DeFi Researcher: Why Pendle is One of My Biggest Investments Before the Next Bull Market?

Original link: https://twitter.com/Cryptotrissy/status/1632353433683632128

Author: Trissy, DeFi Researcher

Compiled by: Leo, BlockBeats

Pendle is a permissionless DeFi yield trading protocol on Ethereum that allows users to execute various yield management strategies. Currently, Pendle has become one of the best-performing protocols in the yield market and may elevate DeFi to a new level. DeFi researcher Trissy wrote an article titled "Why Pendle is One of My Biggest Investments Before the Next Bull Market," which BlockBeats has organized and compiled as follows:

Pendle Overview

Pendle's goal is to provide maximum yield for its users by simply increasing their exposure to yields in a bull market and hedging against yield declines in a bear market. Users can execute various yield strategies through its dual-yield tokens. In Tradfi, institutional participants rely on various hedges to protect their positions, such as future yield contracts.

Pendle wraps yield-bearing assets into SY (standardized yield token), which is further divided into two types: PT (principal token) and YT (yield token).

PT: Principal token at maturity

YT: Yield token at maturity

For example:

1 GLP ($0.92) = 1 PT GLP ($0.78) + 1 YT GLP ($0.14)

This feature also unlocks several new strategies for DeFi. For instance, you can buy 1 PT GLP for $0.78 (a 16.6% discount) and receive 1 GLP at maturity. 1 YT GLP allows you to earn the yield of 1 GLP (collecting yield until maturity and can be withdrawn at any time).

Simplicity and Incentives

The simplicity of the protocol is often overlooked. DeFi is a complex ecosystem, and its technical nature creates a high barrier to entry. What I love about Pendle is that I can read its whitepaper and understand its product in just an hour.

A token won't enter my portfolio unless it has strong incentives. Pendle charges a 3% fee on all earnings generated from YT (yield token). Currently, this fee is 100% allocated to vePENDLE holders, and the team does not take any fees. By holding vePENDLE, users empower the incentive mechanism on Pendle, where vePENDLE holders vote and direct rewards to different pools, effectively incentivizing liquidity in the pools they vote for.

If you provide liquidity to the pool while holding vePENDLE, all your LP PENDLE incentives and rewards will also be further enhanced based on the value of your vePENDLE holdings, up to 250%.

This creates a flywheel effect for yields; the more vePENDLE you put in, the more incentives you receive. As tokens are locked, more supply disappears from the market, and LPs can increase by up to 250%.

User Strategies

Users can implement several strategies on Pendle:

• Buy PT (1Hour) GLP------Receive fixed yield before maturity. You can see that the APR of GLP on GMX is 20% (base APY), but Pendle can provide users with an implied APY of 16.9% at a fixed rate. This may not be a good time, as you will receive a lower rate than the actual one.

Buy PT GLP (1Day) and receive a fixed rate of 27.5%, which is a good deal (27.5% fixed rate vs. 20.9% base rate).

• Buy YT------Long yield token rate.

The situation is to go long on YT GLP. I believe the yield (APY) of GLP will remain around 20% for a while, but the implied APY is 16.6%, which is the fixed APY offered by Pendle. I think there is still a gap in Pendle's implied yield: 16.6% vs. around 20%. Therefore, buying YT GLP and expecting the yield to rise may be a good choice.

Narrative

My prediction is that LSD will begin to dominate the ETH staking ecosystem. My reasoning boils down to two options:

• The utility coefficient of LSD is very high, as they can be used as collateral for deposits to earn yield and can also be borrowed through lending protocols to earn additional interest;

• The liquidity demand of users; after the Shanghai upgrade, there is still a 27-hour waiting period. This creates insufficient liquidity for assets, and investors will prefer the instant unlocking solutions provided by LSD.

What does this mean for Pendle? In a scenario where LSD dominates, most holders will want to increase their ETH yield, which is Pendle's opportunity, allowing users to achieve double-digit APY while addressing staking and liquidity.

Integration and Roadmap

Pendle's announcements show that it is currently integrating with several projects, such as GMX, LayerZero Labs, Balancer, Arua Finance, and Rocket Pool.

Business development is crucial for increasing Pendle's visibility and liquidity. Given their current valuation levels, achieving this level is already commendable. Additionally, Pendle has a very good roadmap, and the pools they are about to list on Arbitrum will attract more users.

Valuation

Before achieving a grand goal, it is essential to consider the current circulating market cap and diluted market cap. For example, if Pendle's circulating market cap is about $20 million, the fully diluted market cap would be around $2 billion.

Conclusion

Considering the time that unlocking may require, this could ultimately extend to an additional 20% of tokens unlocking to the total supply, and LSD staking boosts could catalyze Pendle to a higher position.

Taking the last bull market's DeFi protocols as an example, the three critical questions are:

• What characteristics do they have that make them worth billions?

• How are token holders' yields?

• How do their products help users?

Pendle performs well on all three points, and I hope you understand why I am optimistic about this project. Finally, Pendle has strong marketing strategies, and several top DeFi investors and researchers are very optimistic about it.