This might be the most straightforward Pendle income guide on the internet (you'll understand it after reading).
Many people ask me where Pendle @pendle_fi's income actually comes from -
This question is very insightful!
In fact, yield trading, as a mature strategy in traditional financial markets, has long been widely applied by professional institutions in the fields of bonds, foreign exchange, and commodities. Pendle is precisely the innovative practice of bringing this classic financial logic into the DeFi world.
I have decided to take on the great task of helping to popularize Pendle: Where does Pendle's income come from?
Simply put: Pendle itself does not create income; it just makes existing income tradable.
In simple terms -
1. The source of Pendle's income is like 'earning rent from renting a house':
Imagine you have a house that you don't live in but rent to others, receiving 100 bucks in rent each month.
Pendle is a 'rent separation machine' that can help you split this house into two parts:
1. Ownership of the house (called PT, principal token)
2. Rent for the next few months (called YT, yield token)
You can choose:
• Keep the house and sell the rent for the next few months to get cash in advance;
• Or sell the house and only buy the rent part, betting that rent will go up;
• Or sell both to exchange for other better houses or rental opportunities.
So the source of Pendle's income is:
⭐It's like splitting a fruit-bearing tree into 'trunk' and 'fruit',
⭐You can sell the fruit, bet that the fruit will appreciate in the future, and also do 'fruit arbitrage'.
2. Then return to Pendle itself:
The assets that can generate income will themselves produce interest or rewards, and Pendle will split them into two parts:
• PT (Principal Token): Represents your 'principal', which can be redeemed for the full principal after the lock-up period, but will no longer earn interest.
• YT (Yield Token): Represents your 'right to future income' for a certain period, freely tradable, and the price is determined by market dynamics.
It's like breaking a bond that earns interest into 'principal' and 'interest parts' to sell separately.
Since the income is separated out, then:
• You can buy only the income (YT) to bet on interest rate increases;
• You can sell the income (YT), keep the principal (PT), and hedge against market volatility;
• You can even take advantage of interest rate fluctuations to arbitrage between different pools, for example:
• Buy YT when the price is low, sell after the interest rate rises;
• Use PT as collateral for lending to buy YT at a low price, implementing a strategy similar to options hedging.
Thus, Pendle's income can be understood as:
A way to 'cash out' future cash flows in advance, as well as a financial engineering tool for building trading strategies.
🔥 In summary:
Pendle's income essentially comes from the interest of staked assets, but its greatest value lies in turning this income into 'freely tradable commodities.'
You can trade 'interest' like trading spot or futures, making income designable, predictable, and arbitrageable.
3. How to make money on Pendle -
So you can understand why making money on Pendle, and the significance of buying PT and YT -
1. Conservative: Buy PT to lock in 'certain income': You receive 'certain income' in advance, unaffected by market fluctuations, suitable for those who do not want to take risks.
2. Aggressive: Buy YT at a low price, betting on 'future interest rate increases': Buy YT at a low price when the market is pessimistic and interest rate expectations are low, then sell YT after the market regains confidence and interest rates rise, capturing the price difference, which is like speculating on future 'interest rate increases', the most interesting way of playing Pendle.
3. Arbitrage: Utilize interest rate misalignment to build an 'arbitrage portfolio': Suitable for those who understand on-chain arbitrage and enjoy quantitative strategies.
Pendle has some high-yield pools, such as:
• Certain YTs are severely undervalued (but actual yields are high)
• Certain exchanges have different funding rates, allowing for bilateral positions (for example, going long on SOL funding rate + going short on ETH funding rate in the Boros module).
In practice, some people have made 47% arbitrage in 3 days, completely ignoring market conditions, relying on asymmetrical opportunities in the interest rate market.
This kind of play is like an 'on-chain interest hedge fund', more advanced but super interesting.
Additionally, several pools I've been following recently have shown decent returns -
⭐Berachain × Pendle: PT iBGT income pool APY skyrocketed to 256%.
https://x.com/BTW0205/status/1905234095275401258
⭐Sonic × Pendle: LP aUSDC not only earns a comprehensive 16% APY, but also simultaneously enjoys 24 times Sonic points.
https://x.com/BTW0205/status/1902327707729588468
Once you understand the principles behind Pendle's income, you'll find that this project is not difficult to understand, and you'll open up a new mindset of 'interest rate trading.'
You can check Pendle's official teaching website; the Chinese guide is quite detailed:
https://app.pendle.finance/trade/education?utm_source=landing&utm_medium=landing
