Pendle is a yield tokenization protocol with secondary market trading elements (yield-trading protocol). It supports several EVM-compatible networks.
The core idea of Pendle is to split yield-bearing tokens into two parts: principal and yield, where the principal represents the equivalent of the yield-bearing token, and the yield part represents the profit.
In traditional finance, a similar instrument has existed for a long time. Strip bonds or stripped securities. This involves separating a bond into the «body» (principal) and coupons.
An even clearer analogy is the separation of real estate rights:
- Ownership rights – equivalent to the «body» of the asset.
- Rights to rental income – equivalent to the «yield» portion.
In Pendle, it's possible to purchase the yield of an underlying asset separately from the asset itself, with the expectation that the yield will increase and the buyer will earn a profit. For example, staking the underlying asset ETH provides a variable yield. It changes over time. Therefore, the yield may increase in the future.
There are three key features that define the Pendle protocol:
- Wrapping yield-bearing tokens.
- An AMM for trading wrapped tokens.
- vePENDLE to create a secure ecosystem and offer additional incentives for users.
Token Wrapping
Pendle wraps yield-bearing tokens. Examples of such tokens include any that generate yield: stETH, GLP, gDAI, and so on.
The protocol introduces the abbreviation SY (Standardized Yield token) for the wrapper. For example, SY-stETH is the wrapper for stETH.