Pendle Ripped in Early 2024, But Usage Has Slowed Down. Can It Recover?

Transcript

what we have to focus on at the moment is how we can regain the market share because losing billions of dollars in TBL in a short period of time no matter how predictable it was doesn't feel good hi everyone welcome to Unchained you're no hype resource for all things crypto I'm your host Laura Shin author of The cryptops I started covering crypto 9 years ago and as a senior editor at Forbes was the first MRI reporter to cover a cryptocurrency fulltime this is the August 23rd 2024 episode of Unchained with it trust Capital you can buy and sell crypto in a tax advantage retirement account enjoy significant tax advantages 24/7 access and the

industry's lowest fees polkadon is the original and leading layer zero blockchain with over 2,000 plus developers and the polka dot 2.0 upgrade will be a massive accelerator for the ecosystem join the community at polad do. Network ecosystem community get ready for the world's largest crypto event token 2049 Singapore from September 18th to 19th join over 300 speakers and 20,000 attendees visit token2049 for 15% off with code Unchained today's guest is tenen Lee the founder of Pendle Finance welcome tenen yeah thanks for having me penel has been

around since 2020 but it exploded earlier this year to a total value locked of almost $7 billion what is Pendle and how did you come up with the idea for it Pendle is a protocol for the tokenization and the trading of yield simply put I think it allows for apys to be traded to people with different views so some users they want to speculate on the yield pedal is advanded to do that and then for some others who want to lock in their rates they can be the part to those who want to speculate on the yield as for the ideation of the concept it started out in 2020 so basically my

co-founders and I we were trading a lot of uh shitcoins uh the food coins back in defi summer and these food coins they were not entirely different from the points that we were seeing today they were printing tens and 20,000% of apys so as much as we like the idea of having high apys we weren't able to lock in the rates and that fundamentally motivated us to think about a solution or an instrument that allowed us to lock in the rates um the way we wanted to and also I think just going deeper into the psychology of human beings including

ourselves right we innately create for some form of certainty so I think by and large when when we compared the state of crypto at that point in time to uh matured financial sector it was very obvious that an instrument that allows of fixed income was was absent so we thought the addressable Market was big and and then went about going with the design with of tandle yeah so explain how it works yes so ultimately I think uh pedal Works primarily with a yield bearing asset so yield bearing asset like uh for example SD which functions as firstly appr Pro of deposit into a

protocol and then secondly it functions as a receipt for yield that will be paid out by the underlying protocol in over time so Pendle wants a user at Pendle wants a user deficit a y baring asset like s e for example it gets split into a principal token and yield token represented by PT and YT respectively so PT is the body that represents the principle which is uh users proof of deposit and then the yield token functions as the component that Acres the yield that's paid out by the underlying protocol Now by making these two parts independent uh separated right

they can be traded independently and let's see if I am a yield Speculator I can purchase the yield Tok token without having to regard for the underlying itself so I can purely focus on the yield and because the yield is typically the smaller part of a yield bear asset the same amount of capital usually entitles me to an implied leverage so it's more Capital efficient to speculate on you and then correspondingly the other side which is the PT is where users want to lock in a fig seal they can uh F fixed rate they can they can acquire the PT and then hold it on to

maturity for a fixed gate yeah yeah both of these have these maturities and um this I guess in a way allows people to kind of avoid some of the volatility and and like and you know just rely more on on that yield so you know as we mentioned at the beginning you started in 2020 so what do you think happened to suddenly drive up the increase in pendle's tvl this year to almost $7 billion I think there were there were definitely many different reasons um so when we started out in 2020 the product was actually live in June 2021 uh through multiple phases of test that implementations and also just just

different Fe feature introductions so main it was June 2021 it didn't have a lot of traction because the uiux was complex and the learning curve was steep for most users and in 2021 it was actually a pretty good time for crypto so there were so many options for users why why go for a fixed yield when anchor was was offering something like 20% and they weren't the only one um so those were actually competitors for attention so we actually took the time to study how users interacted with our product and throughout the entirety of 2022 we reworked on the product and we

