What is Pendle Finance?

Pendle Finance is a decentralized finance (DeFi) protocol that enables the tokenization and trading of future yield. It splits yield-bearing assets into Principal Tokens (PT) and Yield Tokens (YT), allowing users to manage, hedge, or speculate on yield.

Pendle wraps yield-bearing tokens (e.g., stETH) into Standardized Yield (SY) tokens. These SY tokens are then split into two components: Principal Tokens (PT), representing the underlying principal, and Yield Tokens (YT), representing the claim on future yield until a maturity date.

PT represents the principal of the deposited yield-bearing asset, redeemable for the underlying asset at maturity (like a zero-coupon bond). YT represents the right to the future yield generated by that asset until maturity; its value typically declines as it approaches maturity and becomes zero after expiry.

Pendle has a custom Automated Market Maker (AMM) specifically designed for trading PT and YT. It accounts for the time-decaying nature of these tokens and aims to minimize impermanent loss by having PT trade against SY (the wrapped underlying asset) and using flash swaps for YT trades, concentrating liquidity effectively.

Users can mint PT and YT from yield-bearing assets, buy PT to lock in a fixed yield, buy YT to speculate on or gain leveraged exposure to yield, or provide liquidity to PT/SY pools to earn fees and PENDLE incentives.

Pendle addresses yield uncertainty by allowing users to fix yields, provides tools for more advanced risk management on yield, unlocks liquidity from staked assets, and creates a market for speculating on yield itself.

Benefits include the ability to secure fixed yields, speculate on yield changes with capital efficiency, provide liquidity with potentially minimized impermanent loss (especially if held to maturity), and access more sophisticated yield management strategies.

Risks include smart contract vulnerabilities, risks from the underlying yield-bearing assets themselves (e.g., depegging or exploit of the original asset), AMM-specific risks (like liquidity depth for certain PT/YT pairs), oracle risks, and the complexity of understanding the protocol for new users.

PENDLE is the native token. Users can lock PENDLE to receive vePENDLE (vote-escrowed PENDLE), which grants voting rights on directing PENDLE incentives to liquidity pools, earning a share of protocol fees (Voter's APY & Base APY), and boosting their own LP rewards significantly.