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Simply Explained

Simply Explained: Pendle (PENDLE)

Updated: Aug 26, 2024
Published: Apr 18, 2023
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Pendle is a permissionless DeFi yield-trading platform, currently live on Ethereum and Arbitrum (a Layer 2 scaling solution). It allows users to execute different yield management strategies.

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Let’s dive in.

How does Pendle work?

Pendle is a decentralised interest rate market wrapped in a retail-friendly product. It allows users to hedge (protect against risk) their staking yield on different assets, such as ETH. 

The platform splits a yield-bearing token (any token that generates yield) into two separate tokens:

  • Principal token: entitles users to the principle of the yield-bearing token, after maturity.
  • Yield token: allows users to earn the yield of the yield-bearing token in real-time.
(For a more detailed explanation.)

Pendle allows traders to buy assets for less than their current trading price, to buy pure yield, or any other combination to “maximise your yield: increase your yield exposure in bull markets and hedge against yield downturns during bear markets.”

What do users receive in return for providing liquidity?

Liquidity providers receive rewards, including swap fees (generated by the pool) and incentives. For a tutorial on how to provide liquidity to Pendle’s pools.

What is PENDLE?

PENDLE is Pendle Finance’s governance token. It is an ERC-20 token. ERC-20 tokens are used for creating and issuing smart contracts on the Ethereum blockchain. 

As of October 2022, PENDLE’s total supply of 235,890,444 is distributed as follows:

  • 10% to incentives
  • 65.1% to circulating supply
  • 19.2% to ecosystem fund
  • 5.7% to team (vested up to April 2023)
To learn more about Tokenomics and why it's important, click here.

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What is vePENDLE?

Holders can lock their PENDLE to receive vePENDLE (vote-escrowed PENDLE). 

‘ve’ stands for ‘vote escrowed’ and is becoming a popular tokenomics model among newer DeFi protocols. It is specifically used amongst governance tokens and is a method of locking up tokens, removing them from the circulating supply, and making sure holders can’t sell them. Learn more here.

The longer holders lock their PENDLE, the greater the value of their vePENDLE. And the more vePENDLE a holder has, the more voting power they hold. 

vePENDLE holders also receive swap fees and a percentage of protocol revenue. 

For Cryptonary’s transparent opinion on Pendle, check out our Ratings Guide.

Disclaimer: Not financial nor investment advice. Any capital-related decisions you make are your responsibility and yours only.

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