According to Bloomberg, Pendle Finance, a hot project in the crypto world, has seen a surge in trading activity since it began integrating airline-like loyalty points programs in January. This move has attracted traders to the platform to speculate on these rewards, which are believed to have little intrinsic financial value. Currently, around $6.4 billion in assets are staked to the protocol, which has essentially become a secondary market for trading crypto points and yields.
Loyalty points programs gained popularity late last year when numerous crypto projects started offering them as rewards for participation, rather than giving away more tokens. Despite the ambiguity surrounding the value of these points, they have become a hit among traders who traditionally bet on airdrops, or token giveaways used to stimulate activity on new blockchains. This is where Pendle steps in. By linking users who want to accumulate points with those who want to secure higher yields, Pendle has established a marketplace for buying and selling these points.
TN Lee, a Singapore-based co-founder of Pendle Finance, likens it to a lottery ticket, but with less emphasis on gambling and more on the performance of the protocol or token. Despite warnings from critics that this combination heightens many of the risks inherent in DeFi, Lee stated that the company is striving to meet demand for a product that could bring some clarity to returns paid by borrowers of cryptocurrencies by presenting a stated yield over a set period.
Interest-bearing cryptocurrencies gained popularity after the introduction of yield farming. The pricing of principal and yield tokens is based on the concept that the combined value of the two always equals the market value of the underlying cryptocurrency. Lee explained that even if there's no demand for both tokens, their total value will still equal the underlying asset based on the mathematical formula designed for Pendle.
However, Pendle's financialization of crypto loyalty points has faced criticism from within the DeFi industry. Some observers have expressed concern that pricing a product like points only makes the sector even more speculative and risky. Despite this, Pendle's ultimate goal is to tackle larger traditional assets, such as the fixed-income market, and bring them to the blockchain, according to Lee.
