What is Pendle?
Pendle is a tokenized yield protocol that allows investors to capture the future yield of an asset. The cryptocurrency was officially listed on Binance, the world's largest cryptocurrency exchange, in July 2023, and its price surged 80% that day to the $1.80 level. Due to the crypto winter of 2023, Pendle coin then fell back and fluctuated below $1. However, entering 2024, Pendle has continued to rise and continues to set new price highs.
What is Pendle Finance?
PENDLE is the native token of Pendle Finance, so before introducing the Pendle coin, we need to have a simple understanding of Pendle Finance.
Pendle is a permissionless decentralized finance (DeFi) protocol built on the Ethereum blockchain where users can execute various yield management strategies. Pendle Finance aims to provide users with attractive yields by increasing their exposure to yields in bull markets and hedging against the risk of yield declines during bear markets.
working principle
The Pendle protocol allows users to lock in future income in the form of ERC-20 tokens called Future Yield Tokens (FYT). These tokens represent holders’ rights to future income streams generated by the cryptocurrency asset, such as loan yields or staking rewards. Users can create, trade and sell these tokens through the Pendle marketplace.
In addition to the Future Yield Token, Pendle also provides a marketplace for users wishing to trade FYT Future Yield derivatives. These derivatives allow users to speculate on future income streams from underlying assets without directly owning those assets. Future yield derivatives provide a form of exposure to future revenue streams without locking tokens into smart contracts.
Pendle uses smart contracts on the Ethereum blockchain to facilitate trading of Future Yield tokens. The smart contract implements the logic needed to block future revenue, issue the corresponding tokens, and allow them to be traded on the Pendle market. Users can interact with smart contracts through Ethereum-compatible wallets and third-party applications.
PT and YT
Pendle Finance packages the tokens that generate income into SY (standardized income token), and then SY is divided into two parts: principal and income, namely PT (principal token) and YT (yield token), which can be passed through Customized V2 AMM for trading.
Pendle is a yield trading protocol where users can mark the income from interest-bearing assets (such as GLP, stETH, aUSDC, etc.) as YT and PT, where holding YT will earn income and PT represents the principal. Since the revenue portion of YT is divested, users will be able to purchase PT at a discounted price. For example, purchasing PT-GLP is equivalent to obtaining GLP at a discounted price, and 1 PT-GLP can be exchanged for 1 GLP at maturity.
How are PT-GLP discounts determined? Fundamentally, the discount rate is determined by market demand for PT-GLP. If there is a large demand for PT-GLP, the discount will naturally be reduced, otherwise the demand will be smaller. The principal and earnings from these interest-earning assets can then be split into PT and YT tokens.
The Pendle project team wrote an easy-to-understand tutorial to explain PT, YT and the significance of their existence.
PENDLE token
PENDLE, the platform’s native token, is an ERC-20 token built on the Ethereum blockchain and plays various roles in the Pendle ecosystem. PENDLE is used as an exchange and payment method within the protocol. Users can use PENDLE to pay fees, access certain services, and participate in the governance of the protocol. Additionally, the token has other utilities related to Pendle functionality, such as creating and trading NFTs.
While PENDLE is initially based on the Ethereum blockchain, Pendle also plans to expand to other blockchains and ecosystems.
Token code: PENDLE
Token type: ERC-20
Token contract address: TBA
PENDLE Token Issuance Schedule and Distribution
Pendle uses a hybrid inflation model. Emissions will start with a stable incentive of 1.2 million PENDLE per week for the first 26 weeks, after which the liquidity incentive will decay by 1% each week until week 260. At this point, terminal inflation is 2%.
As you can see, Pendle allocates the highest proportion to liquidity incentives, as the team places a high priority on creating a deep and liquid yield market. The Pendle team decided on incentive distribution at the outset, which will evolve into community governance as the protocol matures.
The purpose of token distribution is also to give everyone a reasonable opportunity to participate and own a certain proportion of the $PENDLE ecosystem. Permanent inflation will also help ensure that ongoing contributions to the protocol are required to maintain ownership status.
The future of Pendle
Pendle is an "old" DeFi protocol that was launched in 2021, but it has been tepid before. TVL has been declining in 2022, but it has begun to grow rapidly at the end of 2022. One of the key points is that Shanghai's upgrade has ignited the LSD sector.
As mentioned earlier, Pendle's protocols are all based on interest-generating assets. In 2021, when Pendle is launched, interest-generating assets are nothing more than aToken, cToken or LP that appear around lending agreements and DEX. There are limited things to play with. The POS pledge concept that emerged after the Ethereum Merge has allowed the LSD pledge matryoshka sector to increase the types and volumes of interest-earning assets.
Pendle also launched a series of income strategies related to ETH LSD in the second half of 2022, allowing its TVL to grow rapidly. The upcoming upgrade in Shanghai will surely further boost its TVL growth.
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