How to Invest in Pendle Finance on Notum

Yield farming is one of the most famous and popular types of investments in the crypto space. This is largely due to the fairly high yields and the ability to use additional tokens for other DeFi activities.

Farming itself is the placement of assets into various DeFi protocols to receive rewards. Users deposit their cryptocurrency into liquidity pools, and then their assets are moved to those protocols where they can generate the most profits. Liquidity pools guarantee transaction security, and additional tokens representing users’ stake in the pool allow investors to earn additional profit.

In 2024, there are a huge number of platforms that allow users to invest in farming and receive quite large rewards. However, the platform we will talk about today gives users access to various yield-management strategies and, unlike other protocols, allows them to independently control their income.

Today's article from Notum will draw your attention to the Pendle Finance protocol, talk about the main functions and also highlight its pros and cons. In addition, we will look at what investment strategies Pendle offers and what rewards you can get by investing in this protocol.

Pendle Finance: the Essentials

• TVL: $4,447b
• Risk Level: Medium
• Blockchains: Ethereum, Arbitrum, Optimism, BNB Chain, Mantle
• Average APY: 45.56%
• Foundation Date: 2020

Pendle Finance is a permissionless yield-trading protocol that allows users to utilize different yield-management strategies. One of Pendle's important goals is to give investors control over their income.

The platform allows users to generate income using the yield-bearing tokens it supports. Pendle first divides these assets into principal and yield tokens and then offers users liquidity pools where these tokens can be traded. Supported yield-bearing tokens on Pendle can have both fixed and floating rates, allowing users to receive income.

Interesting fact! Pendle was originally deployed on Ethereum and at the time of its founding in 2020 was called Benchmark. At this time, the protocol served as an on-chain yield asset aggregator, allowing future income to be divided and traded.

The platform has three main parts, each of which performs its own functions on the Pendle ecosystem:

• Yield Tokenization. Pendle uses a token standard called SY (standardized yield tokens), which implements an API for wrapped yield-bearing tokens within smart contracts. In other words, all tokens that generate income can be wrapped into SY. The wrapped version of the token is compatible with Pendle AMM, where SY is split into its principal token (PT) and yield token (YT). The process where yield is tokenized into a separate token is called yield tokenization. Thus, due to SY, Pendle’s yield-tokenization mechanism works for all tokens in the DeFi world.
• vePENDLE. Since Pendle is also a yield derivative protocol, it brings the interest derivative market of traditional finance to DeFi. Thus, the platform makes the DeFi yield market accessible to everyone and allows users to use innovative strategies such as fixed and long yields. Also, users who own PENDLE can block it and get vePENDLE to take part in the governance of the platform.
• Pendle AMM. Both principal and yield tokens can be traded on the platform’s AMM, which was specifically created for yield trading and taking advantage of PT and YT. The AMM curve changes to allow returns to accumulate over time and then narrows the PT's price range as maturity approaches.

«We created a pseudo-AMM that facilitates PT and YT swaps using a single liquidity pool. With a PT/SY pool, PT can be directly traded with SY, while YT trades are also possible via flash swaps» - Pendle Docs.

vePENDLE

The platform is managed using vote-escrowed PENDLE or vePENDLE. Pendle crypto holders using vePENDLE gain access to a large number of different features, which also increases the token's utility. In addition, vePENDLE helps maintain a high level of decentralization on the platform.

Another important task of vePENDLE is to reduce the number of PENDLE tokens, which affects not only the reliability of the platform itself, but also maintains the stability of the token. In this way, vePENDLE regulates some of the processes necessary for the long-term and successful existence of Pendle Finance.

Speaking of usage, vePENDLE gives its holders the right to vote for channel $PENDLE coin incentives into a pool, as well as vote to receive voter’s APY and base APY. Apart from this, holding vePENDLE allows users to Boost LP rewards by reaching 250%.

Important! All you need to do to get vePENDLE is to lock $PENDLE and stake it for up to 2 years. A tutorial with all the details can be found here.

Source: Pendle Docs

Why Invest with Pendle?

