Author: Alex Liu, Foresight News

Pendle is the most successful DeFi protocol to emerge in this cycle, and it doesn't even need to be described as 'one of'. There have been many articles explaining Pendle, and this article aims to analyze the unique features behind Pendle's success in protocol mechanisms and value capture design, combining the latest developments. Readers familiar with Pendle mechanisms may skip the previous explanations and read the subsequent analysis.

What is Pendle

Pendle is a protocol for trading 'yields'. To explain how to trade yields, we introduce the two assets of the synthetic stablecoin protocol Ethena: USDe and sUSDe as examples.

USDe is a stablecoin pegged to the USD at a 1:1 ratio. Simply holding USDe does not generate interest but will yield Ethena airdrop points, which can be allocated to sENA tokens based on the number of points after each quarterly airdrop ends. sUSDe is the staked version of USDe and is a stablecoin that generates interest, with interest rates fluctuating between 5% and 15% alongside market sentiment and funding rates. The Ethena points earned by holding sUSDe are lower than those from USDe.

For the above two assets, the yield from holding USDe is Ethena points, while the yield from holding sUSDe consists of both interest and Ethena points.

Whether it's interest or points, they are both very 'time-sensitive'. Interest rates can fluctuate dramatically with market conditions, and the value of points is closely tied to the snapshot date and real-time token price. Therefore, the traded 'yield' requires a set term. It can be the yield for the next 3 months, but it should not be for the next 300 years.

The yield is generated by the underlying assets, and we refer to the present value of assets that will generate yield after a certain period as 'principal', thus gathering three elements: principal, yield, and term.

Pendle standardizes yield-bearing assets into a standardized yield token (SY), which can then be split into principal tokens (PT) and yield tokens (YT) with a set term, thereby allowing the 'yield' to be traded within a certain period.

Before expiration, holding YT will yield the corresponding underlying token's earnings. After expiration, the value of PT will equal SY, while YT's value will drop to zero. (For example, if there are 10 days until the deadline, YT represents 10 days of earnings from the underlying asset and has value; after expiration, it represents 0 days of earnings from the underlying asset and has no value.)

For instance, 1 USDe can be wrapped as 1 standard yield token USDe (Sep 2025) SY, which can then be split into 1 USDe (Sep 2025) PT and 1 USDe (Sep 2025) YT, adhering to the value relationship between them:

1 USDe (Sep 2025) SY = 1 USDe (Sep 2025) PT + 1 USDe (Sep 2025) YT.

The value of 1 USDe SY is the same as the underlying asset of 1 USDe, which is 1 USD. For the sake of explanation, we take 1 USDe (Sep 2025) PT = 0.99 USD and 1 USDe (Sep 2025) YT = 0.01 USD. Now there is about 1 month until the term in September 2025.

As a trader, I can now buy 10,000 YT for 100 USD, which corresponds to the yield generated by 10,000 USDe over the course of this month (i.e., Ethena airdrop points). After expiration, YT will be worth zero, and the value will transfer to the unredeemed Ethena airdrop points. The trader’s motivation for purchase is: to be bullish on the value of USDe yield, believing that the airdrop value of Ethena will exceed the cost spent on purchasing YT.

Using 100 USD to leverage 10,000 USD to generate points, this ability to leverage points with a small principal brought massive growth to Pendle during the previous points frenzy. It is not uncommon for YT traders to strike big: traders who leveraged eETH YT to receive EigenLayer airdrops recouped all costs of YT from the ETHFI airdrop, getting EIGEN tokens for free; purchasing YT leveraged Ethena points at ENA 0.2 USD, which soared to over 0.6 USD within two weeks, greatly increasing the value of the points; usual airdrops exceeded expectations, with YT yields reaching more than 10 times.

Pendle's 'points market' page

Holders of sUSDe YT not only receive Ethena points but also earn interest from the underlying assets. Although YT's value approaches zero upon expiration, holders can collect USDe earnings generated from the underlying sUSDe assets based on actual interest rates in the Pendle contract.

Of course, there are also cases of losses in YT trading: leveraging YT for points from a certain project, only to find that the project delays token issuance, causing the points' value to be infinitely diluted; going long on the underlying yield of USDT in Aave at an implied interest rate (implied APY) of 8%, only to find that, as market conditions worsened, the actual average interest rate during the term was 4%, resulting in losing half of the principal when purchasing YT.

