# What is Pendle Finance? Yield Tokenisation and Fixed Rates in DeFi

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**Publisher:** Decentralized Finance Publication (https://decentralized-finance.io)
**Author:** Kaiser Khan
**Category:** Top DeFi Protocols
**Updated:** June 2026
**Trust:** Independent, ad-free editorial research. No display advertisements, no paid protocol coverage, no affiliate-driven rankings.

## Summary

Pendle Finance splits yield-bearing tokens (like stETH, aUSDC, or sUSDe) into two components: PT (Principal Token, redeemable for the underlying at maturity) and YT (Yield Token, capturing all yield generated until maturity). This allows users to lock in a fixed yield (by buying PT at a discount), speculate on yield rate movements (by buying YT), or provide liquidity to earn trading fees. Pendle is the leading yield derivatives protocol in DeFi.

Pendle Finance (launched 2021, grown dramatically since 2023) has become one of DeFi's most innovative and fastest-growing protocols. By introducing yield tokenisation to DeFi, Pendle enables a new category of financial strategies that were previously impossible on-chain: fixed-rate lending, yield trading, and discounted yield-bearing asset purchases.

As of mid-2026, Pendle holds $4B+ in TVL across Ethereum, Arbitrum, and BNB Chain — establishing itself as a core infrastructure protocol for the DeFi yield market.

## How Pendle works: PT and YT

When you deposit a yield-bearing token (like stETH, aUSDC, or sUSDe) into Pendle, the protocol wraps it and splits it into two new tokens with a fixed maturity date:

- PT (Principal Token): Redeemable 1:1 for the underlying asset at maturity. Before maturity, PT trades at a discount to par — the discount represents the implied fixed yield to maturity. Buying PT and holding to maturity is equivalent to a fixed-rate deposit.
- YT (Yield Token): Entitles the holder to all yield generated by the underlying asset until maturity. If rates rise, YT becomes more valuable. If rates fall, YT loses value. YT is a speculative instrument on yield rate direction.

## The fixed-rate use case

The most popular Pendle use case is locking in fixed rates on variable-yield DeFi positions. Example: aUSDC currently yields 6% variable APY on Aave. You buy aUSDC PT on Pendle maturing in 6 months at a 7% discount — effectively locking in 7% fixed APY for 6 months regardless of what Aave rates do.

This is valuable because DeFi lending rates are highly variable — they spike during bull markets and compress in bear markets. Pendle's fixed-rate mechanism allows rate certainty for treasury management, fixed-income DeFi strategies, and risk management.

## Points and airdrop farming on Pendle

Pendle has become a hub for 'points farming' — a strategy where protocols distribute points (precursors to token airdrops) to early users. By holding YT of protocols offering points (like EtherFi points, EigenLayer points, or Ethena sats), users can obtain leveraged exposure to those points.

This YT-based points farming became one of Pendle's fastest-growing use cases in 2024-2025, driving significant TVL inflows as users sought leveraged airdrop exposure.

## PENDLE tokenomics and vePENDLE

- PENDLE is the protocol's governance and incentive token
- vePENDLE: Locking PENDLE into vePENDLE for up to 2 years gives boosted rewards on Pendle pools and a share of protocol fees (80% of swap fees go to vePENDLE holders)
- Revenue: Pendle has become one of DeFi's top fee-generating protocols — demonstrating real yield from genuine user demand for yield trading

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