High Level Architecture

Functions of Contracts

PendleRouter

PendleRouter is a contract that aggregates callers' actions with various different SYs, PTs, YTs, and Markets. It does not have any special permissions or whitelists on any contracts it interacts with. Therefore, any third-party protocols can freely embed the router's logic into their code for better gas efficiency.

You can read more about the PendleRouter here.

Standardized Yield (SY)

SY is a wrapped version of the interest-bearing token (ibToken) that can also be staked into other protocols to earn even more interest. In the Pendle system, SY is used instead of the ibToken for all operations, including trading on PendleMarket or minting Principal Token & Yield Token.

The following are true:

SY	ibToken (1 SY = 1 ib Token)	Asset (ibToken appreciates against)
SY GLP	GLP	NIL, GLP doesn't appreciate
SY wstETH	wstETH	stETH
SY ETHx	ETHx	ETH locked in ETHx contract*
SY aUSDC	Not 1-1 to aUSDC since it's rebasing	aUSDC
SY rETH-WETH_BalancerLP Aura	rETH-WETH LP of Balancer staked into the corresponding Aura's gauge	Liquidity of rETH-WETH pool

For *: ETH locked in ETHx is different from normal ETH due to withdrawal from ETHx has delay. Under normal circumstances it's also normal for ETHx to trade at a market price lower than the amount of ETH it can be withdrawn to.

Principal Token (PT)

PT is a token that represents the right to redeem for the principal amount at maturity, and is tradable on PendleMarket. While PT represents a claim to a fixed amount of assets, SY wraps an ibToken that increases in value, meaning that 1 PT != 1 SY is usually true (except in exceptional cases). Instead, 1 PT = 1 Asset, where "Asset" refers to what SY's ibToken is denominated in.

The following are true:

PT	Asset (1 PT = 1 Asset)
PT GLP	GLP
PT wstETH	stETH
PT ETHx	ETH locked in ETHx contract
PT aUSDC	aUSDC

At redemption, 1 PT = X SY, where X satisfies the condition that X SY = 1 Asset. For example, assuming 1 wstETH = 1.2 stETH on 1/1/2024, 1 PT-wstETH-01JAN2024 will be redeemable to 0.8928 wstETH at maturity.

Yield Token (YT)

YT is a token that represents the rights to redeem the interest generated by the SY until it reaches maturity. It's important to note that the value of YT is zero once it reaches maturity. The yield can be redeemed at any time and it can be traded on PendleMarket using special methods. ibToken generates yield in two forms, which Pendle denotes as:

• Interest (compounding yield): The yield is denominated in the same unit as the asset of ibToken. For example, as time goes on, wstETH becomes worth more in terms of stETH, and SY-aUSDC becomes worth more in terms of USDC.
• Rewards (yield that does not compound): The yield is given out in a different unit than the ibToken. For example, GLP generates ETH.

The following are true:

YT	Interest	Rewards
YT GLP	-	ETH
YT wstETH	stETH	-
YT ETHx	ETH locked in ETHx contract	-
YT aUSDC	aUSDC	-
YT rETH-WETH_BalancerLP Aura	liquidity of rETH-WETH pool	AURA, BAL

PT and YT are minted and redeemed using the YT contract. To mint PT and YT, SY is utilized. 1 SY = X PT + X YT is created where 1 SY = X Asset. Prior to maturity, both PT and YT must be provided to redeem the underlying SY. After maturity, only PT is required for redemption.

PendleMarket

PendleMarket (or simply Market) is a contract that enables users to trade between PT and its corresponding SY, while still allowing liquidity provision as usual. Swap fees are directly compounded into the LP. Each Market also has its own built-in geometric-mean oracle, similar to UniswapV3.

Currently, there is no market to trade YT, but it is always tradable by the following algorithms:

• SY ➝ YT = flashswap SY, mint PT & YT, payback PT, send YT to users.
• YT ➝ SY = flashswap PT, use PT & YT, redeem SY, pay back, send excess to users.