Pendle Finance

Pendle Finance is a Decentralized Finance protocol that allows users to tokenize and sell future yields. It is a permissionless yield-trading protocol that acts as a second-order derivatives layer on top of core yield-generating primitives such as Liquid Staking Tokens (LSTs), Liquid Restaking Tokens (LRTs), stablecoins, and real-world assets (RWAs). Pendle’s core mechanism is yield tokenization, where yield-bearing assets are wrapped into standardized yield tokens (SY) and split into principal tokens (PT) and yield tokens (YT), which are then traded through Pendle’s automated market maker (AMM) to power fixed yield, long yield, and liquidity strategies.^[6]​^[7]​^[8]​^[9] Pendle Finance was founded in 2020 by TN Lee.^[3]​

Overview

Pendle Finance is a permissionless yield-derivatives layer built on top of yield-bearing assets such as Liquid Staking Tokens (LSTs), Liquid Restaking Tokens (LRTs), stablecoins, and RWAs. It focuses on enabling strategies around fixed yield, leveraged exposure to future yield, and hedging yield risk, allowing users and other protocols to treat yield as a tradable primitive within DeFi.^[6]

Pendle’s automated market maker (AMM) is designed to support tokens with depreciating time value, making it suitable for fixed-income and yield-based trading. The platform also features governance through vote-escrowed PENDLE (vePENDLE) tokens. Pendle continues to expand its ecosystem by supporting real-world assets (RWAs) like sDAI and fUSDC, aiming to bridge traditional finance and DeFi. Through tools such as fixed yield, yield speculation, and structured yield exposure, Pendle targets retail and institutional users seeking to manage yield volatility or access new financial primitives. ^{[3] [6]}

Features

Yield Tokenization

Yield tokenization is the process of separating a yield-bearing asset into two components: principal and yield. In Pendle, this begins by wrapping the original asset into a standardized yield token (SY) that can interact with the protocol's AMM. The SY token is then split into a principal token (PT) representing the original asset value and a yield token (YT) representing the future yield. This separation allows users to independently trade, manage, or speculate on each component.^[6]

SY

SY is a standardized token format that wraps yield-bearing assets to provide a unified interface for use in smart contracts. The system standardizes their behavior by converting yield-generating tokens—such as stETH, cDAI, and yvUSDC—into their SY equivalents, allowing them to integrate seamlessly with Pendle’s infrastructure. SY is the primary interface through which Pendle accesses yield-bearing assets, enabling the minting of principal (PT) and yield (YT) tokens and supporting trading between SY and PT in Pendle’s AMM.

Although SY operates in the background, Pendle automates the wrapping and unwrapping processes, so users interact directly with the original tokens. Beyond Pendle, the SY standard is intended to support broader composability in DeFi, allowing other protocols and developers to integrate yield-bearing tokens more easily without requiring custom solutions.^[7]

PT

Principal Token (PT) represents the principal portion of a yield-bearing asset after it has been separated from its yield. Each PT corresponds to a specific accounting asset—such as stETH, ETH, or USDC—used in protocols like Lido, Renzo, or Aave. At maturity, PT can be redeemed on a 1:1 basis for the underlying accounting asset.

PT trades at a discount before maturity because the yield has been separated into a different token. As the maturity date approaches, the value of PT gradually aligns with the full value of the underlying asset. This price appreciation defines the fixed yield return that PT holders can expect over time.^[8]

YT

Yield Token (YT) represents the yield portion of a yield-bearing asset after tokenization. When users hold YT, they receive the yield generated by the underlying asset over time, up until maturity. The ongoing yield received corresponds to the “Underlying APY,” which reflects the actual return rate from the original asset.

The market value of YT declines over time and eventually reaches zero at maturity, as it no longer entitles the holder to any future yield. Profit is realized when the total yield earned exceeds the purchase cost of the YT. The market’s pricing of YT, referred to as the “Implied APY,” represents the expected yield rate. If the actual yield (Underlying APY) ends up being higher than this implied rate, the YT holder benefits. Yield is distributed in the SY format and can be returned to the original token by unwrapping it.^[9]

Liquidity Engines

Pendle V2

Pendle V2 is an automated market maker (AMM) designed specifically for yield trading. It optimizes liquidity around the unique behavior of Principal Tokens (PT) and Yield Tokens (YT). It adapts a model from Notional Finance but adjusts the curve to reflect how PT value trends toward its underlying asset as maturity approaches. This allows liquidity to concentrate in a narrow, relevant price range, improving capital efficiency.

Pendle V2 uses a pseudo-AMM structure that supports PT and YT trades through a single PT/SY liquidity pool, where SY is the standardized wrapped version of a yield-bearing token. YT swaps are handled via flash swaps within the same pool, allowing seamless, capital-efficient trading. Liquidity providers (LPs) earn from PT appreciation, SY’s yield, swap fees, and additional incentives. Auto-routing enables interaction with various major tokens without manual steps.

