High Ether Yield Drives $50M to DeFi Protocol Pendle Finance
Return Management Protocol Pendle Finance has attracted over $50 million due to renewed interest from traders looking to passively capture market returns.
The total locked-in value (TVL) of assets on the platform has risen over 300% since the beginning of this year, DeFiLlama data shows. $26 million of these have been captured on the Ethereum network, $21 million on the Arbitrum network and just under $1 million on Avalanche.
Staked ether (stETH) dominates the holdings, taking up 27% of all capital on Pendle, followed by the GMX protocol’s glp tokens at 18% and by dai (DAI) stablecoins at 16%.
Some strategies offer as much as 82% annually on ether and ether derivatives. These have a maturity period ending in late 2023 or early 2024.
Pendle also allows investors to buy ether at a 5.88% discount starting Thursday. This ether can be claimed on December 26, 2024, where the discount will be offset by capturing future expected returns on the principal amount.
More sophisticated strategies using ether derivatives offered by other projects, such as Frax, offer as much as 441% in returns over a 624-day period.
Pendle uses a dual-token model that breaks down and represents any investment in a decentralized finance (DeFi) protocol, such as Compound or Aave, into two parts: one, the initial principle put up by an investor, and two, the future return expected to be earned at that position in the form of symbolic rewards.
This is done by wrapping yield-bearing tokens into a standardized yield token, that token is then wrapped into a principal token (PT) and yield token (PT) that can be traded on the open market.
“Almost every pool in DeFi gives you a returnable position in return for staking or depositing tokens,” Pendle says in his technical papers. “1 PT gives you the right to redeem 1 unit of the underlying asset at maturity. 1 YT entitles you to receive a return of 1 unit of the underlying asset from now until maturity, which can be claimed in real time.”
This allows Pendle to offer multiple products to users – for example, the ability to lock in expected fixed returns, buy returns in hopes of higher returns in the future, or switch between multiple strategies to continuously profit from the returns offered by different protocols.
Pendle’s native governance tokens, PENDLE, are trading at 50 cents at press time on Thursday. These accrue value over time, documents show, and can ultimately benefit from the growth and use of the underlying platform.
