Pendle's TVL Drops 45% as Key Markets Mature

Yield trading protocol Pendle’s Total Value Locked (TVL) plunged by 45% in just a week, dropping to $3.5 billion from $6.2 billion, according to DeFiLlama data.

This sharp decline happened as several liquid restaking markets, including Ether.Fi’s eETH, Renzo’s ezETH, Puffer’s pufETH, Kelp’s rsETH, and Swell’s rswETH, matured on June 27. When these markets matured, they allowed users to redeem their principal investments, leading to substantial capital withdrawals.

TN Lee, CEO of Pendle told The Defiant that large liquid restaking token (LRT) pools that started this year matured on June 27, totaling close to $4 billion.

On Pendle, LRTs split into Principal Tokens (PTs) and Yield Tokens (YTs). When users stake assets like ETH, they receive PT-ETH, which can be converted back to ETH when the staking period ends. YTs represent the interest earned from the staked asset, which can be traded separately from the principal amount.

"Pendle's mechanics worked precisely as intended," Lee said. "Users claimed their PTs and liquidity provider tokens while YTs decayed to zero in exchange for leverage points."

Another crucial factor in the TVL drop was the decreased demand for YTs. As several users exited Pendle after the LRTs matured, the demand for YTs fell, causing yields on PTs to drop below 10%.

This decline led users to shift their ETH to other platforms, which then caused the PENDLE token price to crash by 40%, dropping to $4.2 from $7 in a week, according to CoinGecko.

Lee agrees that several users exited Pendle after the LRTs matured, leading to low demand for YTs. These tokens enable users to earn yield on their assets but become worthless upon maturity.

Surge In TVL

In April, Pendle’s TVL jumped by 40% reaching nearly $3.9 billion. This rise was primarily driven by increased demand for leveraging exposure to DeFi protocols.

Pendle capitalized on this demand by offering traders a way to gain leveraged exposure to EigenLayer and LRT protocols like EtherFi, Swell Network, and Puffer Finance.

EigenLayer points can be earned by restaking ETH or LSTs such as Lido’s stETH through the protocol.

When traders buy YTs, they gain the ability to farm additional airdrop points. The idea behind this is that the airdrops received will be more valuable than the cost of purchasing the YTs.

According to Token Terminal data, Pendle’s daily active users dropped from a peak of 23,000 in April to less than 1,000 today. During May and June, the number of daily active users ranged between 3,000 to 5,000.

Pendle introduced a rollover feature to assist users in transitioning their liquidity to new pools.

"Despite the TVL decline, this is a natural part of our platform's lifecycle. The rollover process ensures users can seamlessly move their assets,” he said.

According to Lee, the APY isn’t as high as before (over 40%), and new pools may suffer from price impact due to lower liquidity. “Still, Pendle remains a place for good yields in ETH."

Recovery Plans

Lee noted that Pendle is collaborating with other protocols to recover the TVL.

“We've been in talks with protocols and some provided higher multipliers,” he mentioned. “For example, EtherFi gave us a 4x multiplier and some of our pools on Arbitrum network are incentivized with $ARB tokens for LPs so there are good opportunities in the Pendle pool on Arbitrum at the moment.”

Pendle has also rolled out features like zero price impact mode and limit orders. "We have added a PT and LP rollover feature and highlighted pools that currently provide good APY.”

Lee concluded that the Pendle team is developing PendleV3 to introduce new yield strategies and cater to emerging markets.

"Pendle supports any yield-generating asset. Pendle has grown this first half of the year from the points meta allowing leverage points farming or very good fixed yields,” he added. “While this remains our highest growth driver, we're still open to exploring and experimenting with other types of assets, both inside and outside of restaking. We are particularly vocal about supporting yield-generating assets outside ETH, such as BTC.”