01 Project Introduction
Pendle Finance uses blockchain technology to provide users with the ability to separate and trade their income-generating tokens (such as GLP, stETH, etc.). Through the Pendle protocol, users can split tokens into principal tokens (PT) and income tokens (YT) to further optimize asset management and trading strategies. Currently deployed on Ethereum, Arbitrum, and Avalanche, it is the leader in the fixed-rate track.
Official website: https://www.pendle.finance/
Twitter: https://twitter.com/pendle_fi
02 Agreement Structure
2.1 SY
The tokens that generate income (such as Staking Tokens or LP Tokens) are packaged into SY. Users deposit these original tokens into the Pendle protocol and receive corresponding PT and YT.
PT (Principal Token): represents the user's principal in the protocol, which can be redeemed for the original token in the protocol. The value of PT is usually stable because it represents the value of the underlying asset.
YT (Yield Token): represents the user's future earnings and can be traded in Pendle's custom V2 AMM. Users can buy and sell YT in the secondary market according to their needs, allowing them to manage future earnings more flexibly.
2.2 V2 AMM
For PT and YT generated by SY, Pendle designed a dedicated V2 AMM to facilitate transactions between them.
V2 AMM adopts a pseudo AMM model that allows PT and YT to be traded in one liquidity pool. The exchange curve changes over time to reflect the earnings generated over time and pushes the PT price close to its underlying value as the PT approaches expiration.
2.3 vePENDLE
Users can lock PENDLE to obtain vePENDLE proportional to the locked amount and time (up to two years). Each wallet is associated with a separate vePENDLE expiration date.
Holding vePENDLE can earn protocol fees, guide liquidity, and increase the reward ratio of liquidity mining.
03 Usage scenarios
The Pendle platform provides the following advantages to all types of users by trading future earnings:
Hedgers: When yields are high, hedgers can tokenize (lock up) their future earnings and sell them. This way, they can lock in profits while yields are high and reduce the risk of future declines in yields.
Borrowers: Borrowers can hedge their borrowing costs when interest rates are low. This means they can lock in borrowing costs when interest rates are low and reduce the impact of future interest rate increases on their cash flow.
Traders and Speculators: Through the Pendle platform, traders and speculators can make predictions about future interest rates and participate in trading without having to own capital-intensive assets. This provides them with exposure to future interest rates and a way to realize potential gains through trading Yield Tokens (YT).
04 Agreement income and distribution
Pendle's protocol revenue will be distributed to liquidity providers and vePENDLE holders, and the team will not charge any fees.
Transaction fee income: A certain transaction fee will be charged for transaction through the agreement, and the fee rate is related to the time to expiration. In short, when the time to expiration is 1 year, the exchange fee is 0.10% of the transaction amount. The longer the time to expiration, the higher the fee rate; the shorter the time to expiration, the lower the fee rate.
20% of the transaction fees are allocated to liquidity providers, and the remaining 80% will be distributed proportionally to vePENDLE holders who voted for the liquidity pool based on their voting weight.
Mining income: Pendle charges a 3% fee on all income generated by YT. This fee is treated as income and distributed to all vePENDLE holders in proportion to their vePENDLE weight.
05 Flywheel Effect
Protocol income and incentive mechanism: Pendle provides liquidity providers and users holding vePENDLE with multiple channels of income, including exchange fees, PENDLE incentives, and protocol rewards for the underlying tokens. These rewards and income mechanisms attract more users to participate, increase liquidity, and thus promote the development of the protocol.
vePENDLE Governance: vePENDLE provides decentralized governance, empowering PENDLE holders and encouraging them to participate in protocol decision-making. In addition, vePENDLE holders can vote to guide incentives to different liquidity pools, further driving liquidity growth.
Liquidity pools and highly correlated assets: Pendle's V2 AMM design uses a pseudo-AMM model to place highly correlated assets (such as PT and YT) in the same liquidity pool for trading. This effectively reduces the risk of impermanent loss faced by liquidity providers and attracts more people to participate.
LP Rewards Boost: Through vePENDLE, users can increase their PENDLE rewards and liquidity pool returns by up to 250%. This incentivizes users to lock PENDLE and participate in liquidity provision for the long term.
Protocol revenue distribution: Pendle takes a certain percentage of YT revenue and distributes these fees to vePENDLE holders. Such a revenue distribution mechanism makes PENDLE tokens more attractive, thereby increasing the user base and liquidity of the protocol.
Through these channels, Pendle builds a positive cycle flywheel effect, further promoting the development and prosperity of the protocol.
06 Economic Model
There is no upper limit on the total supply of PENDLE tokens. The current supply is 231.73M, with an annual expansion rate of 2%.
6.1 Token Allocation
Team: 22%
Ecosystem Fund: 18%
Incentive: 37%
Investors: 15%
Consultant: 1%
Liquidity bonus: 7%
6.2 TOKEN Status
Token indicator data source: coingecko.com
6.3 Current Circulating Supply
Since the circulation displayed by several data platforms is quite different, the author makes two inferences based on the data on the chain and the data released by the team last year. From the perspective of the currency holding addresses on the chain, the following ones are not in circulation or have not been operated for a long time.
1 vePENDLE
2 Pendle to distribution
6. Unmovable address
8 anyPENDLE (no movement)
9. No movement
10 Pendle to distribution
11 Crypto.com
12. No movement
The total number of chips in the above addresses is 83,509,380, the current supply is 231,725,335, and the circulation is 148,215,955, accounting for 63.96%. Based on the current token price of $0.497, the circulation market value is 73.66 million US dollars.
Method 2: According to the information disclosed by the team itself, as of October 2022, the weekly emission is 667,705, which decreases by 1.1% every week. It is estimated that the token emission has increased by 19,125,301 from October last year to now. The remaining chips of the team will be released on April 29th.
According to comprehensive estimates, the current circulation volume is 183,186,838, accounting for 79%. Based on the current token price of $0.497, the circulation market value is $91.04 million.
6.4 Business Indicators
With the development of GMX and LSD narratives this year, Pendle's business data has also been rising parabolically. The market value/TVL ratio is 1.53.
07 Project Summary
The trading model adopted by Pendle is an important part of the fixed income market and will help create a new DeFi building block, allowing the entire ecosystem to further develop and prosper. Through the Pendle platform, users can flexibly adjust the management strategy of future returns according to their own risk preferences, providing more diversified financial tools and services for participants in the DeFi field.
From the perspective of technology and product models, it has its own innovations. From some details of the protocol, it can be seen that the team has deep insights into DeFi and has a strong real-world financial background.
The chips of early investment institutions have already been fully released, and the chips of the team will also be released. The only part of the later release is the incentives and ecosystem construction, and the economic model is relatively healthy. However, due to the confusion of the circulating chips, the specific circulating market value cannot be determined. The floating market value range is between 48.25 million and 100 million. The range is a bit large, and readers need to judge for themselves.
With the implementation of the Shanghai upgrade and the development and improvement of the DeFi ecosystem, Pendle can capture more value and is worth continuing to track.
