Pendle pendle

Pendle is a permissionless yield-trading protocol for DeFi. It sits on top of yield-generating assets such as liquid staking tokens, liquid restaking tokens, stablecoins and real-world-asset products, and lets users trade exposure to principal and future yield separately. The protocol is designed to make interest-rate and yield strategies programmable rather than leaving users with only a variable yield position.

Pendle first wraps a supported yield-bearing asset in a Standardized Yield (SY) token. The SY position can then be split into a Principal Token (PT) and a Yield Token (YT), with each component tradeable on Pendle markets. This design resembles separating a bond's principal from its coupons, but is implemented with smart contracts and on-chain markets.

PT represents the right to redeem one unit of the accounting asset at maturity. YT represents the right to receive the yield generated by one unit of the accounting asset until maturity, with accrued yield claimable during the life of the position. PT and YT can be recombined into the underlying before maturity, while a matured PT can be redeemed without a YT.

The protocol supports fixed-yield positioning, directional exposure to future yield, liquidity provision and combinations of those strategies. Market creation is permissionless at the contract level, although the official interface curates which markets it displays.

Yield in lending, staking and other DeFi strategies changes over time, making the return on an otherwise similar deposit difficult to lock in. Users who want protection from a yield decline, or who want amplified exposure to a rise in yield, generally need a market that separates principal risk from yield risk.

Pendle addresses this by creating an on-chain market for the yield component itself. That adds flexibility, but it also introduces maturity, implied-yield, smart-contract, liquidity, oracle, underlying-asset and counterparty/integration risks. PT's apparent fixed return is conditional on the holder being able to redeem the correct underlying and on the market and protocol functioning as intended; YT buyers can lose value if realized yield is lower than the price they paid.

A user deposits a supported yield-bearing asset and receives SY exposure, which is compatible with Pendle's liquidity engine. Splitting that SY position mints equal accounting amounts of PT and YT. The core relationship is PT price plus YT price equals the price of the underlying accounting asset. Before maturity, users can mint, redeem, buy or sell either component; YT holders can claim accrued yield in real time, and after maturity PT can be redeemed one-to-one for the accounting asset.

Pendle V2 uses a PT/SY liquidity pool. PT swaps directly against SY, while YT swaps use flash-swap mechanics: the contract mints PT and YT from SY, sends YT to the buyer, and sells the associated PT back to the pool, or performs the reverse flow for a YT sale. Auto-routing can connect trades to major assets.

The V2 AMM concentrates liquidity around a configured implied-APY range rather than a conventional spot-price range. Its curve dynamically tightens as maturity approaches, reflecting lower remaining uncertainty and moving PT toward underlying value. Fees are calculated relative to the yield traded and therefore depend on time to maturity.

LPs provide PT/SY liquidity and can receive PT fixed yield, underlying SY yield, swap fees from PT and YT activity, and PENDLE incentives. PENDLE can be staked as sPENDLE for governance participation and eligibility for protocol reward distributions; the current documentation says most V2 yield and swap-fee revenue allocated to buybacks is distributed to active sPENDLE holders.