ownership of the underlying asset.
The platform’s Pendle Trade product allows users to take full advantage of its unique offering, while Pendle Earn offers users a more beginner-friendly UI.
Pendle is a dynamic Automated Market Maker (AMM) with a focus on yield bearing assets. Pendle assets function like bonds, carrying their own maturity dates. The novel protocol wraps underlying assets for use on the platform. For instance, OETH is converted to SY-OETH, but is still a token representing OETH.
This allows Pendle to split the asset into a principal token (PT) and yield bearing token (YT). Users can mint PT and YT by depositing any supported yield generating asset to the platform.
PT (principal tokens) can be bought at a discount to its backing collateral, allowing users to lock in future yields that are otherwise volatile. At maturity, PT can be redeemed for the full underlying token. This design empowers users to earn fixed yield by holding an asset’s PT and avoid disadvantages like time decaying yield.
Conversely, the Yield Token (YT) accrues yield generated by the underlying asset until maturity. After this point, the YT holds no value. As a result, users who believe that an asset’s yield will increase can bet on this by holding its YT on Pendle.
Users can interact with Pendle by connecting a Web3 wallet to the platform.
Pendle’s supported assets, interest rates, and other key metrics can be viewed by navigating to the Markets tab. Selecting a market allows you to mint or redeem underlying assets for PT and YT. Users can also swap between these tokens and the underlying assets.
In addition to holding PT and YT, users can also supply assets to Pendle’s liquidity pools to earn passive returns. Pendle’s liquidity pools pair principal tokens with their underlying assets, such as SY-OETH and PT-OETH.
As principal tokens reach parity with underlying assets upon maturity, Pendle’s pools pose minimal risk of impermanent loss. This means that users can harness Pendle pools to earn rewards from liquidity provision with far less risk than many other protocols.
Pendle’s native utility token, PENDLE, forms the backbone of the yield trading protocol. Users who provide liquidity to PENDLE earn incentives in addition to a share of trading fees.
Users can lock up PENDLE via the smart contract for up to two years. In exchange, holders receive vote-escrowed PENDLE (vePENDLE) which carries voting and economic power. vePENDLE holders govern the platform by voting on protocol decisions. At the same time, vePENDLE holders earn rewards from 3% of all yield accrued by YT on the platform.
Furthermore, holding vePENDLE boosts rewards and PENDLE incentives earned from liquidity provision by up to 250%. This novel design promotes decentralization while rewarding the Pendle community’s most loyal participants.
Pendle staking flow
Pendle is a robust platform with significant backing from industry leaders such as Binance.
The platform has been rigorously audited by six of crypto’s most respected firms to ensure its security. Additionally, all of Pendle’s smart contracts are open source. This means that anyone can monitor the codebase and flag potential issues.
That being said, there are more prevalent smart contract risks when using Pendle than simply staking ETH through a liquid staking token such as Lido or Origin. When it comes to asset safety, be sure to do your own research before deciding whether a protocol is up to your safety standards.
Pendle’s product suite offers DeFi users brand new ways to trade and leverage yield. The protocol’s introduction of standardized yield tokens creates novel opportunities for traders.
Additionally, supporters of yield bearing assets like OETH can further compound their returns with Pendle. Users can also take advantage of the platform’s native token to boost rewards.
Check out Pendle’s Super OETH market to discover how you can capitalize on Origin's Super OETH token on Base with Pendle.
