Pendle Finance introduces a novel mechanism that splits an asset's future yield from its underlying principal. This process transforms any yield-bearing asset into two distinct and tradable components, creating a liquid market for trading yield.
The core mechanism operates as follows:
A user deposits a yield-bearing asset, such as Lido's Staked Ether (stETH) or Ethena's delta-neutral stablecoin (sUSDe), into the Pendle protocol.
Pendle wraps this asset into a Standardized Yield (SY) token.
This SY token is then split into two new tokens with a fixed maturity date:
Principal Token (PT): represents the underlying principal of the deposited asset. It is redeemable 1:1 for the underlying asset upon maturity. Functionally, a PT is the DeFi equivalent of a zero-coupon bond; it trades at a discount to its face value and converges to par at expiry.
Yield Token (YT): represents the yield generated by the underlying asset until the maturity date. Its value is derived from the market's expectation of future APYs and decays over time as the yield is accrued.
This creates a permissionless interest rate trading market where participants can execute sophisticated strategies that were previously impossible in DeFi. Users can:
Lock in Fixed Yield: By selling their YT immediately after depositing an asset, users receive an upfront cash payment for their future yield. This helps a user lock in a fixed return and hedging against yield volatility.
Speculate on Yield: Traders who believe that the APY of an asset will rise can purchase YT on the open market. If the actual yield generated exceeds the market-implied yield at the time of purchase, the trader profits. This allows for pure, leveraged speculation on interest rate movements.
Acquire Assets at a Discount: By purchasing a PT, investors can acquire the underlying asset at a discount to its current market price, with the guarantee of redeeming it at full value upon maturity. This is an attractive strategy for long-term holders who are willing to forgo variable yield in exchange for a lower entry price.
This framework positions Pendle not as a competitor to DeFi yield protocols, but as a crucial, second-order market layer built on top of them. Pendle has established itself as a complementary and indispensable "money lego" in the broader DeFi ecosystem.
Pendle is positioned at the confluence of powerful secular trends that are reshaping the digital asset landscape. The most significant of these is the expansion of the stablecoin market, which is transitioning from a niche crypto product into a global payment and settlement layer.
Stablecoins have demonstrated a clear product-market fit that extends beyond a means for speculative trading. The data paints a picture of explosive growth:
Market Size: The total market capitalization of stablecoins has more than 8x since 2021, currently exceeding $250Bn
Transactional Volume: The most compelling metric is transactional utility. Visa estimates stablecoin transaction volume to be $5.67 trillion in 2024, growing to more than $4 trillion for the first 6 months of 2025. This is on pace to exceed both visa and mastercards annual transaction volumes within the next few years.
This growth is driven by the inherent advantages of stablecoins: near-instant settlement, global accessibility, and dramatically lower transaction fees.
Within this burgeoning market, a specific sub-sector is emerging as a key growth vertical: yield-bearing stablecoins. These are stablecoins that pass the yield generated from their underlying asset directly to its holders, transforming a static digital dollar into a productive asset.
This segment is experiencing exponential growth:
From representing less than 1% of the total stablecoin market at the start of 2024, yield-bearing stablecoins now account for over 4% of the market, with a total issuance exceeding $10 billion.
Pendle is at the epicenter of this revolution. The protocol currently has over $4 billion in yield-bearing stablecoins locked within its smart contracts, representing 40% of the entire supply.
As the market matures, more capital will flow from zero yield stablecoins (USDT/USDC) to productive, yield-bearing alternatives. We expect that yield-bearing stablecoins will eventually capture 15% of the total stablecoin market, which would equate to a $75 billion market in a $500 billion total stablecoin landscape. Pendle is poised to capture a significant share of this inflow.
Recent developments in the US are powerful tailwinds that are legitimizing the asset class and paving the way for institutional adoption.
Executive Endorsement: The public endorsement of stablecoins by US Treasury Secretary Scott Bessent as a "new channel of strategic demand" for US debt represents a monumental shift in governmental tone towards acceptance.
SEC Precedent: In February 2025, the SEC approved Figure Markets' YLDS, creating the first-ever regulated, yield-bearing stablecoin registered as a public security. This approval establishes a clear compliance pathway for future issuers.
Legislative Clarity: The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act represents the most significant step towards crypto regulation in US history. In June 2025, the Senate passed the bill with bipartisan support (68-30 vote), signaling a high probability of passage. The act aims to establish a federal framework for payment stablecoins, mandating 1-to-1 backing with cash or short-term Treasuries and implementing clear rules for issuers.
We see this regulatory clarity as an accelerant for Pendle. The GENIUS Act creates a more transparent and compliant environment that is palatable to conservative institutional capital. This directly benefits Pendle's strategy, particularly its "Citadels" initiative, which is designed to onboard KYC-compliant institutions into permissioned yield products.
Points Meta
Pendle's growth has been supercharged by its role as the central hub for the "points meta," particularly during the highly anticipated Eigenlayer restaking narrative from January to May 2024. Protocols launching new tokens offered "points" to users who deposited capital, with these points promising a future airdrop of their native token.
Pendle became the primary venue for users to speculate on these airdrops via accruing points. Users could use YT to gain leveraged exposure to the points being generated. This created a symbiotic relationship:
For Users: Pendle offered a tool to amplify their airdrop farming strategies.
