Pendle Finance

What is Pendle?

Pendle is a tokenized yield primitive that builds on any yield-bearing token (usually liquidity provider tokens) to create a yield marketplace. This allows for some excellent utilities for users such as yield trading, fixing yield, and boosting liquidity provider rewards.

Pendle pools provided boosted yield for depositors (from swap fees and $PENDLE rewards) while driving liquidity to Silo. Traders can also hedge interest rate volatility or earn fixed yield by trading on the Pendle marketplace.

Additionally, Silo has markets for Pendle’s Principle Tokens (PTs). This allows PT holders to access leverage while earning a fixed yield.

You can find Pendle markets for our silos via their UI here. You can find our silos for Pendle’s PT tokens on our UI here.

How does Pendle work?

Pendle uses a mechanic known as ‘yield-stripping’ which separates a yield-bearing token into two parts over a defined time frame (the maturity date):

1. Principal (PT): the underlying token less its yield

2. Yield Token (YT): the yield of the underlying token until maturity

The PT is convertible 1:1 with the underlying at maturity. Since it is stripped of yield (which goes to YT), PTs trade at a discount which can be viewed as a ‘fixed rate’. The inherent yield-bearing nature of PTs make them prime collateral on Silo by providing fixed yield while being able to access leverage!

YTs is the counterparty of PT that earns the yield of the underlying until maturity. While PTs appreciate overtime (eventually reaching parity with the underlying), YTs decay to zero at maturity. Since YTs represent yield, they can be used to speculate on rate changes or hedge borrowing costs on Silo.

The process of minting PT and YT is through liquidity providers who deposit the underlying on Pendle. These go to Pendle’s AMM which facilitates trades of both PT and YT in a single pool. Cool part here is that since the underlying is literally just yield-bearing liquidity, Pendle pools provide a TVL boost for the protocols it builds on. For Silo, this means deeper liquidity and cheaper borrowing costs for our users.

What are the risks of using Pendle?

YT traders are at risk of losses if actual yield is lower than the implied yield the tokens are purchased for. PT traders are also exposed to rate volatility in the price of the PT token although they are guaranteed 1:1 conversion at maturity by design.

Silo users with PT collateral have the same liquidation and rate volatility risk as standard users. It is important for them to maintain a conservative Health Factor and closely monitor interest rate changes.

As usual, interacting with any external contract may introduce additional smart contract risk. It should be noted that Pendle has had multiple audits that may be viewed here