improved on what we introduced uh back in 20121 and launch Pendle V2 which is the current implementation in December 2022 so uh we launch into a bare market so last year there weren't a lot of activities but we tried many different things and over time I think we refine our approach in being really thematic in in in our strategy so basically I think as a as a venue that allows for eeld treading we have to be able to capture Trends and narratives and if need to Pivot to these narratives in a very short span of time so we identified several big trends last year and we were

very aggressively affiliating Pendle with these major Trends um even though it might seem very forced in the beginning but over time I think it became a lot better for example we were very small when we started out in 2023 January this was when um not not not much was happening and but we identified s and the whole like staking ecosystem to be a very important one that we needed to be involved in we reach out to Lio they weren't interested in the partnership because they were already doing billions of dollars in TBL we were on the other hand $5 million in VL so that it'll work out for us we

reached out to the second largest which was rocket pool uh they were a lot more receptive and when we had conversations with rocket we also figured out a way to involve the other protocols like balance and Aura um to get involved in in a in a for some campaign so that was I think the first time we leverage on someone else's reputation to give us that awareness boost and gain relatively good impression on social media so that strategy worked out and we replicated that across multiple different major narratives so for example arbitrum was another one that we benefited from when

arbitrum grew we as part of that ecosystem grew as well because we were working with GP gains Network and a few others to to to try to allow for rates to be traded uh but same story there right we we reach out to the biggest one GOP they weren't very receptive so we went to the second largest which was Gin they were more receptive and then we built a successful use case and we reached back to the GMX and and worked out something over there this year is no different we recognize igen layer to be a very important part of major trend for 2024 and the L protocols we were already connected with when we were building

various different markets last year and because of our involvement with staking products in 2023 points weren't actually something that new to us we had the experience of building a market for swell e which was offering pearls and I mean these pearls were fundamentally points um so so we had the the firsthand experience in 2023 and then 2024 when we recognize weaking to be a major part of the crypto narrative and um points to be a very central part of it we were able to react quite quickly but what we didn't expect was how how much it would

blow up we topped at $250 million in tvl last year um this year it was uh the the growth just just um surprised this in in in a in a very good way uh and and of course like the rest of it was really just identify good protocols like Thea zerit and I work with them to create the markets for users to uh speculate or obtain fixed yields on on pedal all right so in a moment we're going to talk more about some of the different strategies and how um you know Pendle success came together but first a quick word from the sponsors you make the show possible did you know you can buy and sell crypto with tax benefits in

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the Formula 1 grand prix weekend Singapore will transform into a buzzing crypto hub from September 16th to 22nd with over 500 side events taking over the city visit token2 49.com for 15% off tickets with the code Unchained Link in the description back to my conversation with Tenn what kind of Traders and investors do you think are best suited to using Pendle from our observations I think Traders are generally more sophisticated in nature so again I think By Design penal is not the most straightforward product in order to trade successfully

you have to understand how derivatives work you have to understand the implications of rates on a protocol so to be able to consolidate all these different components and then Express a view through Pendle requires some some intellectual thinking um so so typically the more successful Traders on Pendle are usually quite sophisticated and then on the other hand for those who want to lock and fix you our observation is that they typically are either funds or indiv uals with big size because of these um again like I think in in the in the earli part of

this year right because of the very aggressive bid for yield tokens uh because of the high impl leverage it created a very interesting opportunity for eth stable coins like uh sorry like USD for example to um for for users to lock in rates at a very attractive apy uh we're looking at maybe 40 to 60% fix apy on E and then 100% for usde uh it was a result of the aggressive bidding on the YT site and then for users who have sized like say millions of dollars in assets fix 40% apy on eth is is is not a bad

trade for sure what are some of the more popular strategies that people have been using with Pendle yeah so I think one of the most common ones that that requires um maybe managing multiple different positions on different protocols is is the looping part because uh for users who want to increase their um PT exposure there are actually money markets that exist like Silo do might where users can utilize these values to increase their PT exposure typically by two to three times um so this is a

