We are seeing finance being rebuilt on open rails, with DeFi having the potential to become an independent financial system. In a healthy and mature capital market, yields can be traded, be it in bond coupons, interest rate swaps or other financial instruments. Pendle aims to assist in achieving this next milestone in DeFi.
Pendle is the first protocol that enables the trading of tokenized future yield on an AMM system. We aim to give holders of yield-generating assets the opportunity to generate additional yield and to lock in future yield upfront, while offering traders direct exposure to future yield streams, without the need for an underlying collateral.
Pendle exists on top of first-degree protocols. We currently support Aave and Compound, with more platforms to be integrated in the future.
There are three components that makeup Pendle’s system:
Pendle’s Automated Market Maker (AMM)
Governance (Coming soon)
Holders of yield-generating assets can deposit these tokens into Pendle. By doing so the user mints an Ownership Token (OT), representing the underlying principle, and a Yield Token (YT), representing the right to receive the yield.
Users can then utilize their YT in two different ways.
Firstly, they can deposit their YT into Pendle’s AMMs to provide liquidity to Pendle. In return, fees and other incentives are given to these liquidity providers (LP).
Secondly, they can sell their YT for cash upfront, allowing them to fix the interest rates and lock in their returns immediately.
Traders will be able to buy these YTs directly, without the need to lock up their underlying assets. This is a more capital-efficient way for them to gain exposure to future yield.
Users can also provide liquidity with their OT in Sushiswap, or sell OT to retain exposure to yield via YT.