Pendle Finance and yield tokenization

Staking is a solid albeit slow yield generating strategy.What if we told you that you could get the rewards from staking on top of liquid assets?Pendle is offering yield tokenization, and their own $PENDLE continues its impressive climb, now up +1500% for the year!

In this thread you will learn• What Pendle is• How Pendle Splits Tokens• Tokenomics• TVL and potentialLet's begin!

What is Pendle?@pendle_fi is a protocol on #Ethereum that allows users to tokenize and trade future yields from yield-bearing tokens like $ETH.It separates tokens like stETH into two parts:1️⃣ Principal2️⃣ YieldSo why would you want to that in the first place?

How does Pendle Splits Tokens?First, the token gets wrapped into an SY tokenThis SY is a special EIP-5115 standard token that Pendle uses to make the process more convenient for you.Everything happens in the background, for users it's like trading any other token.

Then the SY token is split in two:• 1 Principal token (PT)• 1 Yield-representing token (YT)They both get have maturity dates.PT becomes fully redeemable for the underlying asset when YT stops accruing yield.Example with Aave’s aUSDC:

This setup has seen an absolutely explosion in TVL attracted to Pendle, up 10x from $15m to now more than $150m 🚀

Now that you have two tokens (PT and YT), you can in the best degen style generate extra yield by LPing the two at almost zero Impermanent Loss (IL) risk.The reason for almost zero IL is thanks to the 2 tokens both having a price correlated to the underlying asset.

Example: stETH PT + stETH YT = stETHThe only IL risk comes from fluctuations in the demand for PT and YT.At maturity, both assets have the same value ($ETH price)LP works well as a hedge for your PT and YT positions

So you might be asking yourself: Where does the yield come from for LPers?The answer is a classic one for LPs:🤑 Fixed rate from PT (Principle)🤑 Protocol rewards from the underlying token🤑 Swap fees🤑 $PENDLE incentives

This brings us to $PENDLE.The price action of $PENDLE has not seen the same increase as TVL. Hidden gem 💎 maybe?

Normally the gap between increase in TVL and price would be attributed to bad tokenomics.The team's vesting ended April 2023 and will then only come from emissions.Weekly emissions: 667,705 $PENDLEBased on their docs, this means a 2% inflation rate of emissions.

What about the utilities of $PENDLE?When you lock up $PENDLE for vePENDLE you receive:• Governance opportunities• Share of Pendle revenue• Extra liquidity provision APY

With Ethereum's Shanghai update and LSDfi taking crypto by storm, Pendle is extremely well positioned to do well going forward.It will be interesting to see if @pendle_fi can continue yield tokenizing more parts of the crypto ecosystem with big players like Uniswap.