Pendle (PENDLE): Analysis of the new star of DeFi

What you need to know 🐳

Pendle is an innovative decentralised finance protocol that attracts a very high level of activity despite the complexity of its product.

Much of its success can be attributed to its ability to adapt to new trends: the protocol surfed the Real World Assets (RWA) narrative in 2023 and is now a central figure in the points-based airdrop narrative.

Pendle has a token fully integrated into its protocol that is not simply for governance.

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Overview 🧬

Pendle is a decentralised finance protocol that trades the returns of different tokens. The project dates back to November 2020 and was officially deployed on Ethereum in June 2021.

There are tokens that have a built-in return, for example a liquid staking token such as stETH issued by Lido allows its owner to collect ETH staking returns.

Pendle allows each token with a yield to be divided into 2 components: the YT (Yield Token) representing the token's yields and the PT (Principal Token) representing the principal asset. Conversely, it is possible to combine the PT and the YT at any time to obtain the token to which they correspond.

To illustrate this mechanism, we can take the case of a flat: the YT would give the right to collect rent from the flat while the PT would represent the right of ownership of the flat.

This separation allows many possibilities, for example buying a YT allows you to obtain the returns generated by a token without being exposed to fluctuations in its price.

This mechanism extends to all types of returns: tokens from protocols that offer points as part of their airdrop are also considered to be tokens with returns. It is therefore possible to buy the YT of these tokens to obtain the points they generate.

The Pendle protocol is now deployed on Ethereum, Arbitrum, Optimism, Mantle and the BNB Chain.

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Financing 💰

Pendle Finance has raised $3.7 million.

In April 2021, Pendle raised $3.7 million from Mechanism Capital, Cryptocom, Hashkey Capital and Spartan Group, among others.

In October 2023, Arbitrum DAO offered Pendle a 2 million ARB token exchange, which was worth $1.64 million at the time.

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Team and community 👾

Pendle Finance was founded by a group of anonymous individuals calling themselves TN Lee, Vu Nguyen, GT and YK.

TN Lee is the CEO of Pendle Finance. He previously led business development at Kyber Network, a decentralised exchange aggregator and then worked as a consultant at Rockminer.

Vu Nguyen is Pendle Finance's chief engineer. Prior to that, he was in charge of smart contract development at Digix, a tokenisation project that ceased operations in March 2023.

Headquartered in South Korea.

Pendle has 118,000 followers on X (ex-Twitter) and 22,000 members on Discord.

Paolo Luis Dioquino, in charge of the protocol's growth, explained in an interview with The Big Whale that Pendle's users were mostly experienced traders with large positions, as well as crypto funds. However, since the trend of point-based airdrop farming, users with smaller funds now make up a good half of the community.

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Function ⚙️

Each yield token has a maturity date after which it will no longer produce a return and will therefore be worth nothing. So, buying a yield token is like being exposed to the yield of a token for a limited time.

When a yield token reaches maturity, the principal token associated with it can be exchanged for the original token it represents. Bear in mind that the value of the original token is always equal to the sum of the yield token and the principal token.

Parallels can be found between Pendle and traditional finance. Principal tokens are like zero-coupon bonds because they pay no interest but give their full value at maturity. Yield tokens are like coupons detached from bonds: they can be traded separately from the bonds and provide regular interest until maturity.

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Strategies 💡

Providing liquidity: A simple strategy with limited risk is to be a liquidity provider on a token pool.
Usually, being a liquidity provider creates a risk of impermanent loss when the prices of the assets in a pool move decorrelatedly. However, a Pendle pool consists solely of the main token and the underlying asset, which are highly correlated. This means that the impermanent loss is small before maturity.

At maturity, the principal token can be exchanged at a 1-for-1 rate with its underlying asset, which then reduces the impermanent loss to 0.

This strategy earns the pool's trading fees and the returns on the tokens one has deposited.

Getting fixed yields: Almost all crypto yields are at variable rates, thanks to Pendle it is possible to exchange the variable yield of a token for a fixed yield.

Exchanging a token with a yield for the main token associated with it means giving up the yield it generates. However, this allows a predetermined larger quantity of the underlying token to be recovered when the main token matures.