Pendle V2 also introduces features to mitigate impermanent loss (IL) by designing the AMM curve to track PT's natural appreciation. Because PT and SY are highly correlated, IL is minimized, especially when liquidity is held to maturity. The AMM is customizable, letting liquidity concentrate within a known yield range for each asset, which improves slippage control and supports larger trades. In cases where market conditions push yield beyond the preset range, trading may be constrained. Pendle V2’s unified liquidity structure means LPs earn fees from both PT and YT trades in the same pool, and traders benefit from greater depth and lower slippage. Upon maturity, LPs can exit positions, redeem PT, unwrap SY, and claim rewards in a single transaction.^[2][10]

Order Book

Pendle integrates an Order Book system alongside its AMM to support peer-to-peer trading of Principal Tokens (PT) and Yield Tokens (YT). This feature allows users to place limit orders based on a desired implied APY. When the AMM’s implied APY moves toward the order’s specified rate, incoming swap orders will fill the limit order first, deepening liquidity at that rate before affecting the AMM. Orders can be fully or partially filled depending on available wallet balance, token allowances, and gas efficiency. Flash swap functionality between PT and YT increases flexibility, enabling cross-matching between PT and YT orders.

Only the corresponding yield-bearing asset can be used for limit orders. Orders become invalid if the wallet balance or token allowance is insufficient or zero. Setting a limit order requires a signature, while cancellation involves an on-chain transaction. Swap fees on limit orders are the same as AMM swaps, with maker orders incurring no fee for now. Fee revenue is distributed in ETH to vePENDLE voters. An arbitrage bot actively maintains pricing consistency between the AMM and Order Book by correcting price discrepancies as they arise.^[11]

Boros

Boros is a separate yield-trading platform built by the Pendle team and previously referred to as Pendle V3. It introduces a new base that operates alongside Pendle V2, which continues to support on-chain yield markets. Boros focuses on trading funding rates and other off-chain or oracle-based yields on margin, initially targeting perpetual funding rates for markets such as BTC and ETH. The platform is intended for both hedging and speculative strategies around these yield streams, such as locking in fixed funding or taking leveraged views on rate movements. No new token is introduced for Boros, and value from both Boros and Pendle V2 continues to accrue to PENDLE and vePENDLE.^[14]

PENDLE

PENDLE is the native token of the Pendle Finance protocol for incentives and governance. Pendle has committed not to introduce a separate token for Boros, with protocol revenue from both Boros and Pendle V2 shared under an 80/10/10 split between vePENDLE holders, the protocol treasury, and protocol operations.^[14]

Liquidity providers receive PENDLE rewards alongside a share of trading fees. At the same time, users can stake PENDLE to obtain vePENDLE, which grants voting rights and allows for reward boosting within the system.^[3][12]

Tokenomics

PENDLE has a total supply of 235.8M tokens.^[13]

As of September 2024, weekly emissions were 216,076 PENDLE, with a scheduled 1.1% weekly reduction until April 2026, after which emissions shift to a 2% annual terminal inflation rate for incentive programs.^[13] All team and investor tokens had fully vested by September 2024, so further growth in freely circulating supply primarily comes from incentive programs and broader ecosystem initiatives. Circulating supply explicitly excludes PENDLE locked in the sPENDLE staking contract, PENDLE in vePENDLE, and PENDLE held in the ecosystem fund, governance multisig, and team multisig, with total supply at any point equal to circulating supply plus the balances in these addresses.^[13]

vePENDLE

Pendle Finance uses vote-escrowed PENDLE (vePENDLE) as its governance model, enabling users who lock their PENDLE tokens to participate in protocol decision-making. The amount of voting power is based on the duration and size of the lock, and it decays over time unless renewed. vePENDLE holders can vote to allocate incentives to specific liquidity pools, influencing how rewards are distributed across the platform.

In addition to governance rights, vePENDLE provides several benefits: holders earn a share of swap fees from the pools they vote for, receive base staking rewards, and can boost liquidity mining yields by up to 2.5x. The system also acts as a supply sink, reducing circulating PENDLE and contributing to the protocol's long-term sustainability.^[1]

Fundraising

2021

Pendle Finance announced successful fundraising in April 2021, led by Mechanism Capital. They were able to raise $3.7M in their private round, with support from the following funds and individuals: 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, co-founder & CEO of DeBank, and Taiyang Zhang, co-founder & CEO of Ren Protocol.^[3]

2023

In August 2023, Binance Labs announced an undisclosed investment in Pendle Finance. The funding secured by the Pendle Finance team will be allocated towards expanding to multiple blockchain networks, specifically catering to retail and institutional users. The co-founder and CEO of Pendle Finance, TN Lee, stated that they intend to leverage Binance Labs' extensive expertise and resources to expand their operations. Binance Labs highlighted that Pendle's fixed yield offering would play a crucial role in the project's development, particularly as it traditionally serves as a fundamental component for institutional hedging.^[4]

In November 2023, Spartan Capital made an additional investment in Pendle Finance through an over-the-counter (OTC) purchase, although the investment size was not disclosed. Spartan Capital highlighted Pendle's growth, citing data from DefiLlama showing a more than 2,000% increase in total value locked (TVL) over the year since November 2022. They expressed confidence in Pendle’s solutions, such as Liquid Staking Derivatives and Real World Assets, to attract more off-chain capital to the industry.^[5][3]

Partnerships

Pendle Finance counts several funds from its April 2021 private round as early backers, including Mechanism Capital, Crypto.com Capital, Hashkey Capital, Spartan Group, and CMS.^[3] In 2023, Binance Labs joined as a strategic investor, supporting Pendle’s expansion across multiple blockchain networks and its efforts to serve both retail and institutional users.^[4][15]