Long Push: In-depth Analysis of Pendle, the LSD Genius Project that Grew 10x in Six Months

Pendle: LSD project grows 10x in six months.

Original author: 31 | Trader

Original source: Twitter

Note: This article comes from @althunter31’s Twitter, and is organized by MarsBit as follows:

【Half-year 10 times|In-depth analysis of the LSD genius project Pendle】

@pendle_fi, in addition to the 10x rise in coin price in half a year and the rapid breakthrough of 100m TVL, has top-notch fundamentals and models.

I have earned tens of thousands of U on Pendle, and it can meet both investment and speculation, perhaps a truly “evergreen” target!

This article includes hardcore science popularization with examples, and even DeFi novices can understand it. High concentration of dry goods, it is recommended to code first and then read.

1 Pendle is a decentralized “yield trading protocol” built on #etherum and #arbitrum, which allows users to execute various yield management strategies. To understand Pendle, you mainly need to understand the following 3 parts:

– Yield tokenization

– Pendle automatic market-making mechanism


These terms look very professional, don’t worry, I will explain them one by one with examples below.

2 Yield Tokenization

First of all, Pendle defines “yield-bearing tokens” (SY), which refers to any tokens that can generate income, such as stETH obtained by pledging ETH on Lido and aToken obtained by lending assets on AAVE, and so on.

Pendle is encapsulated in code so that the underlying SY can be compatible with the Pendle AMM

2.1 SY is then split into two components, principal and yield, which are PT (principal token) and YT (yield token), respectively, and both can be traded on Pendle.

This process is called yield tokenization, which is to split income into independent tokens – SY = PT + YT

Taking stETH as an example: the yield-bearing token of stETH on Pendle is SY-stETH, and SY-stETH = PT-stETH + YT-stETH

2.2 PrinciBlockingl Token/PT

PT represents the principal part of the underlying income-generating assets. Holding PT means you hold the ownership of the principal.

After the expiration date, PT can be redeemed for the underlying assets at a 1:1 ratio. Because its income components have been separated, PT can be purchased at a certain discount (compared to the underlying assets).

2.3 For example.

It can now be purchased for 0.9 DAI per 1 PT-cDAI. When the expiration date arrives, 1 PT-cDAI can be exchanged for 1 DAI and the yield rate is (1-0.9)/0.9 = 11.1%.

2.4 Yield Token/YT

YT represents the income generated by the underlying interest-bearing assets. Users holding YT have the right to receive the income generated by the underlying assets, which is displayed as the “underlying annualized yield (Underlying APY)” in Pendle.

For example, holding 10 YT-stETH means that you can receive all the income from the 10 ETH deposited in Lido.

3 Pendle AMM (Automatic Market Maker)

In Pendle V2, the liquidity pool is set to PT/SY, which means that the principal token and its interest-bearing token form a trading pair, such as PT-aUSDC/SY-aUSDC.

Trading the principal token PT is a simple process, just exchange between the two assets in the pool, and through Pendle’s so-called “flash exchange”, you can also achieve the trading of income token YT in the same pool.

3.1 Example:

I pledged 100 USDC to AAVE and obtained 100 aUSDC. Then I came to Pendle and exchanged 100 aUSDC for 100 YT-aUSDC, and then split these 100 YT-aUSDC into 100 PT-aUSDC and 100 YT-aUSDC.

Assuming that there are no other users at this time, there will be a liquidity pool of 100 SY-aUSDC / 100 PT-aUSDC on Pendle.

3.2 In theory, the price of the principal token PT plus the price of the income token YT should be equal to the price of the underlying asset itself, that is, P(PT)+P(YT)=P(SY).

Assuming that in the above example, the price of SY is 1 aUSDC and the price of PT is 0.9 aUSDC, the price of YT is 0.1 aUSDC.

3.3 Assuming that user A wants to buy some income token YT-aUSDC for 10 aUSDC, he can buy 10/0.1=100 YT-aUSDC. How to buy it? The code of the smart contract is implemented like this:

First, because users use 10 aUSDC, pendle will wrap it into 10 SY-aUSDC

-> The smart contract will then borrow 90 SY-aUSDC from the liquidity pool


-> Split user A’s 10 SY-aUSDC and the 90 SY-aUSDC taken from the pool

-> The split becomes 100 PT-aUSDC and 100 YT-aUSDC

-> Give all 100 YT-aUSDC to user A, sell the 100 PT-aUSDC and exchange them for 90 SY-aUSDC, and then return them to the liquidity pool

3.5 In the above example, if a user wants to sell 10 YT-aUSDC, he can exchange them for 10*0.1=1 SY-aUSDC:

-> The smart contract will borrow 10 PT-aUSDC from the liquidity pool

-> Combine 10 YT-aUSDC and 10 PT-aUSDC and exchange them for 10 SY-aUSDC

-> Give the user 1 SY-aUSDC, and the remaining 9 SY-aUSDC will be exchanged for 10 PT-aUSDC and returned to the liquidity pool

3.6 Yes, this is a genius mechanism, what are the benefits?

For liquidity providers LP: Since YT transactions and PT/SY transactions are both in the same pool, LP can earn transaction fees for both PT and YT from a single liquidity provider, doubling profits.

For traders: Concentrating YT and PT in a single PT/SY pool, rather than separately in different pools, will bring better depth and liquidity-reducing slippage.

3.7 The team’s tokens have all been unlocked since April this year. Any increase in circulation will now come from incentives and ecosystem development.

From October 2022, the weekly issuance will be 667,705, decreasing by 1.1% per week until April 2026.


$vePENDLE is PENDLE’s governance token, which must be obtained by staking $PENDLE. The more $PENDLE staked, or the longer the time period, the more $vePENDLE obtained. At maturity, 1 $vePENDLE can be exchanged for 1 $PENDLE.

4.1 The uses of $vePENDLE

Voting: Similar to the mechanism of @curve, pendle will also provide $PENDLE rewards to certain pools. The $vePENDLE holders will vote to decide which pools can receive rewards every Thursday at 00:00 UTC.

Rewards: Pendle charges a 3% fee on all revenue generated from YT, which is currently 100% allocated to vePENDLE holders.

4.2 In addition, the portion of the revenue from expired but unredeemed PT will also be proportionally distributed to vePENDLE holders.

For example, an expired PT-aUSDC is equivalent to aUSDC. If the holder does not redeem it, all of the revenue will be converted into stablecoins and collected by the protocol as protocol revenue, which will be distributed to vePENDLE holders.

4.3 The interest collected from YT, plus the reward for expired PT, constitutes the “Base APY” (base annual percentage yield) of $vePENDLE. In addition, if you vote, you have the right to receive 80% of the transaction fee from the voted pool, which constitutes the “Voter’s APY” (voter’s annual percentage yield). Base APY + “The highest possible Voter’s APY” equals the maximum potential annual percentage yield (Max APY) that one can possibly receive.

4.4 In addition to distributing all YT fee revenue to all vePENDLE holders, Pendle also distributes transaction fees generated to the corresponding vePENDLE voters of the respective pool (for example, vePENDLE holders who vote for pool X will receive transaction fee revenue from pool X).

Currently, all revenue from the Pendle protocol is distributed to vePENDLE holders, and the project itself does not receive any allocation.


The genius mechanism, generous project team, and revenue-sharing model make Pendle one of my favorite projects.

Later, I will share why Pendle has such high expectations and how to use it to expand your earnings.

This took a lot of effort to write, and if you have made it this far, I believe you have gained something. Writing is not easy, so if you like this thread, please follow me and like, comment, and share.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!


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