Pendle is a unique platform that offers users a number of distinctive features and advantages that are worth paying attention to:

Pros

LP's yield

Pendle V2 allows liquidity providers to receive income from several sources at once, namely PT fixed yield, underlying SY yield, swap fees from SY and PT, and $PENDLE incentives.

Learn-in app

Pendle offers a simple and convenient “Education” tab where users can find a complete guide to yield trading. Moreover, the platform also has its own Pendle Academy where you can learn everything about how to use Pendle.

AMM

Pendle offers its own AMM for yield trading, which offers users a number of interesting features, from concentrated liquidity to negligible IL concerns and a dual fee structure.

Yield Tokenization

For maximum control over tokens, Pendle allows users to split any yield-bearing assets into separate and principal parts.

Safety

Pendle takes platform security quite seriously, that’s why its smart contracts have been audited by many leading firms such as Dedaub, Dingbats, Code4rena, and others, which indicates the proper level of security.

Average APY

Yields for providing assets on the platform are quite high and amount to 45.56% on average. Liquidity pools on Pendle can bring users up to 60.36%.

Pendle Points

The platform allows users to both use points and bet against it. Moreover, investors who buy YT can receive up to 100x points and also 60% fixed income if they sell it.

Pendle: Investment Strategies

Pendle Earn allows users to deposit their assets and participate in both yield farming and liquidity pool provision. Both options have their advantages and differ in the number of options and rewards.

• Fixed Yield on the Pendle Earn tab allows users to invest in one of 23 featured assets across five networks. Interest rates for providing liquidity range from 3.8% for ETHx on Stader to 68.39% for ENA on Ethena. Users can also sort assets on the platform by the highest fixed yield and highest position value. By depositing assets on Fixed Yield, they can withdraw their tokens at any time at the market price. However, the position value and its profitability depend on the peg of the underlying asset.
• Liquidity tab on Pendle Earn includes 23 liquidity pools with the same assets, but the interest rates differ significantly. Thus, instead of fixed yield, users receive LP yield, where interest rates can change and bring even more profitability. The largest pool on Pendle has a TVL of over $87 million and offers users up to 9.3% for depositing their ezETH. The most profitable pool is also ENA on Ethena with TVL of $14 million and interest rates of about 49.9%. Users can also withdraw their assets at any time at the market price. Moreover, Pendle pools are not subject to impermanent loss if held to maturity.

Pendle: Risks and Disadvantages

Pendle Finance pays special attention to the security of the protocol, which is why it has been audited several times, more information about this can be found on the Security tab. However, it is still subject to some risks and disadvantages that you should pay attention to before investing:

Cons

Smart contract risks

Operating on smart contracts, any protocol, including Pendle, is susceptible to potential bugs and vulnerabilities associated with them. Thus, problems in smart contracts can lead to loss of funds.

Systems risks

Since Pendle Finance interacts with third-party protocols and contracts, there is always a risk associated with systems deployed by the other protocols.

Platform's complexity

Even though Pendle has a large number of educational articles and tutorials, the platform can still be difficult to use. When going to the application, users see a large number of contributions, which can be difficult to navigate.

Notum’s Verdict

Pendle is a large and fairly popular platform with a TVL of $4,447 billion, offering users yield-management strategies across five networks. It gives investors control over their funds and offers a large number of unique features, from yield tokenization to Pendle AMM. The platform also has a number of advantages that set it apart from competitors, such as the learn-in app, Pendle Points market, LP's yield, and a fairly high average APY.

The platform offers users a Fixed Yield and Liquidity tab, allowing them to invest their assets to receive high rewards. Moreover, by depositing cryptocurrency on Pendle, users can withdraw it at any time. Pendle Finance has a medium risk level and still faces issues such as smart contract vulnerabilities and system risks associated with third-party protocols. However, the platform has been audited by leading security firms, which makes its use quite safe.

For those users who are looking for a permissionless yield-trading protocol with extensive functionality, a high level of security, and decent rewards, Pendle Finance may be a great option.

Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.