Cryptonary's thesis on PENDLE

TLDR

• Pendle has exceeded expectations, with its token price soaring over 4,000% since we wrote our first report.
• The protocol's TVL and fee generation have continued to climb, driven by strong institutional adoption and interest in its yield, stablecoin, and RWA offerings.
• Pendle has made significant UX improvements, including a new yield strategy orderbook and a redesigned user interface to improve accessibility.
• Pendle's partnership with the stablecoin project Ethena has been mutually beneficial. To drive adoption, Pendle offers high yields on the USDe stablecoin.
• We have now issued updated price targets for Pendle across the base, bull, and best-case scenarios.

Disclaimer: This is not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results. "One Glance" by Cryptonary sometimes uses the RR trading tool to help you quickly understand our analysis. These are not signals, and they are not financial advice.

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The state of Pendle

We were always confident of the potential and opportunity presented by Pendle. Although it's not the most front-facing protocol, a yield market tends to serve larger organisations - think banks, pension funds, DAOs, etc. 

In addition to the fact this type of user tends to place a large amount of funds into these positions, they also are much less likely to paper hand and remove liquidity in a hurry. 

This effect can clearly be seen on the TVL chart after the start of the current bull run. Despite the market taking dips, twists, and turns over the last few months, Pendle's TVL has maintained an upward trajectory. It has even accelerated from mid-March to mid-April. 

The TVL metrics in bull mode are confluent with the massive fee increase generated over the last few weeks. 

Much of this increase is related to Pendle's RWA pools. For those unfamiliar with RWAs, we recently released an in-depth report explaining the sector (with an attractive opportunity).

Overall, Pendle's stats have gone from strength to strength, with a clear pickup at the beginning of April.

Recent developments

One of the key updates in the last few weeks was the yield strategy orderbook.

One of our key concerns was that Pendle was too complex for the average user to understand. Therefore, most people wouldn't use it, so it would struggle to gain mainstream adoption.  They've also completely redesigned the UI, making everything easier to navigate. 

However, one of the key deployments has been the launch of USDe support, a stablecoin launched by Ethena Labs. 

Pendle has been partnered with Ethena and has been participating in and supporting the USDe push by Ethena.  Ethena has gone from relatively unknown to over $2.5 billion in TVL - the relationship with Pendle has been mutual. 

Offering 50-60% APY on a stablecoin deposit might sound insane, and it most likely is if it goes on for too long. We all know what happened to Terra/LUNA/UST. 

But Pendle is not actually exposed to the collapse of the stablecoin; they're just capitalising on the hype. If USDe went to 0, Pendle would, of course, get some bad press. Pendle is smart, though, and they likely have a contingency for that exact scenario—a depeg of the USDe. 

We haven't done full due diligence on USDe, and that's not the topic of this report, but it explains the acceleration in TVL on Pendle—people love "free" yield, even if it isn't risk-free.

The USDe partnership serves Pendle well in showcasing its product - get your yield now for a given quantity of USDe. 

Updated price targets

Our last Pendle report suggested a potential target of $3.62 at an FDV or ~$950 million. 

The calculation, which you can find in this report, was based on an ETH price of $1630. At the time, we stated that the targets were VERY conservative. 

Given the current price of ETH and Pendle's success by all metrics, it's time to place new targets for PENDLE. Currently, PENDLE is sitting at $6 with a $1.5 billion FDV and a market cap of $580 million. 

We do not see Pendle's growth slowing down, especially given the "clientele".  Additionally, PENDLE inflation has been more reasonable than we first anticipated, and the calculation was done with FDV in mind. 

We'll use the previous FDV target for the new base price target—$1.5 billion.  For the bull case target, we'll use $4000 ETH from the previous calculation, which gives a market cap of ~$ $6.2 billion. 

This calculation considers the potential growth of the LSD and RWA markets, which has already been calculated while allowing us to account for the general market performance. 

In the best-case situation, we'll assume ETH reaches $9,000, giving it a market cap of ~$ $13.5 billion (rounded).

This gives us our revised targets:

• Base: $15.46, a 2.5x.
• Bull: $63.91, an 11x.
• Best: $139, a ~23x.

Honestly, Pendle's market cap will likely be higher than $13 billion in the future. But for interim/near/midterm targets, we're confident in these numbers. 

We'll revisit if and when the best-case target is hit. 

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Cryptonary's take

Despite market conditions and corrections, Pendle's performance has been exemplary, with little sign of weakness. It's like Pendle has bought crates full of Popeye's spinach and eats some whenever the market dumps.

PENDLE is a prime example if we're looking for assets showing strength for investment in dips. 

As stated in the previous report, the interest rate swap market is huge in TradFi, and Pendle is well on its way to monopolising that sector in crypto. Really, the only thing that could knock Pendle down a peg or two is some exploit or controversy. 

However, barring such black swan events, we are confident that Pendle's trajectory is sustainable, even in the beginning stages. The longer it goes without any major exploit or controversy, the more confidence it will instil, facilitating further investment by more users (simpler UI) and larger quantities of capital. Pendle's success from here has what it takes to be a self-fulfilling prophecy.

Cryptonary, Out!