relatively common strategy usually when these pools are set up it gets filled very quickly yeah because the users would just deposit um let's say pts collateral they borrow um uh counter uh like uh they borrow the asset and then they do the looping uh until it it it until they reach a certain threshold and that usually fares quite well uh and the maturity yeah and just to make clear by looping you're saying they borrow then they get this principal token but then um somehow it enables them to borrow again I I forget I correct yeah just explain that yeah so they deposit the PT they borrow let's say usde and then they

mint PT again and then they deposit the PT so they do that multiple times got it and yeah like how many times are people generally doing that oh it depends on their risk appetite I'd say like uh because the SS are highly correlated right like two to three times are probably quite common okay and is that how people are getting leverage yes okay and then earlier when you talked about you know striking these deals with these various protocols as far as I understand they are also you know with their points program working with you to um you know help I guess Pendle users

obtain um even more points so can you talk about how that works yeah so typically I think with a lot of these points issuers we would start the conversation by making a proposition to these protocols on how they could gain tvl because um for a lot of these points issuers the U bear assets are not really they they haven't really generated any kind of yield so they needed a utility for the yield bearing asset that the protocol Ms so pedal becomes a Vue that where where these youber assets are utilized um so this is I think the angle to them and and and in order to attract

liquidity right typically Pendle requests for multipliers on behalf of users uh usually two times three times and these numbers actually make make a lot of difference because it it translates to a higher implied leverage on the YT side so for example uh at one point in time because of the multiplier that ethena was offering to pandle YT has approximately 100 times in implied leverage now what that means is if you have one usde like typical condition right you would be earning one point an hour but in the case of Pendle YT usde because of the let's say the the

multiplier which translates to higher imply leverage of perhaps 100 times $1 worth of YT will entitle you to approximately 100 times of points boosting because of the imply leverage so this is why I think uh some users prefer that because they see it as an accelerated way to ACR more points that would help them with their overall earnings and wait and the implied leverage they are they're choosing the amount of Leverage they're taking by the number of times they do the loop is that what how that works or so this is this is uh entirely separated

um from the PT site so because this is YT oh right okay yeah so the imply Leverage is again implied so there's no liquidation risk um because it's stripped out from the underlying YT itself constitutes a very small percentage of the underlying and because of that right the same amount of initial Capital will entitle you to a much higher yield exposure okay okay but that's all determined by your partnership with the other protocol yeah so we work with the protocol on the multiplier but the impli Leverage is a function of the market so we have a we have a effectively there's a Baseline start right but over time because of Market sentiment it can go up

or go down okay so it's basically based on demand yes okay so you know it's funny that you said earlier your competitors were like anchor oh it it trims up attention yeah right right okay okay but uh just listening to this I'm you know I'm sure people can tell there's some risks here so what would you say are the major risks risks yeah so I think um the most important one is still uh contract risk so so taking the market Bas side right because for users who speculate there's always a prob like a possibility of uh making a net loss but on the other

hand like I think the contract risk is is worthy of a medion because Pendle is a second order derivative and pendel builds on top of other protocols now a user can be trading the PT or YT an asset right but if for whatever reason the underlying protocol gets compromised or no longer pays out any kind of yield then the PTT will effectively become valueless so this is I think uh a risk that users should be mindful of and that on our part what we what we do with this particular risk is to work with protocols that are doxed only so we don't work with undocks

protocol um and then we will do pretty we will do stringent due diligence to see to evaluate the protocol now if we have any kind of if we feel uncertain about a set of protocol we would typically confine the maturity to a to a smaller tenure so for example four weeks um so in the event that something happens at Le the damage is confined Okay so as we mentioned Pendle really took off earlier this year um but since that high of the tvl approaching closer to 7 billion it's now dropped down to about two two and a half billion um and in eth terms has dropped from

almost 2 million eth to about 1 million eth at least as of the time we're recording which is 10 days before this episode comes out so why is it that you think Pendle has seen its tvl drop yes so I think it's a it's a it's multiple factors firstly because the pools have matured so we had our biggest po maturity event at the end of June um and the tvl in consideration was about $3 billion so a lot of the funds went out of the system and stayed on the sideline from our observation it's really not like these funs are typically not deployed anywhere else they're probably looking for opportunities or Pendle to

