Pendle is a protocol that liberates future yield. It enables the tokenization and trading of future yield on a novel AMM designed to support assets with time decay. Pendle aims to build the next layer of DeFi on top of all yield assets, giving users more control over their yield by providing optionality for its utilization. In doing so, Pendle hopes to push the DeFi ecosystem towards a more mature and capital efficient market.
Pendle currently supports aUSDC, cDAI, PENDLE/ETH SLP, and ETH/USDC SLP. If you’re interested in trading the yield of these tokens or looking for new farms, head over to the Pendle app to try it out.
How Does Pendle work?
To understand Pendle, it’s important to first understand the tokens and mechanisms involved. There are three main tokens: a yield-generating token, an ownership token, and a future yield token.
Let’s break it down by outlining a user’s journey when starting out with Pendle.
A user, let’s call her Alice, is holding aUSDC after depositing USDC into Aave. That’s the yield-generating token – aUSDC. So Alice will deposit her aUSDC to Pendle to mint the ownership token, OT, and the future yield token, YT. OT represents ownership of the yield-generating token, and YT represents the right to future yield for a period of time.
After minting YTs, there are 2 potential follow up actions for an YT holder. The user can either:
- Sell it on the AMM to immediately collect a payment. This can be referred to as fixing the yield, because this action allows the user to receive a payment and thus locking in their yield.
- Use that YT to provide liquidity onto Pendle AMM to earn trading fees & incentives. Pendle has been designed to mimic the experience of using Uniswap and Sushiswap to minimize the learning curve.
On the flip side, any user can purchase XYT to gain yield exposure. This allows them to speculate on interest rates in a very capital efficient manner.
Pendle’s Novel AMM
Trading tokens affected by time decay on a typical AMM is highly inefficient because it would guarantee losses for liquidity providers (as the constant product curve does not account for time-decay).
The value of Pendle’s yield token is time-dependent, i.e. holders of a yield token are entitled to less yield as time passes and the token ultimately becomes worthless upon expiration, once there is no longer any yield to collect.
To account for the time decay in an asset as described above, Pendle has designed an AMM that caters to all assets with time-decaying properties.
Initially, when the pool is created, the AMM curve is similar to Uniswap’s constant product curve. However, when subsequent swaps happen, the AMM curve will shift at the equilibrium point and adjust itself to account for the time decay.
For a deeper dive into Pendle’s AMM, check this article out.
Why Is Pendle’s AMM Important?
The AMM space has been evolving quite rapidly and the Pendle AMM is part of the natural progression of this development.
Pendle’s AMM is designed for assets with time decay. As the DeFi ecosystem matures, more financial assets that are time sensitive are expected to emerge. This AMM will be key to the trading of these assets.
While the current focus of the Pendle AMM is more on yield tokens, the AMM can be extended to support any type of asset with time-decaying properties. In the longer term, Pendle hopes to generalize the AMM to support the trading of options, bonds, or any contracts with an expiration.
This allows for a complex market of future credit derivatives to emerge in the DeFi space. The fact that fungibility among these future yield streams is even more liquid and transferable on the blockchain than they are in traditional finance, which makes for an opportunity for successful protocols to harness these instruments to greater effect than ever before. This is what Pendle hopes to do. Maturation in the DeFi space will help these still green protocols that have already revolutionised finance to level up.
The credit market is larger than the global equity markets, and interest rate derivatives are the lion’s share of the derivative market. The more assets are moved on-chain and the larger the DeFi market grows, the greater the appetite for these sophisticated derivative markets will be. Furthermore, smart contracts and the blockchain have the ability to improve upon existing real-world systems that currently govern them. Most importantly, by allowing for DeFi principles to rule the market, users can earn additional yield for providing liquidity to these yield-bearing tokens pools and pairings.
What is the Pendle Token?
The PENDLE token is currently just a utility token, with governance functions to come in the future. There are plans in place for value accrual, with inspiration from xSushi and ve-Curve tokenomics with regards to fees and control over incentives.
Pendle adopts a perpetual emissions schedule, similar to Synthetix. This model was adopted to enable continuous incentives for the community to participate in the Pendle ecosystem.
In terms of tokenomics, liquidity incentives will account for 37% of the circulating supply at the end of year 2, when most of the major lockups have matured. The only emission after that will come from liquidity incentives through AMM and LP provision.
For more information on tokenomics, head over to this article.
Is PENDLE Hard to Get?
If you are new to the world of digital assets then getting cryptocurrencies can be a confusing prospect. It may be a bit simpler with the top two Bitcoin or Ethereum, but what about that lesser known Ethereum token, such as PENDLE , that you have heard so much about?
Numio is a great choice for PENDLE . With Numio you can send and receive your stored PENDLE instantly and at the touch of a button. If you want to try something a bit more advanced you can use Numio to trade and swap PENDLE .
How can I get PENDLE?
Getting PENDLE is easy on Numio. You can use your credit or debit card to purchase ETH or USDC, which can then be exchanged for PENDLE*, you can swap or trade it for other ERC-20 tokens (up to 100x cheaper than other wallets), and you can send or receive it as a payment. Whatever way you choose you can be sure that you are always in full control of your PENDLE.
*direct PENDLE purchases coming soon.