Pendle, a pioneering yield tokenization protocol and automated market maker exchange, launched on Avalanche on Nov. 11, bringing new functionality to Avalanche’s growing DeFi ecosystem.
Pendle was the first yield tokenization protocol to launch on Ethereum when its mainnet went live on June 17, allowing users to speculate on the future yields and underlying assets values associated with interest-bearing tokens and liquidity provider positions.
Yield tokens give DeFi users greater flexibility in how they manage their positions, allowing them to realize future returns without selling underlying assets. Investors can speculate on future yields without purchasing underlying assets, access arbitrage opportunities, and generate returns through liquidity providing.
Users that had deposited stablecoins into leading money markets Compound and Aave could use Pendle to mint two tokens representing the future yields and underlying assets associated with their deposit. The protocol added support for SushiSwap LP tokens in August.
Pendle is used to mint Future Yield Tokens (YT) and Ownership Tokens (OT), with the YT tokens representing a claim to future yield accrued by a position and the OT tokens representing a claim to ownership over the underlying assets deposited. Like options contracts, Pendle’s OT and YT tokens are minted with a future expiry date.
YT tokens are traded on Pendle’s AMM, which is purpose-built to facilitate trading an asset that’s value will degrade over time. Within five months of launching, Pendle boasted a total value locked (TVL) of roughly $50M, while its AMM had hosted eight figures in aggregated yield trading volume — equivalent to a notional value exceeding $100M.
OT tokens are traded on conventional third-party decentralized exchanges. Both YT and OT tokens are required to redeem an underlying position until expiry, at which point only OT tokens are needed for redemption.
Get Smarter on DeFi and Web3
Get the 5-minute newsletter keeping 80K+ crypto innovators in the loop.
Despite its innovative utility, high gas fees have limited Pendle’s user base; entering into the platform’s most complex positions cost approximately $800 in gas fees over six transactions. Pendle hopes to expand its user base by alleviating gas prices and getting the same six-transaction action down to less than $2. The key: Using a one-click interface that has been newly launched with the Avalanche deployment.
Avalanche is a high throughput Layer 1 blockchain offering Ethereum Virtual Machine (EVM)-compatibility that achieves scalability through a sharding-like ecosystem dubbed “subnets.”
Since launching in September 2020, Avalanche has recently emerged as a leading network offering low fees and EVM compatibility, with DeFiLlama ranking Avalanche as the fifth-largest network by DeFi TVL with $10.2 billion — more than 90% of which has been amassed in the past four months.
Aave represents more than 30% of Avalanche’s TVL with $3.1B, followed by native AMM and farming platform Trader Joe with $2B, and native money market Benqi with $1.4B.
Pendle went live on Avalanche on Nov. 11, launching with support for Benqi’s interest-bearing tokens representing AVAX and USDC deposits, in addition to LP tokens representing AVAX/PENDLE and AVAX/JOE positions on Trader Joe.
Within 18 hours of launching on Avalanche, Pendle’s new markets have attracted roughly $15 million worth of liquidity and hosted $250K in yield token trading.