deploy the asset back into Pendle again or perhaps some other opportunities elsewhere but it's a function of uh the Pendle protocol so every time there's a maturity there's always a withdrawal of liquidity and then from a liquidity provider standpoint once the assets withdrawn then they will have to evaluate whether it makes sense to go back into the pool depending on the apy so I think um The Good the good side out of it was that we were able to facilitate a Redemption of $3 billion it um with with minimal hiccup so the protocol functions as intended now what we have to focus on at the moment is how we can regain the market share because losing billions of dollars in TBL in a short period of time

no matter how predictable it was doesn't feel good so so um we have we have plans in the pipeline like for example we think Bitcoin could be a new narrative that Pendle can be more involved in so we're structuring uh campaigns that users could potentially find interesting uh and then of course beyond that we also yeah what but but actually just to make clear and to understand would that be wrapped Bitcoin or H how are you doing that not just rep Bitcoin but for example like Bitcoin l2s they could be taking babyon lsts or other forms of

um it could be red Bitcoin as well but to my understanding there are multiple different forms of Bitcoin rep Bitcoin variations so those are assets that we can work with but ultimately we think that there is a good opportunity there because Bitcoin is the single largest asset within crypto and there are actually a lot of Bitcoins that are currently uh deposited into a and earning maybe 0.1% in apy primarily used as collateral to borrow some other assets to farm somewhere else so if we can give Bitcoin meaningful utility to generate wealth then I think

there is there is a pretty high probability that it will see decent adoption okay and you know as we've been discussing uh the success of Pendle has really um blossomed with this whole points Trend so if the points Trend goes away then you know what what else are things that you might do with Pendle yeah yeah so I think points are so my my opinion is a little different I think points will be here to State um but it will normalize to the sentiment of the community towards the protocol so I think like in the first half of the Year protocols use points because there is a premium attached to the to the to the

points program but over time this premium will gradually erode and then the performance of the points progress will largely depend on how people perceive a protocol like let's say if the protocol is backed by good good good funds and and has um good Founders then naturally it will have it should have meaningful traction so in terms of positioning Pendle will have to identify these protocols to work with because Pendle mostly operates as a way to amplify um the the the the traction uh growth um in prior to the Token event um so that becomes I think like uh a play

that we have to we have to adapt to but of course like at the same time we're also developing a new implementation that becomes that that is a pure form of interest rates for because um if we go back to our vision the point where we started out was to tokenize yields and allow these yields to be traded but as we see it there are actually quite a lot of quite a lot of rates that exist in crypto at the moment but not not tradable yet uh for example borrowing rates um on something like a and compound these are actually good opportunities but not the easiest to work on so we are currently building pedal V3 which offers it leverage uh

yield trading for users and we're expecting that to come out targeting q1 next year so it should give users uh uh hopefully we with with this product we can unlock new new uh use cases and new strategies all right well it has been a pleasure learning about Pendle thank you so much for coming on and chained well thank you so much for having me don't forget next up is the Weekly News recap today presented by wondercraft AI stick around for this week in crypto after this short break polka dot is the original and largest layer zero blockchain with over 2,000 plus Developers the anticipated polka dot 2.0 upgrade will be a massive accelerator

for the ecosystem upgrading the infrastructure with eight times higher transaction throughput and twice as fast block times tailored core time for the needs of every protocol trustless Bridges to multiple chains and Revis tokenomics with a token burn to reduce inflation perfect for gamey and defi to build grow and scale get your web 3 ideas to Market fast think big build bigger with polka dot join the community at polka dot . Network ecosystem [Music] Community welcome to this week's crypto Roundup in today's recap we cover black Rock's ethereum ETF surpassing $1 billion in net inflows Ryan salami's legal battle over a plea deal involving

his partner promethium controversial move to classify Unis Swap and arbitrum tokens as Securities and binance facing a new money laundering lawsuit we also touch on the US Treasury withdrawing a proposed rule on un hosted wallets the Democratic party's silence on crypto in its new platform and pump. funds record profits despite user struggles lastly we discussed the sec's rejection of salana ETF filings and optimism's upcoming hard Fork along with a fun bid about Trump's growing crypto income thanks for tuning in to the Weekly News recap let's begin Ryan salami's legal battle deepens with indictment of partner Michelle Bond former FTX executive Ryan Salam 's

