High Ether Yields Drive $50M to DeFi Protocol Pendle Finance

Pendle Finance, a decentralized-finance platform that offers users yields in the form of tradable digital tokens, has attracted over $50 million amid renewed interest from traders looking to capture market returns passively.

The total locked value of assets on the platform has risen over 300% since the start of this year, DefiLlama data shows. Of the total, $26 million has been captured on the Ethereum network, $21 million on the Arbitrum network and just under $1 million on Avalanche.

Staked ether (stETH) dominates the holdings, taking up 27% of all capital on Pendle, followed by the GMX protocol’s GLP tokens at 18% and DAI stablecoins at 16%.

Some strategies are offering as much as 82% annualized yields on ether (ETH) and ether derivative tokens. These have a maturity period that ends in late 2023 or early 2024.

Pendle is also letting investors purchase ether at a 5.88% discount as of Thursday. That ether can be claimed on Dec. 26, 2024, when the discount will be made up for by capturing future expected yields on the principle amount.

More sophisticated strategies that use ether derivatives offered by other projects, such as Frax, are offering as much as 441% in yields over a 624-day period.

How Pendle works

Pendle uses a dual-token model that breaks up and represents any investment into a DeFi protocol, such as Compound or Aave, into two parts: one, the initial principle put up by an investor, and two, the future yield expected to be earned on that position in the form of token rewards.

This is done by wrapping yield-bearing tokens into a standardized yield token. That token is then wrapped into a principal token, or PT, and yield token, or YT, which can be traded on the open market.

“Nearly every pool in DeFi gives you a yield-bearing position in return for staking or depositing tokens,” Pendle said in its technical documents. “1 PT gives you the right to redeem 1 unit of the underlying asset upon maturity. 1 YT gives you the right to receive yield on 1 unit of the underlying asset from now until maturity, claimable in real-time.”

This allows Pendle to offer several products to users – such as the ability to lock in expected fixed yields, buy yields in the hopes of higher returns in the future or switch between multiple strategies to continually gain from yields offered by different platforms.

Pendle’s native governance tokens, PENDLE, traded at 50 cents at press time on Thursday. These accrue value over time, documents show, and can ultimately benefit from the growth and adoption of the underlying platform.