What is Pendle Finance? PENDLE tokenomics explained

Crypto is notoriously volatile, and DeFi is even more so. So imagine knowing exactly what your crypto yields would be before committing your finances to it.

Then, even better, when committing, imagine not being asked to lock up your stake for a certain number of days.

Yeah, I know, unheard of. Enter, Pendle Finance.

Pendle Finance is a crypto yield management protocol that offers a fixed yield return while allowing users more control over their staked assets and how they generate rewards from them.

To give a quick analogy, imagine you own an apple tree that produces apples every year. Normally, you would have to wait until the apples grow and are harvested to sell them.

Now, imagine there’s a market where you can sell “future apples” before they even grow. This market lets you sell two parts separately: the tree which represents the ongoing production of apples and the future apples which represent the yield or the apples that will grow in the future.

If you think the price of apples will go up in the future, you can sell the future apples now at a higher price, securing your profit early. Conversely, if you think the price will go down, you can sell them before the price drops, again securing your profit early.

Pendle works similarly for yield-bearing assets, like your apple tree. It splits your investment into two parts: the principal and the yield. You can trade the yield separately based on your predictions about its future value, allowing you to access and use your future earnings now instead of waiting.

But, how exactly does this work, and is it worth the hype?

What is Pendle Finance?

Pendle was created by four guys back in 2020 with TN Lee acting as their CEO.

At its core, Pendle is a decentralised finance, or DeFi, protocol that enables the trading of interest rate derivatives, by separating the yields from the yield-bearing assets.

Pendle is a protocol that allows for the trading of future yields through an Automated Market Maker system across multiple blockchains such as Ethereum, Binance, Arbitrum, and more.

The protocol splits the underlying yield-generating token into Principle Tokens, known as PT, and Future Yield Tokens, known as YT, enabling users to trade ownership of yields and earn immediate income or exposure to the true yield of the underlying assets.

Additionally, Pendle also allows users to provide liquidity and earn additional yield making it a popular place for those looking for a predictable, fixed yield return rate without the commitment of a locked staking period.

But, to really explain Pendle, let’s quickly break down some definitions first.

Let’s start with DeFi.

Decentralised Finance, better known as DeFi, refers to a financial system built on blockchain technology that operates without traditional intermediaries, offering services such as lending, borrowing, trading, and investing through the use of smart contracts and AMMs.

Next, an AMM, or Automated Market Maker, is a type of decentralised exchange protocol that uses algorithms and liquidity pools to facilitate asset trading without the need for a traditional order book, centralised authority, or a human intermediary.

Finally, a yield in crypto refers to the earnings generated from holding or staking cryptocurrencies, typically through interest, dividends, or rewards provided by the DeFi platforms and protocols themselves.

But how does Pendle work exactly?

How does Pendle Finance work?

As I mentioned, Pendle is a permissionless yield-trading protocol where users can execute various yield-management strategies for a fixed reward.

But, to fully understand Pendle, it can be broken down into the following three parts:

Yield Tokenisation

This is where Pendle wraps your yield-bearing tokens into Standardised Yield, or SY, tokens, which are a wrapped version of the underlying yield-bearing token that is compatible with the Pendle Automated Market Maker.

This SY token is then split into its principal and yield components, where PT is the Principal Token and YT is the Yield Token respectively.

Next, we have Pendle AMM.

Through Pendle AMM both Principle Tokens and Yield Tokens can be traded further increasing yield and returns potential for users.

Finally, vePENDLE is vote-escrowed Pendle.

To clarify, when users lock up their governance tokens they receive vote-escrowed tokens in return.

These veTokens typically cannot be traded and are simply used to confer governance rights to their holders.

Additionally, on Pendle, a certain amount of time must elapse before users can participate in governance with their veTokens ensuring they are more likely to act in the long-term interests of the platform.

Functionally speaking, vePENDLE also acts as a PENDLE sink which helps keep the overall health of the network in shape by removing excess PENDLE from circulation.

So, what exactly makes Pendle unique?

What makes Pendle Finance unique?

Pendle is unique because it allows you to tokenise and use immediately the benefits of your future yield rewards while requiring no locked staking period for you to participate.

By giving users access to their future yield rewards they can further improve their yields, giving Pendle an advantage over some of its competition.

Pendle is also very user-friendly, requiring very little to get started and requires very little to be locked up before being able to benefit.

Though, playing with DeFi is like playing with fire. Those who know how to use fire wisely will have discovered a useful tool, but those who use fire irresponsibly will only burn the house down.

Which is just something to remember, not that this is financial advice.

PENDLE tokenomics

The PENDLE token can be used for all the classics like payments, staking, and governance.

The current total supply of Pendle is roughly 258 million PENDLE tokens.

However, due to the inflationary mechanics of the network, this number will increase at roughly 2% per year from 2026 onwards.

At launch, the initial token distribution was as follows:

65% made up the circulating supply, 19% went towards the Ecosystem Fund, 10% towards Incentives, and the final 6% went to the Team.

So, is Pendle worth all the hype?

If you’re into DeFi trading but would like a more steady and certain fixed yield position, then Pendle might be of interest to you.

Allowing you to use future yield before you have received it as additional leverage to increase your current yield is a very tempting feature for most traders and one that is likely to see the platform drawing new users for as long as the crypto bull run stays active.

The fact Pendle allows you to do this without requiring a fixed staking lock-up period is also fantastic from a consumer perspective, although admittedly does raise a bit of concern should any fault in the network’s code be discovered.

That said, overall, Pendle seems like a solid platform, or at least as solid as any platform can be that is involved in DeFi yield trading.

Assuming there are no major mishaps in management from the top, and assuming there are no issues discovered within Pendle’s code, it seems likely that Pendles best days still lay ahead.

Though, as always, nothing is guaranteed in crypto, of course.

How to create a Pendle wallet

Step 1: Visit https://trustwallet.com If you already have a Trust Wallet, skip to Step 5.

Step 2: Download and install Trust Wallet from your mobile app store or your browser.

Step 3: Open Trust Wallet and create a new wallet or import an existing one.

Step 4: Once your wallet is set up, tap on the “Add Token” button.

Step 5: In the search bar, type “PENDLE” to find the token.

Step 6: Tap on the PENDLE token and select “Add to Wallet” to add it to your Trust Wallet.

After adding PENDLE to your Trust Wallet, you will be able to view your PENDLE balance and perform transactions with the token.

If you want to support the blog, please donate $PENDLE to this address: 0x926f05Cafd858CA824152dAe62d359cC60e804c5

Pendle Finance FAQ