What is Pendle Finance? DeFi Protocol Guide

Pendle Finance is a decentralized finance protocol designed to facilitate the tokenization and trading of future yields. The protocol enables users to unlock additional yield opportunities and secure future yield rates in advance, while simultaneously providing traders with direct market exposure to yield streams without needing to hold underlying collateral.

Overview

Pendle Finance operates as a decentralized protocol focused on yield trading and yield asset management. Since its launch in October 2020, the protocol has allowed participants to tokenize future yield by converting assets from lending platforms like Aave and Compound into standardized yield tokens (SY). These SY tokens are subsequently divided into principal tokens (PT) and yield tokens (YT), allowing the separation and independent trading of the principal amount and its corresponding yield. This mechanism creates a DeFi-specific approach to yield derivatives, facilitating sophisticated yield management approaches.

The protocol incorporates an automated market maker (AMM) specifically engineered to handle tokens with declining time values, making it appropriate for fixed-income and yield derivative transactions. Governance occurs via vote-escrowed PENDLE (vePENDLE) tokens, granting token holders decision-making authority. Pendle has progressively incorporated support for real-world assets (RWAs) including sDAI and fUSDC, aiming to connect traditional financial instruments with decentralized finance. Through features including fixed yield mechanisms, yield speculation tools, and customized yield arrangements, Pendle serves both individual traders and large institutional participants seeking yield management solutions or access to innovative financial structures.

Features

Yield Tokenization

Yield tokenization involves partitioning a yield-producing asset into two distinct parts: the principal amount and the accrued yield. Within Pendle, this process initiates by converting the underlying asset into a standardized yield token (SY) compatible with the protocol's AMM infrastructure. The SY token subsequently undergoes division into a principal token (PT) denoting the original asset value and a yield token (YT) representing prospective yield. This division permits independent trading, management, and speculation on each element separately.

SY

SY serves as a standardized token framework that converts yield-generating assets to establish a consistent interface for protocol interaction. The structure unifies yield-producing tokens—including stETH, cDAI, and yvUSDC—by converting them to corresponding SY formats, permitting seamless incorporation within Pendle's ecosystem. SY functions as the primary gateway enabling Pendle to interact with yield-generating assets, facilitating the generation of principal (PT) and yield (YT) tokens and permitting SY and PT exchange activity within Pendle's AMM.

PENDLE

PENDLE represents the protocol's indigenous token, functioning to incentivize participation and enable governance decisions. Those providing liquidity obtain PENDLE token rewards in addition to receiving a portion of transaction fees. Participants can also convert PENDLE into vePENDLE through staking, which provides governance participation capabilities and enables reward enhancement mechanisms across the protocol.

Tokenomics

PENDLE possesses a maximum issuance of 235.8M tokens, allocated according to the following breakdown:

vePENDLE

Pendle Finance employs vote-escrowed PENDLE (vePENDLE) for its governance framework, permitting PENDLE token holders who commit their tokens to participate in protocol administration. Voting power magnitude depends on lock duration and quantity, diminishing progressively unless the lock is extended. Those holding vePENDLE retain the ability to vote on incentive distribution to particular liquidity pools, thereby controlling reward allocation mechanisms across the platform.

• Circulating: 65.1%
• Ecosystem Fund: 19.2%
• Incentives: 10%
• Team: 5.7%

Fundraising

2021

Pendle Finance completed a fundraising round in April 2021, spearheaded by Mechanism Capital. The organization secured $3.7M during the private funding phase, attracting participation from numerous institutional and individual backers: Crypto.com Capital, Hashkey Capital, Spartan Group, CMS, imToken, DeFi Alliance, Lemniscap, LedgerPrime, Parataxis Capital, Strategic Round Capital, Signum Capital, Harvest Finance, Youbi, Sora Ventures, D1 Ventures, Fisher8, Origin Capital, BitLink, Bitscale Capital, Hongbo (DeBank founder and CEO), and Taiyang Zhang (Ren Protocol founder and CEO).

2023

Binance Labs revealed an investment commitment to Pendle Finance in August 2023, with the specific amount remaining undisclosed. The capital obtained by Pendle Finance would target expansion onto additional blockchain ecosystems, focusing on both retail and institutional market segments. TN Lee, CEO and co-founder of Pendle Finance, communicated the organization's intention to utilize Binance Labs' industry knowledge and organizational capabilities for growth acceleration. Binance Labs underscored the significance of Pendle's fixed yield product suite for advancing the platform, emphasizing its historical importance as a fundamental hedging instrument for institutional participants.

Spartan Capital executed an additional capital commitment to Pendle Finance via an off-exchange transaction in November 2023, with the transaction size remaining confidential. Spartan Capital emphasized Pendle's achievement expansion, referencing DefiLlama statistics demonstrating a more than 2,000% total value locked (TVL) expansion during the twelve-month interval following November 2022. Spartan Capital demonstrated enthusiasm for Pendle's strategic focus areas, particularly Liquid Staking Derivatives and Real World Assets, viewing these as drivers for attracting institutional capital into the decentralized ecosystem.

Partnerships

• Abra
• Crypto.com Capital
• Hashkey Capital
• Signum Capital
• Alliance
• Binance Labs
• L1D
• Maelstrom
• Mechanism Capital
• Spartan