Trading requires counterparties. Behind the hot trading of YT, there needs to be market demand for PT to support liquidity. In the situation mentioned above, one could buy 10,000 USDe (Sep 2025) PT for 9,900 USD and redeem it back for 10,000 USDe after one month. Earning 1% in January corresponds to locking in an annualized rate of about 12% during that month, enjoying a 'fixed rate'.

This is also the model of government bonds; I buy a 1-year government bond with a face value of 110 for 100, and upon maturity, I exchange the bond to receive 110, thus locking in a 10% annual yield at the time of purchase. Similarly, bonds get closer to their face value as they approach their redemption deadline, redeemable at par upon expiration.

As the seller of the yield, PT holders sell the 'uncertainty' of the yield, locking in a 'fixed rate'.

Being a Pendle LP (Liquidity Provider) means holding both SY and PT, while selling a portion of YT. LPs can earn fixed income from their PT portion and also receive token emission rewards from PENDLE (liquidity mining).

It is not difficult to see that Pendle provides options for users who want to reduce risks and enhance stable yields, those who wish to take on risks for potential uncertain yields, and users who simply want to mine in DeFi.

Pendle's data

How successful Pendle is, the data speaks for itself. Despite the market downturn last week, and Pendle experiencing the largest asset expiration in its history (indicating that some users seeking stable yields realized their 'profits'), Pendle's TVL (Total Value Locked) still reached a new high of 7 billion USD.

Over 48% of Ethena assets have been packaged into Pendle assets, totaling 4.6 billion USD. Over 4 billion of Pendle PT assets have been deposited as collateral in lending protocols such as Aave, Morpho, Euler, and Silo. The newly launched HyperEVM-related assets attracted over 80 million USD in funds within 4 days. Despite over 1.5 billion USD of assets expiring mid-week, this only caused a less than 3% decline in TVL, with a large amount of assets opting to remain and continue participating in Pendle, reflecting trust in the protocol.

PT assets deposited in various lending protocols

Crypto profit models

There are two most profitable business models in the world: one is to extract fees like a casino, corresponding to exchanges in the crypto world; the other is to earn the interest spread from lending and deposits like a bank, corresponding to lending protocols in the crypto world.

Pendle is the 5th largest DEX (Decentralized Exchange) by trading volume on Ethereum and operates under a 'fee extraction' model. For traders, the 'fee extraction' model is often a zero-sum game—making the most fees for CEX perpetual contracts means that when one side profits, the other side loses. In the long run, only exchanges that continuously extract fees are the final winners.

However, Pendle creates scenarios where all participants can profit, which I believe is its uniqueness, namely 'positive externality'.

Positive externality

Pendle primarily involves three major participants at the user level: YT traders, PT traders, and LPs (Liquidity Providers). At the protocol level, it also involves collaborative protocols—Pendle can bring significant TVL increases to collaborative protocols, as seen in the case of Ethena. The first thing emerging projects often do to enhance TVL is 'integrate Pendle'.

PT traders can actually 'guarantee' fixed income by selling 'uncertain' yields for fixed rates. Their only risk is that the 'uncertain' yield they sold becomes too valuable, potentially leading to lower earnings, but they are guaranteed not to lose (in terms of currency, holding ETH-related YT will not reduce the amount of ETH held). Moreover, PT traders voluntarily embrace 'certainty' and may use the 12% fixed annualized PT they received to stack in various DeFi protocols to create a godly mine with an annualized yield of over 50%, which might not necessarily result in lower earnings.

The essence of LP is that it has held part of PT, while the SY portion often receives a very high point multiplier from various projects. Earning fixed income while efficiently mining points through PENDLE token emissions can be described as having the best of both worlds, also guaranteeing profit.

The only participants who might incur losses are YT traders. YT traders often aim for small bets to gain big, profiting when the actual market conditions are more optimistic than expected. The crypto industry is currently in a period of rapid development, with constant new asset issuance and bullish market sentiment keeping expectations high. When the next new coin airdrop exceeds expectations, all participants in the Pendle ecosystem profit, and those footing the bill come from outside the ecosystem. In theory, everyone can make money, with gains sourced from outside the ecosystem, which is what makes it wonderful.