legal troubles have escalated following the indictment of his partner Michelle Bond on charges of unlawful campaign contributions Bond a former Congressional candidate and prominent crypto Advocate is accused of using $400,000 from a sham Consulting agreement with FTX to finance her 2022 campaign for a US House seat in New York the indictment unsealed by the US attorney for the southern district of New York alleges that Bond falsely reported the funds as Consulting income concealing their true origin salame who pleaded guilty last year to campaign Finance violations and operating an unlicensed money transmitting business claims his plea deal was based on assurances that the government would drop its investigation into Bond however prosecutors have

resumed their probe leading salam's lawyers to request either the dismissal of Bond's indictment or the vacating of his own conviction prosecutors deny any wrongdoing stating they clearly communicated that salam's plea would not Shield bond from further investigation the case has drawn significant attention due to salam's ties to FTX and the Court is set to hear arguments on September 12th black rocks ethereum ETF surpasses $1 billion Milestone on Tuesday black rocks I shares ethereum trust eth a became the first US spot ether ETF to exceed $1 billion in net inflows the Milestone follows a notable $26.8 million surge in inflows on Tuesday solidifying black

Rock's leading position in the ethereum ETF Market eth A's success highlights black Rock's dominance far outpacing competitors like Fidelity's Fe eth which has garnered $ 375 million in inflows and bit wise's Ew with $310 million in contrast grayscale's ethereum trust ethe has faced challenges experiencing substantial outflows totaling $2.5 billion leading to a net negative inflow of $458 million most likely due to grayscales high management fees also Black Rock surpassed grayscale in total assets under management for its crypto ETFs now holding over $22 billion making it the largest crypto fund manager

according to Arkham promethium Sparks controversy by classifying Unis Swap and arbitrum tokens as Securities promethium an SEC registered crypto platform has ignited debate by declaring its intent to classify Unis swaps uni and arbitrum ARB tokens as Securities alongside ether the move which aligns with the sec's contentious stance against crypto is seen as a bold step amid widespread industry pushback as promethium prepares to fully launch its custodial services in September critics argue that the firm's strict adherence to the sec's position could stifle Innovation many in the crypto Community view the sec's

classification of these tokens as overreach but promethium defends its approach as essential for providing a secure regulated environment for digital asset investors this decision places promethium at odds with much of the industry where legal battles continue over whether such tokens should be treated as Securities crypto lawyer Austin Campbell posted on X uni should pass a community governance proposal to burn all uni tokens traded through or in custody with promethium Igan lab's employees bypass airdrop banss igen Labs the developer of igen layer is facing scrutiny after a coindesk report showed that its us-based employees bypassed restrictions to claim

tokens from projects like Renzo and ethery despite these projects explicitly barring us residents from participating in their airdrops due to regulatory concerns blockchain data indicates that wallets linked to several igen Labs employees including top Executives successfully claimed substantial amounts of tokens the Revelation has sparked ethical questions within the industry as Labs itself has employed geofencing and other measures to block us users from its own airdrops binance and former CEO CZ face new money laundering lawsuit binance and its former CEO Chung Pung Xiao are at the center of a new class action lawsuit facing allegations

of negligent compliance practices that allegedly enabled money laundering on the platform filed in the US Western District Court of Washington the lawsuit is spearheaded by by three crypto investors who claimed their stolen assets were laundered through binance the plaintiffs argue that binance's LAX approach to anti-money laundering and know your customer protocols made the platform a favored tool for criminals they alleged that Xiao prioritized rapid growth and profits over legal compliance turning binance into a hub for illicit activities US Treasury withdraws proposed rule on unhost crypto wallets the US Treasury Department has quietly withdrawn a controversial proposed rule that would have imposed

strict reporting requirements on unhost crypto wallets originally introduced by the financial crimes enforcement Network in 2020 the rule sought to mandate that Banks and money service businesses report transactions involving digital assets held in self-hosted wallets crypto Advocates criticized The Proposal as an overreach arguing it would infringe on financial privacy the rules withdrawal announced in the Federal Register was welcomed by the crypto Community as a significant victory for user privacy and the industry's regulatory efforts Democratic party platform omits crypto amid industry concerns the Democratic party's newly released platform has raised eyebrows in

