Since the beginning of this year, Shanghai has been upgraded, and ETH has been positively stimulated by the Pow to Pos mechanism. The LSD (Ethereum Pledged Derivatives) track has ushered in a big explosion. LDO, RPL, SSV and many other LSD track concept tokens have ushered in a huge explosion. However, due to the tightening of macro Liquidity and the change of hot spots in the market, the LSD track has cooled down, and the Token prices of related projects have experienced a general correction.
However, there is one protocol whose Token price has always maintained strong resilience. Its Token price has risen from 0.04$ at the beginning of the year to 0.42$ today, an increase of nearly 10 times. The progress of the Pendle project also continues to attract market attention. After being deployed on the Arb chain, the Liquidity of the PENDLE/ ETH pool launched on Camelot exceeded $1 million in just a few days. This article will introduce in detail the LSD track innovation protocol that has shown strong vitality—Pendle.
100 Billion Market Scale Potential of LSD Track
Before interpreting the Pendle agreement, let's first understand the LSD track and why it has the potential to reach a market size of 100 billion.
The full name of LSD is Liquidity Staking Derivatives, that is, Liquidity pledged Derivatives . The LSD protocol is a DeFi Derivatives track that has grown up with the upgrade of ETH 2.0. After the Shanghai upgrade was completed on April 12, ETH officially changed from the Pow mechanism to the Pos (proof of stake pledge) mechanism, and the Shanghai upgrade became an important milestone in the Ethereum upgrade roadmap.
After the Shanghai upgrade, users can freely withdraw their own deposits to reduce the risk of pledge, which will greatly increase users' willingness to pledge and increase the pledge rate of ETH . As can be seen from the figure, the number of Ethereum pledged nodes and the number of pledged ETH have risen instead of falling after the upgrade in Shanghai. The market is generally worried that the possible ETH selling pressure due to the upgrade has not appeared.
Ethereum staking has a good rate of return, usually fluctuating between 5% and 8%. The current rate of return on staking is 5.268%. The higher rate of return and the flexibility of depositing and withdrawing at any time make staking ETH a reliable income source, attracting investors to join, especially in the current bear market situation.
Compared with the pledge rate of 60% to 70% of other top Pos mechanism public chains, the pledge rate of Ethereum is only 15.43%, which still has a lot of room for development.
If the ETH pledge rate can reach 60% -70%, compared with the current pledge rate of 15%, there is nearly 4 times the room for improvement. The current pledged asset scale of Ethereum is about 34.7 billion US dollars. Without considering the price of ETH , LSD will have the potential to grow into a track with a market size of 100 billion. As one of the main narratives of this year or even the next bull market, the LSD track deserves long-term attention.
Borrowing LSD Dongfeng, up to ten times increase
Leveraging the popularity of the LSD track, coupled with its exquisite and novel project business design, Pendle has performed exceptionally well in many projects on the LSD track. Both the price of Token and TVL have risen, and its Token price has increased by nearly 10 times since the beginning of the year.
TVL has also continued to grow from US$1.557 million at the beginning of the year to US$7.912 million today.
1. Project Highlights
Pendle Finance is a DeFi Yield Trading protocol deployed on Ethereum and Arbitrum. What Pendle does is similar to the stripping of coupons in the bond market. Pendle encapsulates the underlying interest-earning assets into SY (standardized yield token: standardized yield token), and SY is divided into two parts: cost and income. Gold Token) and YT (Token representing income), in order to meet the investment needs of different users. Users can purchase assets at discounted prices, participate in various income strategies, or earn income by providing Liquidity for the fund pool.
Holding the principal of TokenPT is similar to holding a zero-coupon bond, which is equivalent to buying Token at a discount. The closer to the maturity date, the closer the price of PT is to the face value; earning TokenYT can obtain continuous interest income during the holding period. For example, deposit the stETH obtained on Lido into the pendle to obtain stETH PT representing the principal part and stETH YT representing the interest part. They all have a maturity date at which stETH PT is redeemed in full. stETH YT can enjoy all the interest generated before the expiration of stETH.
Through the division of PT and YT, Pendle provides users with a variety of income strategy solutions. For users with less risk appetite and want to reduce volatility, it is suitable to purchase and hold PT Token at a discount. The price of PT will also return to the end of the holding period. The face value, the user's income is the difference between the face value and the purchase price. For users with a higher risk appetite, they can participate in speculation on future returns by purchasing YT Token. If users estimate that future returns will increase, they can choose to purchase YT Tokens to achieve the purpose of long returns.
