Biteye talks to the winner of the LSD war, Pendle Finance

Host: SKY, Core Contributor of Biteye

Guest: DAN, Head of Growth at Pendle

Editor: Crush, Core Contributor of Biteye

**The full text is approximately 3000 words, with an expected reading time of 6 minutes.*

With the tailwind of LSD, Pendle's price has increased tenfold from the beginning of the year, showing outstanding performance among DeFi projects.

What has led to Pendle Finance's recognition in the market? On May 17, Dan, the Head of Growth at Pendle Finance, joined the Biteye AMA to discuss how Pendle has become a winner in the LSD war and its future plans. Below is the transcript.

01 Transcript

Guest DAN

Hello, everyone, I’m Dan. I have been working at Pendle since its establishment in early 2021, leading the project’s growth efforts. Before this, I was more inclined towards TradFi (traditional finance), but after entering the DeFi space, I began to shift towards using Pendle for yield derivatives.

I find the transition from TradFi to DeFi interesting and relatively easy, as there are many similarities between the two. Pendle is a yield trading protocol that tokenizes yield, allowing users to earn fixed income or build long positions on DeFi yields.

Pendle was conceived at the end of 2020, officially launched during the development process, publicly promoted in early 2021, and released its V1 product in mid-2021.

Host SKY

Could you share the background and origins of founding Pendle? Guest DAN

Our team did not initially plan to build Pendle. At first, we focused on mining some "food" related tokens (like the well-known Pancake, Sushi, etc.) during DeFi Summer and realized that there was no way to lock in high yields at that time.

So we began to compare the state of DeFi with that of the mature financial sector and realized that fixed-rate products are actually one of the most important verticals, but they were virtually nonexistent in cryptocurrency.

DeFi was just starting out at that time, so this issue prompted us to conduct deeper research and start conceptualizing solutions around it, leading to the birth of Pendle.

Host SKY

What changes does Pendle V2 have compared to V1? Guest DAN

We made significant improvements based on the lessons learned from V1, one of the major changes being to ensure that anyone can access Pendle more easily.

Pendle V2 has four major improvements: enhanced UI/UX, a permissionless asset list, more capital-efficient AMM, and improved token economics.

Pendle now features a simple user interface and a professional user interface, allowing Pendle to abstract the complexities of the fixed income market and acquire assets at discounted prices, providing a more comfortable experience for users under the Simple UI mode. The professional user interface is designed for DeFi-savvy users to explore yield trading functionalities.

By utilizing the EIP-5115 proposed by the team, Pendle is now permissionless, allowing anyone to create yield markets, just like Uniswap allows anyone to list tokens.

Pendle has improved its existing AMM (Automated Market Maker) to achieve capital efficiency of up to 200 times.

Pendle has also introduced vePENDLE (inspired by the veCRV model) to align the interests of Pendle holders with the protocol.

Host SKY

Could you introduce the current Pendle ecosystem? Guest DAN

Currently, there are two protocols built on Pendle, namely Equilibria and Penpie, which are building liquidity on Pendle and unlocking value in vePENDLE.

To provide some background, Pendle employs five VE mechanisms. When you lock your Pendle tokens, you will receive vePENDLE, enabling you to:

1. Increase your liquidity pool earnings by 2.5 times based on the amount of vePENDLE tokens you hold.

2. Gain voting rights to guide incentives in your chosen pool.

3. The protocol revenue has two sources: a 3% fee from all earnings generated by Yield Tokens and 80% of the swap fees collected from the voting pool.

Equilibria and Penpie allow users who deposit Pendle to generate additional rewards and increase liquidity pools based on the amount of Pendle collected by these protocols.

Host SKY

With the success of LSD, or liquid staking derivatives, what other narratives is Pendle exploring? Guest DAN

Cryptocurrency is evolving rapidly, and Pendle can quickly support various new narratives as long as they involve yield-bearing assets. What we need to do is keep up with trends and be ready to adapt. Internally, Pendle will continue to enhance the user experience to cater to different users in DeFi.