Pendle not only trades interest rates but also trades expectations. Allowing each participant to make a profit in a bull market that exceeds expectations is its 'positive externality'.

Value capture of PENDLE

Even if the protocol is unique, is the PENDLE token a value currency?

The PENDLE token employs a ve (voting escrow) mechanism, allowing holders to lock PENDLE tokens to receive vePENDLE tokens. Currently, all profits from the Pendle protocol are distributed to vePENDLE holders. Pendle charges a 5% fee on all yields generated from YT (including points, meaning vePENDLE holders can receive benefits from various token airdrops), as well as the same percentage fee on yields from SY that have expired but not been redeemed. Similarly, all trading fees for PT and YT are allocated to vePENDLE.

In addition, the standard gameplay of the ve token mechanism: locking vePENDLE to obtain LP liquidity mining bonuses, voting rewards from project bribery, etc., also brings benefits while reducing token circulation and enhancing token demand. (Details of the ve token mechanism could easily fill 3000 words; I won't elaborate here. Readers unfamiliar can refer to CRV and Curve War-related materials.)

According to the official page, the fees for vePENDLE reached 2.85 million USD in July 2025, even excluding the more uncertain airdrop portion, it still reached 2.28 million USD.

As of August 8, PENDLE token surged past 5 USDT, increasing over 25% in a single day, leading the DeFi sector.

Team and financing

The Pendle team was established in 2020, with founder TN Lee being a founding member of Kyber Network. This team primarily based in Singapore and Vietnam launched the first version of Pendle in 2021—a product similar to an on-chain cryptocurrency index—and introduced the PENDLE token. However, this version of Pendle did not find PMF (Product Market Fit) at the time and was not considered successful.

Pendle completed a private fundraising round in April 2021, raising 3.7 million USD, with investors including HashKey Capital, Mechanism Capital, etc. At the same time, it raised 11.83 million USD through an IDO at a price of 0.797 USD/token.

Founder of Pendle TN Lee

The market quickly entered a bear market after peaking in 2021, but the Pendle team leveraged its keen sense of smell and foresight to build and rapidly transform in the bear market, ultimately launching the now highly successful Pendle V2 version in 2022, successfully reviving the project across cycles.

In July 2023, Pendle launched on Binance Spot through Launchpool. One month later, Binance Labs (now Yzi Labs) announced its investment in Pendle.

Simple future outlook

Pendle currently has no decent competitors. Whether it’s Spectra on EVM or RateX on Solana, similar products lag far behind in liquidity, capital volume, and protocol integration. (I alone bought up all reasonably priced USDe YT on RateX) As Pendle establishes more ecological linkages and DeFi Lego interactions with top protocols like Ethena and Aave, its dominant position in the track will become increasingly difficult to shake.

With contract security validated over time and the accumulated brand effect and user trust, we have reason to believe that traditional capital (Tradfi) looking to enter the yield trading track will likely consider partnering with Pendle as a top choice.

In addition, Pendle's latest launched funding rate trading protocol, Boros, is seen as the next major growth point. The funding rate market is considered to have 200 billion USD in open interest value and potential daily transaction volumes exceeding 300 billion USD. In the 24 hours since its launch, Boros achieved impressive figures of 15 million USD in open positions and 36 million USD in nominal trading volume. I plan to introduce this protocol in a subsequent article.

When I first introduced Pendle in March 2024 (when PENDLE was at 1.2 USD), I mentioned: yield and risk are the core factors in finance, and balancing the two is an eternal gameplay. Through the magic of decentralization, Pendle enables all of this to happen on-chain, continuously bringing potential yields from outside the ecosystem into the ecosystem, achieving a positive-sum game, and gradually becoming indispensable infrastructure in DeFi, which I believe has limitless potential. I am confident that the valuation of good applications will ultimately exceed that of 'ghost chains'.

Now, a year and a half later, Pendle has become an indispensable infrastructure in DeFi, with its token price surpassing many 'ghost chains'. In the foreseeable future, Pendle will continue to grow rapidly, leading the DeFi track.

Statement: The author holds PENDLE tokens, the value of which meets the disclosure standards.

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