CryptoKoryo - TN from Pendle Finance - Revelo Intel

CryptoKoryo – TN from Pendle Finance

In this episode of CryptoKoryo which took place on July 25, 2023, CryptoKoryo host TN Lee from Pendle Finance to discuss yield trading, multi-chain DeFi, and more! Read our notes below to learn more.


CryptoKoryo (Host) – Host at CryptoKoryo Pod

TN Lee (Guest) – CEO & Co-Founder at Pendle Finance

Pendle Finance – a permissionless yield-trading protocol where users can execute various yield-management strategies

Lee’s Bitcoin Encounter to Pendle’s Success

  • Lee shares that he first encountered Bitcoin during a student research project. He later managed Ethereum communities unofficially before meeting Loi, the founder of Kyber, and joining the founding team in 2017.
  • After his tenure at Kyber, Lee tried various unsuccessful ventures before landing on the concept for Pendle, where he and his team developed mining software and ETL pipelines.
  • Discussing the development of liquidity staking derivatives (LSDs), Lee sees the sector falling into several categories: Collateralized Debt Positions (CDPs), ETF-like products, yield trading protocols, and money markets. He anticipates consolidation and convergence within the sector, especially with regard to utilizing various forms of ETH LSDs as collateral.
  • Lee shares his optimism for the growth of TVL due to the efficiency of using LSDs.
  • Talking about the future of LSDs, Lee mentions that Pendle is structuring pools for $stETH across multiple maturities as a way to create a benchmark for traders.
  • Lee explains that Pendle is a protocol that tokenizes and trades yield. He highlights that Pendle allows users to hedge positions and express views on the yield rates of certain assets.
  • On the complexity of Pendle, Lee says that yield derivatives are complex by nature. To cater to a broader audience, Pendle has introduced two interfaces: a simpler UI for retail users and a Pro UI for more advanced users.
  • Lee explains that Pendle divides a yield-bearing asset into two parts: the Yield Token (YT) and the Principle Token (PT). Boosting interest in the PT side can create more opportunities for yield speculation on the YT side.
  • Lee explains that the boost comes from the liquidity provision APY. Users earn Pendle rewards, swap fees, and the AMM underlying reward from Lido or Stargate contributes to the overall APY.
  • CryptoKoryo asks about the setting of maturity dates in Pendle.
  • Lee explains that maturity dates are set based on growing confidence in staking and are designed to match other instruments, allowing traders to utilize multiple positions for various strategies. They highlight the significance of the yield curve as a tool for traders.
  • CryptoKoryo understands this to mean that Pendle’s maturity dates can be used to build hedge or delta-neutral positions in conjunction with options and perpetual futures in crypto.
  • Lee discusses how Pendle’s AMM design reduces impermanent loss. They say that this is achieved by pairing two assets in the pool that are highly correlated, like $USDC and $USDT. They explain that the PT and the underlying asset are very highly correlated, minimizing the potential for drastic price movements.
  • Lee explains buying assets at a discount through the Pendle process, saying that the asset can be purchased at a discount due to the relationship between the underlying, Principal Token (PT), and Yield Token (YT). 
  • The underlying asset’s value should equal the sum of the PT and YT values. When the yield goes to the YT, the PT is sold at a discount but can be redeemed for the underlying asset one-to-one at maturity.
  • CryptoKoryo discusses the success of Pendle, highlighting $PENLDE’s outperformance in the market despite a bearish phase in 2023.
  • Lee credits the success of Pendle to diligent preparation for the launch of Pendle V2, learning from user behaviors in Pendle V1, and leveraging the increasing confidence in staking yield. He recognizes the significant role of partnerships with other projects like Stargate and collaborations with Aura, Balancer, and Rocket Pool.
  • CryptoKoryo asks about the correlation between the price appreciation of the $PENDLE token and business metrics such as TVL or user growth.
  • Lee says that there isn’t necessarily a direct correlation but recognizes that the token’s price appreciation has enhanced visibility and adoption. He says that the token, if well-managed, can be an effective tool for product growth.
  • CryptoKoryo says the positive feedback loop that can be created when the price appreciation leads to increased visibility, subsequently increasing the user base and business metrics. 

