Edge Podcast - Pendle: The Story Behind The DeFi Kingmaker

In this episode of The Edge Podcast which took place on April 20, 2024, DeFi Dad, Nomatic, and TN Lee discuss Pendle’s story, collaborations, points trading, and Pendle V3. Read our notes below to learn more.

Background

DeFi Dad (Host) – Host of Edge Podcast
Nomatic (Host) – Co-Host of Edge Podcast
TN Lee (Guest) – Co-Founder of Pendle
Pendle – a yield trading platform

Growing to over $4.5B TVL

TN Lee says that points trading was initially unexpected as a product-market fit for Pendle, but its success has been significant. Points implementation has proven to be an effective means for projects to gain early traction and secure better valuations. Pendle is the most popular app in DeFi for farming points, trading yield and lending at fixed rates.
He adds that points trading systems have been a familiar concept, with experiences gained from supporting assets like Pearl in Swell. Leveraging past experiences with Swell’s Pearl offering facilitated a quick response to points trading developments.
TN Lee says that 40-45% of the TVL consists of LRT projects while they are exploring opportunities beyond LRT in Ethena and Zircuit. Successful implementation of points trading of Shards of Ethena led to unexpected market uptake, necessitating capacity increases multiple times.
He adds that achieving a billion dollars in TVL marks significant progress but also requires a shift in strategy toward sustainable growth.

State of farming points

TN Lee says that point farming is becoming integral to token launches as an effective means to secure early traction for projects. Successful implementations like Etherfi demonstrate how points trading enhances secondary market performance by providing liquidity avenues for users’ engagement.
He adds that point trading is expected to remain prevalent due to its popularity catalyzed by layer-1 protocols like EigenLayer and successful implementations by platforms such as Ethena. Collaborations with upcoming protocols like Zircuit have the potential for early traction before mainnet launches, showcasing Pendle’s role in facilitating asset yield opportunities.

DeFi Dad’s elevator pitch for Pendle

DeFi Dad says that the YT tokens on Pendle provide rights to points and yield. These tokens are integral to the ecosystem. Yield was a foundational aspect of Pendle’s design, allowing users to tokenize yield and principle. Points became significant in driving growth, especially with Etherfi experiencing exponential growth. Various protocols like Renzo, Puffer, and Kelp followed suit in utilizing LRTs.
He adds that LRTs played a crucial role as a catalyst due to user demand for participation in points programs. Buying YT tokens is akin to acquiring “lotto tickets” offering discounted access to points programs. As YT token prices surge due to high demand, PT token prices decrease as they represent discounted principles.
DeFi Dad says that PT tokens act as zero-coupon bonds with decreasing prices compared to rising YT token prices. Users can purchase derivatives of assets like $ETH at significant discounts using PT tokens. By locking in fixed yields until the maturity date, users can engage as LPs and benefit from both sides of the market dynamics.
He adds that Pendle caters to diverse user roles including speculators (YT holders), lenders (PT holders), and LPs seeking dual exposure. The platform offers a unique synergy among different players within DeFi ecosystems fostering collaboration and growth opportunities.

The 3 key use cases

TN Lee says that users can choose between investing heavily in YT for speculation or opting for implied leverage strategies. Leveraging up to 200 times exposure with $USD assets showcases high-risk speculative plays available on the platform. Different assets offer varying fixed APY rates ranging from 60% to 65%, attracting diverse investment preferences based on risk appetite.

Selection criteria for listing on Pendle

TN Lee says that early traction facilitated by platforms like Pendle may streamline listing processes on tier-one exchanges due to proven project viability.
He adds that the team relies on market and community responses to determine asset selection. An in-house researcher monitors Twitter to identify assets mentioned frequently and align them with their focus. External validation from VCs and hedge funds is sought to confirm asset viability.
TN Lee says that weekly listing committee meetings are held to decide on asset listings, considering market perspectives and internal resource constraints. Assets already on Ethereum or other implemented chains are preferred due to resource constraints.
He adds that after shortlisting, a deeper dive into contracts is conducted for comfort, followed by direct communication with teams for roadmap understanding. They put emphasis on developing relationships with teams to cultivate interest in listed assets.

Which Layer-1s/Layer-2s will Pendle move to?

TN Lee says that the platform prioritizes fulfilling demand across various chains regardless of the ecosystem. Implementation complexities vary among chains; Solana and Cosmos are under consideration.
He adds that EVM familiarity from Ethereum origins simplifies implementation decisions, favoring EVM-based chains initially. Bitcoin layer-2 exploration is ongoing due to potential value generation opportunities amidst increasing $BTC interest.

Will there be a Season 2 for EigenLayer points?

TN Lee says that there is anticipation for potential follow-up seasons post-EigenLayer launch.

Pendle V3 and what’s next

TN Lee says that Pendle aims to be aggressive in enabling efficient points trading markets.
He adds that the platform continues to reach out to promising projects for collaboration and plans to launch new markets that excite users. They put emphasis on solidifying their positioning by working with promising projects.
He adds that resources are allocated towards developing Pendle V3, which will be a scaled-up version of trading. V3 aims to address liquidity bottlenecks observed in Pendle AMM, allowing users to trade larger sizes without significant price impact.
TN Lee says that V3 intends to enable users to trade in size without substantial price impact by accommodating larger positions efficiently. Addressing bottlenecks includes constructing products that allow seamless trading experiences for users
He adds that future plans involve being chain agnostic, supporting various chains like rollups for enhanced accessibility. The goal is to enable yield trading across different ecosystems while maintaining flexibility in deployment options.
TN Lee says that exploring use cases with market makers and traders showcases how Pendle V3 can meet institutional user demands effectively.
He adds that the team is prepared for intensive work on new product developments catering specifically to institutional users’ requirements. Both V2 and V3 will coexist, serving distinct use cases rather than being mutually exclusive.

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Show Information

Medium: YouTube (Video)
Show: The Edge Podcast
Show Title: Pendle: The Story Behind The DeFi Kingmaker
Show Date: April 20, 2024