Multiplying your yields: Buying yield token allows you to gain exposure solely to the yield generated by an asset and therefore also increase the points distributed by the projects. The risk in this case is that the returns generated before the yield token matures are lower than the price at which it was purchased.

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Risks 😨

Like any decentralised protocol, Pendle is susceptible to hacking. However, the protocol has 6 audits visible here.

Wanting to farm airdrops thanks to the returns offered by yield tokens can be dangerous if the points distributed by a project lose their value following a snapshot or an announcement by the project team.

Pendle is based on some pretty advanced financial concepts, so you need to make sure you understand what the tokens you buy correspond to.

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The PENDLE token 🪙

The PENDLE is the token at the centre of the Pendle protocol. There are 239 million PENDLEs in circulation and 258 million in total.

There is no maximum quantity of tokens as there is weekly inflation. In October 2022, it was 667,705 tokens with a decrease of 1.1% each week until April 2026. After that date, annual inflation will stabilise at 2%.

Pendle governance is based on locked PENDLEs called vePENDLEs. Each user can therefore choose to lock their PENDLE tokens for a period of up to 2 years. The longer the chosen duration, the more vePENDLE the user receives.

There are currently 54 million locked PENDLEs with an average duration of 421 days. More information is available on the community dashboard.

Holding vePENDLE entitles you to:

- Vote to distribute bonus incentives from PENDLE on a liquidity pool
- Receive a portion of transaction fees from incentivised pools
- Increase returns if providing liquidity

Since April 2023, all tokens owned by the team and investors have been distributed, so there are no more unlocks to come and no programmed selling pressure.

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Regulation ⚖️

PENDLE is a token that provides a return linked to its protocol when transformed into vePENDLE. There is no clear regulation at the moment, but there is a risk that the token could amount to security in the eyes of the US regulator.

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Roadmap 📝

"We don't really have a precise and fixed roadmap, we prefer to adapt our development according to market changes" Paolo Luis Dioquino summed up well in his interview with The Big Whale.

Pendle is indeed a protocol that adapts to new trends such as airdrop farming recently. The protocol has been able to integrate and form partnerships with the new protocols in vogue such as Etherfi and Renzo for liquid restaking, as well as Ethena for its high-yield stablecoin.

However, Paolo Luis Dioquino confirmed to us that the project was working to expand to new chains within the Ethereum ecosystem and potentially to other ecosystems such as Solana.

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Market analysis by Chadi El Adnani, Head of Content & Research at SUN ZU Lab 📈

The price of PENDLE, which was around $0.05 at the beginning of January 2023, ended the year at $1.2, a performance of more than 20x. It continued its ascent in 2024 to reach $7 in early April, before succumbing to the overall decline in crypto markets. The PENDLE price has performed in excess of 200% this year, compared with around 50% for BTC and ETH. The total locked value (TVL) has risen over the same period from $15 million to $4.5 billion, an increase of 300x.

This stratospheric growth is mainly due to the rise of liquid staking and Eigenlayer. Indeed, speculators have been using Pendle as a form of leverage strategy to gain points for Eigenlayer's airdrop. In addition, the launch of USDe tokens on Pendle has increased investor interest, as it offers opportunities to take advantage of the high returns offered by Ethena via Pendle pools. The DeFi protocol has also attracted the attention of influential figures such as Arthur Hayes, increasing speculation around the Pendle price.

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Where can you buy the PENDLE token? 🛒

The PENDLE token is available on most centralised exchanges (such as Binance and Cryptocom, which are regulated in France) and can be traded decentrally on Ethereum and some of its layer 2s such as Arbitrum.

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The Big Whale's opinion 🐳

Pendle has managed to become the 7th protocol with the highest locked value ($4.43 billion) in the entire crypto ecosystem by successfully adapting to market changes. The project offers users what they are really looking for.

The protocol offers a multitude of possibilities particularly for users with advanced knowledge, but manages to remain accessible to as many people as possible.

The PENDLE is truly integrated into the protocol and is not just a governance token. Especially as there is no longer a great deal of selling pressure linked to the vesting of the team and private investors.

The protocol's growth prospects are high if it manages to roll out to new channels and continues to integrate new flagship projects.

The recent points-based airdrops have disappointed users, who are in danger of turning away from this activity. It remains to be seen how the trend develops over the coming months and how Pendle will adapt.

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