Note: This article is a long tweet by Cryptotrissy, compiled by MarsBit.
Why am I making @pendle one of my big money investments in the next bull market .
I will discuss the following in this article👇
1 Overview
2) Basic principles
3) Narrative
4) Integration protocol
5) Valuation
Let's get started 🏃♂️
1) Overview
Pendle aims to provide maximum yield by simply increasing users’ exposure to yield during bull markets and hedging against yield declines during bear markets.
Users can execute various yield strategies through their dual yield tokens. In Tradfi, institutional participants rely on various hedges to protect their positions, such as futures yield contracts.
2) Fundamentals
The simplicity of the protocol is often overlooked.
DeFi is a complex ecosystem with high barriers to entry due to its technical nature. My favorite thing about Pendle is that I can read the white paper and understand the product in an hour.
Unless I believe in the fundamentals of a coin, it won't go into my portfolio.
Pendle takes a 3% fee on all earnings generated by YT. Currently, 100% of this fee is distributed to vePENDLE holders, while the team receives no revenue.
vePENDLE powers the incentive mechanism on Pendle. vePENDLE holders vote for and direct rewards to different pools, effectively incentivizing liquidity in the pools they vote for.
If you do LP in a pool while holding vePENDLE, your PENDLE rewards and the rewards of all your LPs will also be further increased, up to 250% depending on your vePENDLE value.
This creates an income flywheel, the more vePENDLE you stake, the more incentives you are entitled to. As the tokens are locked, the supply in the market decreases, and LP increases to 250%. Don’t you want to participate in the pledge?
3) Narrative
My prediction is that LSD will start dominating the ETH staking ecosystem. My inference boils down to two things:
1. LSDs have a high utility factor because they can be used as deposit collateral to earn interest or loaned out using lending protocols to earn additional interest.
Using this capital will allow for a yield boost, and over time I'm sure we'll see some very interesting strategies emerge; I might even write a separate long tweet for that.
2. Users will have liquidity needs; after the Shanghai upgrade, there is still a 27-hour waiting time. This creates illiquid assets and investors will prefer scaling solutions with instant unlocking via LSD.
What does this mean for Pendle? With LSD dominating, most holders would likely want the opportunity to increase their ETH yields; with Pendle, users can now do so while taking advantage of double-digit APYs as one of the safest assets in cryptocurrency one.
4) Integration protocol
If you read their announcements, you'll see that the Pendle team has been great with integrations. Just to name a few:
Business development is critical to increasing Pendle's visibility and liquidity.
Seeing them execute to this level at their current valuation shows they understand what it takes to get to the top.
5) Valuation
When targeting some potential targets, you need to consider what the current circulating and diluted market cap of the token is
For example, if Pendle's circulating market cap is around $20 million, a 100x would make it $2 billion.
Given the time it might take, this could eventually scale up to an additional 20% of tokens released to supply as unlocked.
Recognizing what would allow the token to reach this goal (supercharging of LSD staking).
Is there enough rocket fuel to support these valuations?
Take the DeFi protocol born in the last round of bull market as an example. What traits do they have that drive valuations into the billions? Do token holders receive income? How does their product help users?
Based on the above, I hope you can see why I am optimistic about Pendle.
Finally, there's a ton of marketing muscle behind Pendle. Several smart DeFi investors and content exporters are very bullish, which is always reassuring.
If you like this topic and want to learn more, I've written an extensive in-depth study covering all the areas needed to understand how Pendle works and how it has evolved.