Host SKY

What can we expect for the future of Pendle? Guest DAN

You can expect more liquidity pools to be added to Pendle, especially since the launch of Pool 3. Pendle has also been looking into chain expansion. We are considering chains like BNB, Avalanche, Polygon, Mantle, and Bera, while also expanding Pendle's use cases to better reach various users in the crypto space.

02 Twitter User Questions

Audience Question How does Pendle ensure the accuracy of future yield information that is tokenized and traded on its platform, and what measures are in place to prevent potential manipulation? Guest DAN

Pendle prioritizes security. V2 has undergone rigorous audits by various reputable auditors in the field, and liquidity pools must complete audits before launch.

Additionally, we have some bounty programs on major platforms, such as the immunefi bounty platform where we have published bounties.

Audience Question

Could you tell us what tools Pendle offers to remain competitive in the market and attract users long-term? Also, do you provide any type of rewards on the platform? Guest DAN

Pendle has implemented yield trading, which is something not yet seen in DeFi, but is actually one of the most common forms of financial derivatives in traditional finance, and Pendle brings this to DeFi.

The value proposition here is that users can do more with their yields rather than just holding them.

Details of the mechanisms can be found in the Pendle official documentation. In short, using stETH as an example, you can fix your stETH yield, increase your stETH yield exposure, or simply earn more yield with stETH, all based on the same asset.

Regarding the platform rewards you mentioned, rather than calling them rewards, we prefer to refer to them as incentives aimed at driving the core functionalities of the protocol. You can check out the Pendle app, where there are many assets to choose from.

Audience Question

How will the future tokens of the project be distributed? How will the tokens be empowered? Guest DAN

Pendle releases tokens as incentives for liquidity pools, but this will decrease by 1.1% weekly until April 2026. The current tokenomics allows for a final inflation rate of 2% per year as an incentive.

Pendle can be locked as vePENDLE to provide users with various benefits, such as enhancing your liquidity pool, voting rights, and receiving fees generated by the protocol.

Audience Question

What challenges and risks did you encounter during the project implementation, and what factors helped you overcome these challenges? Guest DAN

There have certainly been many challenges, one of which I find particularly interesting is the different forms of yield generation mechanisms. Since Pendle is built on yield-bearing assets, it has been difficult to launch new assets and liquidity pools as quickly as desired.

So what we did was create a standard wrapper for all yield generation mechanisms, which we call SY (Standardized Yield). SY allows us to quickly launch new mining pools on Pendle and adapt to the latest narratives as soon as possible.

Of course, there are other challenges; user education is an area we are still seeking to improve. We launched V2 with two different UIs to cater to different levels of user complexity through the same underlying mechanism. In other words, we still have a lot of room for improvement in user education and simplifying dApps.

03 Discord Audience Questions

Audience

I want to do liquidity mining for LSD ETH on Arbitrum. Will Pendle launch LSD pools on Arbitrum? Guest DAN

We plan to deploy more pools on Arbitrum, but this largely depends on Arbitrum's LSD. Although there isn't much liquidity at the moment, we are keeping an eye on it.

Audience Question

Can ePENDLE and mPENDLE be added to these three pools to increase liquidity? Guest DAN

Equilibria and Penpie are protocols built on vePENDLE. ePENDLE and mPENDLE refer to the PENLE tokens staked on Equilibria and Penpie.

PENDLE supports the trading of yield-bearing assets, and LP tokens are yield-bearing assets, so PENDLE can also support LP assets.

Here, we tokenize and trade yield. Typically, these yield-bearing assets are staked in other protocols, which we refer to as secondary pools. Pendle's three pools are built on the foundation of secondary pools, using PENDLE tokens as liquidity incentives to deepen liquidity, so this is possible.

Audience Question

Could you introduce some strategies that users can adopt to maximize benefits with low risk? Guest DAN

All DeFi protocols carry smart contract risks. Pendle can help you earn fixed income. If you want low risk, you can buy discounted ETH on Pendle, wait for the term to expire, or sell early. You can check our APP; it's easy to understand.