Pendle Founder on Narratives and Multi-Chain DeFi

  • CryptoKoryo expresses the idea of taking high-reward risks with low failure costs in the context of crypto trading and development, comparing it to building and pivoting startup projects.
  • Lee highlights the importance of experimentation and being open-minded to ideas from different sources. He believes that a few big wins would make many failures worthwhile.
  • CryptoKoryo asks Lee if he thinks that all protocols should align themselves with trending narratives to increase demand, despite potentially innovative and unique ideas that may not be as popular.
  • Lee highlights the importance of narratives and believes that they can be crucial in a crowded marketplace. He says that a good narrative provides an anchor that helps people remember a product, regardless of its actual quality.
  • CryptoKoryo mentions new protocols building on top of Pendle such as Equilibria, and Penpie. He asks Lee how these collaborations happened and what their goals are.
  • Lee shares that the collaborations were initiated organically through conversations with a friend. They started building an ecosystem after being introduced to the teams at Equilibria and Penpie, among others.
  • Lee adds that ecosystem expansion is one of their areas of focus. Apart from the $vePENDLE they also see potential in using PTS collateral, with platforms like Dolomite and Timeswap recently integrating it.
  • CryptoKoryo asks Lee about his considerations when listing new pools and the potential risks involved.
  • Lee says that all the assets and pools they set up are audited. In the future, they aim to make the protocol more permissionless, allowing the community to set up pools.
  • CryptoKoryo asks Lee to confirm if Pendle started more centrally before introducing more decentralization and permissionless aspects to the protocol.
  • Lee explains that they felt that yield trading was too new a concept to decentralize too soon. They wanted to provide guidance and direction initially but plan to gradually open up the scope for community participation.
  • CryptoKoryo asks if Pendle has been in discussions with protocols for treasury management strategies. Lee shares that they have been involved in discussions to onboard other protocol DAOs to deposit into Pendle. He mentions Kleros as one of the largest deposits from a protocol into Pendle.
  • CryptoKoryo asks Lee about Pendle’s success due to being on Arbitrum and more recently on the BNB chain. Lee says that being on the right chain matters a lot, allowing them to absorb more liquidity and attract more capital inflow. They also saw an improvement in traction for TVL and trading volume.
  • CryptoKoryo asks Lee about his considerations for choosing which chain to be on, to which Lee says that it mostly depends on whether there are primitives on the chain and the existence of yield aggregators.
  • CryptoKoryo says most of the major crypto protocols are adopting a multi-chain strategy in 2023 and mentions Uniswap, Compound, and others have expanded beyond Ethereum. He asks whether remaining on a single chain is a viable strategy in 2023.
  • Lee says the multi-chain strategy depends on the product’s nature. For their product, exploring beyond Ethereum makes sense as it encourages trading activity, which is highest when the gas cost is minimal. However, for a product like an NFT, staying on Ethereum might make sense due to the existing liquidity and users.
  • CryptoKoryo discusses the concept of dApp factories – dApps that start with one specific function and then expand to others. Examples include Frax, which started with stablecoin and then added lending activity, asks Lee whether he agrees with the expansion strategy and if Pendle is considering it.
  • Lee sees the value in expansion, but they currently have no plans to expand beyond yield trading. He believes when a product becomes sufficiently large, adding features can differentiate it and retain users who otherwise may need to use multiple products.
  • Lee says he believes in sticking with the core product. He admits extending product features can be beneficial but warns against straying too far from the core product.
  • CryptoKoryo asks which DeFi protocols inspires him. Lee says he admires Uniswap for its innovation and hopes to learn from their experience. Also Curve for its unique AMM design and the ecosystem it has built, and how other protocols, like Convex, have been built on top of Curve.
  • CryptoKoryo asks about the necessity of VC funding in crypto, referencing Pendle’s seed round in 2021.
  • Lee says crypto projects can succeed without VC funding, but having it can make the journey easier. It helps with legitimacy, and renowned VCs can bring additional liquidity to the protocol. Some VCs can also help scale the product.
  • CryptoKoryo asks Lee for any advice he could share with new DeFi founders based on his experience. Lee highlights the importance of finding the right people for one’s project. He says that having the right team can set the culture and operation, which ultimately decides the project’s fate.

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Show Information

Medium: YouTube (Video)

Show: CryptoKoryo

Show Title: LSD narrative – Pendle – An interview with Tn from Pendle Finance

Show Date: July 25, 2023