In addition to the ingenious project design, Pendle's user interface design is also quite friendly. The user interface of Pendle is divided into two parts: Simple and Pro. The Simple interface can be used easily even by novices who have difficulty understanding the principles of Pendle. The Pro interface is more suitable for professional users who are proficient in DeFi and can explore various income strategies.
2. Team
Pendle's CEO TN Lee has extensive experience in the blockchain field, and has spent a long time running in with team members. Before founding Pendle, TN established a data analysis company with Greg and YK (now Pendle team members), specializing in software engineering consulting to meet the needs of many Layer1 projects. Previously cooperated projects include Tezos, IoTex, Zilliqa, Band Protocol, Stellar, Polygon, etc. TN was also a founding team member of Kyber Network, responsible for marketing and business development.
According to LinkedIn data, Pendle's team is mainly based on developers, and currently has a total of 12 employees.
3. Financing background
As early as the beginning of the project in 2021, Pendle has completed financing of US$3.5 million, and the investor has a strong background. The investment was led by Mechanism Capital, with participation from Crypto.com Capital, Hashkey Capital, Spartan Group, CMS, imToken, DeFi Alliance, D1 Ventures, Hongbo (DeBank co-founder & CEO), Taiyang Zhang (Ren Protocol co-founder & CEO) and others.
In April 2023, Bixin Ventures announced to invest in Pendle, and the transaction was completed through OTC.
4. Token economics
Pendle Token adopts a mixed inflation model. Pendle’s Token supply has no upper limit. Pendle’s release is used as an incentive for Liquidity pools, which will decrease by 1.1% every week before April 2026. The current Token economy allows annual 2% final inflation rate as an incentive.
Recently, Pendle released the V2 version, updated the Token economic model to adopt the vePENDLE model, reduced the Gas fee and paid the pledger ETH instead of USDC. The application scenarios and value capture of PENDLE have been significantly improved compared to before.
The value capture of Pendle Token mainly comes from obtaining governance rights, improving LP income, and sharing fees .
Obtain governance rights: Users can obtain vePENDLE by staking and locking PENDLE, so as to participate in the governance of the Pendle protocol.
Increase LP income: The incentives obtained by vePendle Token holders in any Liquidity pool they provide Liquidity will be further enhanced (up to 2.5 times).
Fee sharing: 3% of the revenue generated from YT will be distributed to vePENDLE holders who vote for the pool. At the same time, vePendle can obtain 0.1% of the transaction fees generated by the voting pool.
5. Future Outlook
Pendle adopts sophisticated project design to meet users' different investment needs and income strategies through the separation of principal and interest. In addition, the Pendle project party continues to improve and optimize the project to better meet market demand. The recent upgrade of vePendle has reduced Gas fees and supported the payment of ETH to pledgers, which has won unanimous praise from the market. With innovative design and continuous improvement, Pendle performed more brilliantly than other projects on the same track. The Liquidity of the PENDLE/ ETH pool launched on Camelot exceeded $1 million in just a few days, showing its strength in the bear market. Great energy.
In addition, the LSD track has broad prospects, and the several times the growth space and the market value of 100 billion are almost in the foreseeable future. Pendle, which is positioned to support LSD assets, has received support from mainstream projects such as Lido, Frax, and Rocketpool.
R3PO believes that the innovative mechanism adopted by Pendle provides users with diversified tools for revenue management, and the simple and easy-to-use interface design lowers the investment threshold and is beneficial to users. At the same time, using LSD assets as the underlying interest-earning assets not only ensures Pendle's continuous profitability in the bear market, but also the LSD narrative depicts enough room for imagination for Pendle's future market size. The ten-fold increase in half a year indicates that the value of Pendle is gradually being recognized by the market, and Pendle may reach a higher position in the future.
6. Risk warning
Smart contract risk: According to the information on the official website, the Pendle protocol has been audited by 6 auditing companies including Ackee Blockchain and Dedaub. However, Pendle is not only facing the risk of possible loopholes in its own smart contract, but also faces risks due to the fact that the underlying assets come from other projects. Partner's smart contract risk.
Underlying asset price fluctuation risk: As the market and external environment continue to change, the price fluctuations of the underlying assets may be large, which will lead to fluctuations in PT and YT prices, especially for investors in YT Token, they may face greater market volatility .