For New Protocols: Pendle served as a low-cost liquidity bootstrapping hub
Pendle's TVL exploded by 30x, reaching a peak of nearly $7 billion in June 2024. Pendle was also responsible for driving an estimated 50% of Ethena's initial $3 billion in deposits.
Many speculated that the capital from this explosive growth was purely "mercenary" and would disappear post airdrops. Pendle proved them wrong by successfully converting speculative inflows into durable, long-term TVL.
Pendle established itself as the default marketplace for yield-bearing assets. Long after the initial Ethena points campaign concluded, Pendle continues to retain approximately 50% of the total circulating supply of Ethena's USDe within its pools. Pendle has turned this into a repeatable playbook - onboarding new cohorts of stablecoin issuers and yield-bearing assets (such as Syrup, Reserve, and Usual) by initially facilitating incentive campaigns, and then transitioning them into core, long-term markets on the platform.
Pendle vote-escrowed token model accrues value back to token holders, creating a virtuous cycle that aligns the incentives of protocol participants.
The mechanics are designed to reward long-term commitment:
Locking: Users lock their PENDLE tokens for a period of up to two years to receive non-transferable vePENDLE. The longer the lock duration, the greater the amount of vePENDLE received, which translates to more voting power and higher rewards.
Incentive Direction & Governance: vePENDLE holders vote on a weekly basis to direct the flow of PENDLE emissions to specific liquidity pools. It has sparked a dynamic where protocols compete to influence these emissions by either acquiring PENDLE or bribing vePENDLE holders to vote for their pools.
Direct Revenue Share: vePENDLE holders are entitled to a significant share of the protocol's revenue, which is derived from two sources:
5% fee taken from all yield (including points) accrued by YT tokens
80% of swap fees generated by the liquidity pools they vote for
Liquidity Provider (LP) Boost: vePENDLE holders who provide liquidity can boost their PENDLE rewards by up to 2.5x.
This is a proven growth vector that has already found widespread product-market fit. The integration of Pendle's PTs, particularly PT-USDe, as prime collateral on major money markets like Aave V3 and Morpho have attracted over $1.5 billion in deposits.
This has unlocked a powerful new DeFi primitive: leveraged fixed-yield farming. Users can now deposit a Pendle PT as collateral, borrow stablecoins against it, use the borrowed funds to purchase more PT, and repeat this cycle. This "looping" strategy allows users to amplify their fixed-yield returns significantly, with some strategies achieving annualized returns north of 30%.
This initiative targets the largest and most dormant pool of capital in all of crypto. Bitcoin's market cap exceeds $2 trillion, yet its productive use within DeFi has historically been limited due to a lack of native programmability. Through strategic partnerships with key BTCFi infrastructure providers like Babylon, Lombard Finance, and Corn, Pendle is integrating native Bitcoin yields into its platform. This taps into the underserved market of Bitcoin whales and institutions that can finally earn on-chain yield on their Bitcoin.
This represents Pendle's strategic push to onboard institutional capital by developing compliant, accessible, and familiar investment products.
KYC/AML Compliance: A partnership with Ethena and its new "Converge" blockchain will integrate native KYC capabilities directly into the chain. This will enable the creation of permissioned, compliant liquidity pools on Pendle, providing a regulated environment for institutions to participate in DeFi yield
New Product Lines: Pendle is also exploring Shariah-compliant yield products, opening the door to the rapidly growing Islamic finance market
While Pendle is currently dominant within EVM ecosystems, the protocol is pursuing an aggressive expansion into high-growth alt-L1 ecosystems to capture new users. The public roadmap includes plans for launching on Solana in Q3 2025, with further integrations planned for Hyperliquid and TON as well.
Perhaps the most ambitious growth vector is "Boros," a new product vertical that targets funding rates derived from the largest market in crypto: perpetual futures. The crypto perpetuals market boasts a staggering daily open interest of ~$150 billion with trading volumes that are often multiples of spot markets.
A critical component of this market is the "funding rate," a periodic payment exchanged between long and short positions to keep the futures price anchored to the spot price. These rates can be extremely volatile. Currently, traders and institutions have no reliable or scalable way to hedge these funding rate fluctuations.
Pendle's upcoming "Boros" product creates a marketplace for funding rates. This will allow users to either hedge by locking in a fixed rate or speculate on future funding rates. This is a massive untapped market and a natural extension of Pendle's core products. It transforms Pendle into a risk management hub for the crypto derivatives market, expanding its potential user base to include major trading firms, market makers, and sophisticated derivatives traders.
Pendle Finance has established itself as a foundational piece of DeFi infrastructure. It created the on-chain market for interest rate derivatives, and has successfully found strong product market fit with durable TVL looking for stablecoin yields.
We believe that Pendle is one of the largest beneficiaries of this powerful secular tailwind - stablecoins. Its competitive moat is complemented with deep ecosystem integrations, and a powerful tokenomics flywheel that creates sticky liquidity and aligns long-term incentives.
The path to future growth is clear, targeting the largest pools of untapped capital in the digital asset space: institutional fixed-income, native Bitcoin yield, and funding rate derivatives. We think that $PENDLE represents one of the most compelling long-term liquid investment opportunities today.
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