the crypto Community for its complete omission of cryptocurrency Bitcoin and digital assets this silence dashes hopes for a potential crypto reset under kamla Harris the party's presidential candidate many in the industry had anticipated a shift toward more favorable policies particularly after years of stringent regulation under the Biden Administration despite efforts by some democratic lawmakers such as representative rokana to push for proc crypto policies the platform was silent on the issue in contrast the Republican Party led by Donald Trump has openly supported crypto highlighting the Stark difference between the two parties as the 2024 election

looms pump. funds record profits highlight users struggles with meme coins pump. fun a salon based protocol that enables users to create and trade meme coins has generated nearly $100 million in Revenue since its mayet launch earlier this year despite the platform's impressive earnings most of its users are not seeing similar success according to data from Dune analytics over 2third of wallet addresses on pump. fun are unprofitable out of the 1.2 million to tokens launched on the platform only 32 have reached a market cap of over $1 million highlighting the slim chances of success for most tokens this disparity underscores the reality

that while pump. fund thrives its users often face significant losses reinforcing the notion that The House Always Wins SEC rejects sio's filings for salana ETFs citing security concerns the SEC has rejected 19 B4 filing sub submitted by sibo azx for two proposed salana ETFs according to a source familiar with the matter the rejections followed discussions in which the SEC reiterated its position that salana should be classified as a security as a result the filings were withdrawn from sio's website before they could be placed in the Federal Register halting the approval process despite this setback issuers like 21 shares in

vanck remain committed to pursuing salana ETFs with the possibility of refiling their applications with stronger arguments against the security classification mango markets moves toward SEC settlement over Securities violations mango markets once a leading decentralized exchange on salana is preparing to settle with the US SEC over allegations of Securities Law violations the governing body mango Dao has proposed a settlement that includes paying a $223,200 its mngo token Holdings and delisting mngo from Trading platforms this comes after the protocol was severely impacted

by a 2022 exploit orchestrated by Abraham Eisenberg leading to significant financial losses also this week salana based uxd protocol with $7.5 million in deposits is shutting down due to a lack of liquidity and insufficient excitement among defi users with plans to return funds to investors pending a Deo vote meanwhile salana experienced a record outflow of $39 Million last week attributed to a decline in meme coin trading marking its largest outflow on record according to coin shares optimism plans hard Fork after security audits optimism an ethereum layer 2 network has announced a significant

upgrade called Granite following security audits that uncovered vulnerabilities op Labs the team behind optimism assured that no user assets were at risk despite the discovery of some high severity issues as part of the response the optimism Foundation temporarily reverted its permissionless fraud prooof system to a permission state to prevent potential instabilities the granite upgrade scheduled for September 10th includes smart contract improvements and a layer two hard Fork to enhance the network security features while the proposal has broad support some community members have expressed concerns about proceeding without further audits time for fund bits Trump's crypto wallet out earns The

Apprentice royalties forget reruns of The Apprentice Trump's real passive income is coming from the blockchain thanks to nft royalties and memec coin taxes the former president is raking in more eth than ever Trump digital trading cards are bringing in a steady stream of crypto with his wallet pocketing a cool 782 eth in secondary sales alone and that's not all unofficial Trump themed meme coins are adding to the hall dropping fractions of eth into his wallet with every transaction who knew sitting back and watching the crypto world go wild could be more lucrative than TV royalties and that's all thanks so much for joining us today if you enjoyed this recap go to unchain crypto dos substack

do.com that is unchain crypto.com and sign up for our free newsletter so that you can stay up to dat with the latest in crypto Unchained is produced by Laura Shin with help from Matt pilchard W R Megan gavis Pam majumder and Margaret Korea the weekly recap was written by Juan aronovich and edited by Nelson Wang thanks for listening Unchained is now a part of the coindesk podcast Network for the latest in digital assets check out markets daily 5 days a week with host Noel aters follow the coindesk podcast Network for some of the best shows in crypto