KEYTAKEAWAYS
- Pendle Finance tokenizes future yields of crypto assets, providing investors with new income sources and market liquidity.
- PENDLE, the native token, is used for transactions, governance, and accessing services within the Pendle ecosystem.
- Pendle utilizes Ethereum smart contracts to facilitate decentralized and secure participation in yield trading.
CONTENT
Pendle Finance enables users to lock in future yields of crypto assets through tokenization, offering a new source of income and enhancing market liquidity with PENDLE, its native token.
WHAT IS PENDLE FINANCE & PENDLE?
Pendle is a permissionless decentralized finance (DeFi) protocol built on the Ethereum blockchain, aimed at providing users with attractive yields by increasing exposure to yields during bull markets and hedging against yield declines during bear markets. Users can execute various yield management strategies within the Pendle protocol to optimize the returns on their crypto assets.
The Pendle protocol allows users to lock in future income in the form of ERC-20 tokens, known as Future Yield Tokens (FYT), which represent the holder’s rights to future income streams generated by crypto assets, such as loan interest rates or staking rewards. Users can create, trade, and sell these tokens on the Pendle market, thereby enhancing the liquidity and yield potential of their assets.
Additionally, Pendle offers a marketplace for users who wish to trade FYT future yield derivatives. These derivatives enable users to speculate on the future income streams of underlying assets without directly owning them. Pendle leverages smart contracts on the Ethereum blockchain to facilitate the trading of Future Yield Tokens. These smart contracts implement the logic necessary to lock in future income, issue corresponding tokens, and allow them to be traded on the Pendle market. Users can interact with these smart contracts through Ethereum-compatible wallets and third-party applications.
- PENDLE token
PENDLE is the native token of the Pendle Finance platform, an ERC-20 token built on the Ethereum blockchain that plays various roles within the Pendle ecosystem.
PENDLE is used as a medium of exchange and payment within the protocol. Users can utilize PENDLE to pay fees, access certain services, and participate in the governance of the protocol. Additionally, the token has other utilities related to Pendle’s features, such as creating and trading NFTs.
While PENDLE is initially based on the Ethereum blockchain, Pendle also plans to expand to other blockchains and ecosystems.
>>> More to read : What Is Ethereum & How Does It Work?
HOW PENDLE WORKS
Pendle Finance packages yield-generating tokens into SY (Standardized Yield tokens). These SY tokens are then split into two parts: the principal (PT, Principal Token) and the yield (YT, Yield Token), both of which can be traded through a customized V2 AMM.
(Image source: datawallet.com)
Pendle is a yield trading protocol that tokenizes the yield of interest-bearing assets such as GLP, stETH, aUSDC, and more into YT and PT. Holding YT entitles the holder to the yield, while PT represents the principal.
Since the yield part is stripped away in YT, users can purchase PT at a discount. For example, buying PT-GLP is equivalent to acquiring GLP at a discounted price. One PT-GLP can be redeemed for one GLP upon maturity.
- How is the discount for PT-GLP determined?
Fundamentally, the discount rate is driven by the market demand for PT-GLP. If there is high demand for PT-GLP, the discount will naturally decrease, and vice versa if the demand is low.
These interest-bearing assets’ principal and yield can be split into PT and YT tokens.
The Pendle team has created a simple tutorial to explain PT, YT, and their significance. For those interested, you can check it out here: Pendle Finance Tutorial.
PENDLE SUMMARY
Pendle is a blockchain project focused on yield tokenization, allowing users to lock in the future yields of their crypto assets and earn returns in advance. This innovative approach provides cryptocurrency holders with a new source of income while introducing more liquidity and flexibility to the interest rate market. Pendle leverages smart contract technology to enable this functionality, allowing users to participate in the market in a decentralized and secure manner.
>>> More to read : What is Altcoin & Altcoin Season?
FAQ
- What is Pendle?
Pendle is a yield tokenization protocol that allows investors to secure the future returns of their assets. PENDLE is the native token of Pendle Finance, playing a key role within its ecosystem.
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