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We are seeing traditional finance being transformed, and the DeFi industry has the capacity to develop into a stand-alone financial system. Yields can be traded in bond coupons, interest rate swaps, or other financial instruments in a robust and developed capital market. Pendle wants to help DeFi reach this subsequent milestone. It offers users yields in the form of tradable digital tokens, with some strategies offering as much as 82% annualized yields on ether (ETH) and ether derivative tokens. Pendle went live in June 2021 and was created by TN Lee and Dan Anthony. Let’s take a closer look at Pendle Finance and what stands behind this popular protocol.
Pendle is the first protocol to provide trading tokenized future yield on an AMM system. The main objective of Pendle Finance is to create an environment for cryptocurrency investors who own yield-generating assets with time decay, allowing them to increase their profits and lock in prospective gains up front. Additionally, without requiring underlying collateral, the protocol attempts to give traders direct exposure to future yield streams. There are three components that make up Pendle’s system:
The native coin of Pendle is called PENDLE, an uncapped ERC-20 token. PENDLE is a pure utility token that, after the protocol is developed, will be used for governance purposes. For the first 26 weeks of the token's hybrid inflation scheme, incentives of 1.2M PENDLE each week were offered. After the first year, weekly liquidity incentives will decline by 1% until week 260, at which point the 2% eternal inflation rate will start.
After two years, the following PENDLE token distribution will take place:
Pendle's governance is controlled by the token vePENDLE. This token creates a sink for PENDLE to maintain the token's value while also furthering decentralization and ecosystem stability. Users must stake and lock in their PENDLE tokens in order to obtain vePENDLE.
Additionally, the amount of PENDLE staked and the length of the lock-in period (a maximum of two years) affect the value of vePENDLE and the governance implications that may emerge. At the conclusion of the lock-in period, the value of the vePENDLE token will have decreased to zero. Then, users can release their staked PENDLE.
Pendle receives a 3% fee for every yield that YT purchases. Each and every penny of this fee is given to vePENDLE owners. In addition, the holders of vePENDLE will each receive a proportionate share of the profits from matured PTs that are not redeemed.
By allowing traders direct exposure to future yield streams without the need for underlying collateral, the platform hopes to enable owners of yield-generating assets the chance to increase yield and lock in future yield up front. Pendle works on top of first-degree protocols and provides support to Aave and Compound.
Aave's aTokens, as well as aUSDC, SLP, gOHM, and other yield-generating assets, can be deposited into Pendle by their owners. Owners of yield-bearing tokens are able to fund Pendle with their assets. This protocol then wraps these yield-generating assets in SY (Standardized Yield), a token standard made up of the principal and yield components, PT and YT, that is intended to make interaction with an asset's yield-generating mechanism easier. As a result, depositors of tokens with a dividend can create both a primary token and a yield token.
The yield token can be used in a variety of ways by holders. They may, for instance, deposit the YT into Pendle's AMM to provide liquidity for the protocol in exchange for swap fees and other Pendle rewards.
Users have a variety of methods to use their YT. By giving Pendle YT AMM liquidity, users can raise their yield and gain more trading fees and protocol benefits. Alternatively, YT holders can sell their YT tokens to instantly lock in returns at a fixed interest rate, simulating a conventional interest rate swap. Without having to post their own assets as security on another system, traders who buy YT tokens gain exposure to potential yields.
Additionally, Pendle enables owners to sell their YT for cash up front, giving them the ability to control interest rates and instantly lock in earnings. On the other hand, Pendle users can directly buy yield tokens without needing to own a yield-bearing asset.
There are two ways of using Pendle. You can:
Pendle establishes a successful and capital-efficient yield market where traders (or new owners) can have exposure to future yield through the use of the yield token, which stands in for the owner's right to possible earnings. In bull markets, they can increase their exposure to yield, and in bear markets, they can protect themselves from yield risk. It is important to keep in mind, though, that the YT can only be traded up until the point at which it expires and loses all of its value.
A yield token ceases producing yield when it reaches maturity. The YT owner now has two options: roll over to a new expiry or redeem the primary token for the underlying yield-bearing asset from Pendle. The YT owner must also possess the primary token in order to perform any of these operations, though.
In the upcoming years, Pendle Finance has shown a lot of promise as a protocol that will dominate the DeFi ecosystem. It won't be long before Pendle overtakes other DeFi-leveraging options thanks to its integration with well-known DEXes like Camelot. In the beginning of July 2023, Pendle announced they will expand to the BNB Chain network.
When it comes to PENDLE coin price prediction, many sources believe that the coin has a promising future. For instance, PricePrediction analysts think that by 2027, $PENDLE can surge in price to reach its all-time high of $5.11 (its current all-time high is $3.83). They also predict that by the year 2030, this cryptocurrency may skyrocket to $15.04 at its peak.
Pendle is one of the leading protocols on the market and it’s possible that it continues to grow and develop. Thanks to this platform, the trading and dividend tokenization processes are made easier. Pendle continues to set the pace for yield trading and DeFi – all due to the protocol's distinctive features, such as a decentralized governance framework and cutting-edge fee structure.
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Don’t forget to do your own research before buying any crypto. The views and opinions expressed in this article are solely those of the author.