Pendle is a yield trading protocol that allows users to separate, buy, and sell the future yield of a crypto asset independently of the asset itself. Launched in 2021, it introduced a specialized automated market maker built specifically for yield-bearing assets — a category of financial product that had no dedicated trading venue in DeFi before Pendle.
Why Pendle exists
In traditional finance, separating the income stream of an asset from its principal is a standard tool. Bond traders routinely strip coupons from government bonds and sell them independently. Interest rate derivatives — products that let investors lock in, hedge, or speculate on future rates — form one of the largest markets in global finance.
DeFi had no equivalent. Investors holding yield-bearing assets — staked ETH, lending deposits, liquidity positions — were fully exposed to whatever yield those assets happened to produce. If yields dropped, there was nothing to be done. If you expected yields to rise, there was no way to position for that view without changing the underlying asset.
Pendle's premise is that yield itself should be tradable. A holder who expects yields to fall can sell their future yield today and lock in a fixed return. A holder who expects yields to rise can buy more yield exposure than their principal alone would provide. Neither party needs to change what they hold at the base level — they're trading a derivative of it. This unlocks a layer of yield strategy that previously didn't exist for DeFi participants.
How the protocol works
Pendle converts any yield-bearing asset into two separately tradable components, then provides a marketplace for both.
Standardised Yield (SY) wrapping. When a user deposits a yield-bearing asset — staked ETH, a lending position, a restaking receipt token — Pendle wraps it into a standardised format (SY token) that makes it compatible with the Pendle AMM. This step is largely invisible to the user but is what allows the protocol to handle yield-bearing assets from many different sources.
Principal Token (PT). The PT represents the underlying asset at maturity. It trades at a discount to the underlying asset — the gap between the current price and the face value at maturity is effectively the fixed yield. An investor who buys PT and holds to maturity receives a guaranteed return regardless of what the underlying yield rate does in the interim.
Yield Token (YT). The YT represents the right to receive all yield generated by the underlying asset until maturity. If the underlying asset generates more yield than expected, the YT holder captures it. If yields fall, the YT declines in value. YT is inherently a yield speculation instrument — it suits investors who want amplified exposure to rising yields.
The AMM. Both PT and YT trade on a custom AMM designed specifically for assets with time decay. As maturity approaches, the value of YT converges toward zero (yield has been collected or not), while PT converges toward the full value of the underlying. Standard AMM designs cannot handle this behaviour efficiently — Pendle's AMM is built around it.
Boros. Boros is Pendle's second product line, extending yield trading beyond spot assets into margin-enabled trading of funding rates and other off-chain yields. Where Pendle's core product addresses on-chain yield (staking, lending), Boros targets the perpetuals funding rate market — a different but structurally similar problem of yield exposure that traders currently can't hedge.
How Pendle makes money
Pendle's revenue comes from two mechanisms, both tied to activity in its yield markets.
Yield fee. When a user deposits a yield-bearing asset and the protocol holds it until maturity, Pendle takes a small percentage of the total yield generated. This fee is collected on the PT side of the split — it effectively reduces the fixed return that PT buyers receive by a small margin. The more assets deposited and the higher the underlying yield rates, the more this stream generates.
AMM swap fees. Every time a user trades PT or YT on Pendle's AMM, a fee is charged. A portion of this fee goes to liquidity providers who supply the market; the remainder goes to the protocol. Swap fee revenue scales with trading volume — which in turn correlates with market volatility in yield rates, as more volatile yield environments prompt more hedging and speculation.
Token holders who stake PENDLE receive a share of both revenue streams through sPENDLE, the protocol's current staking mechanism.
Reading Pendle's metrics
TVL. Pendle's TVL has an unusual characteristic relative to most DeFi protocols: it is structured around maturity dates. When a yield market expires, the TVL associated with it disappears and must be renewed by users rolling into new markets. This means Pendle's TVL naturally oscillates around maturity events — a drop in TVL around a major expiry is not necessarily a sign of declining interest; the more meaningful signal is whether new markets attract comparable or larger deposits after each cycle.
The absolute level of TVL also reflects the breadth of yield-bearing assets supported. As new assets — liquid staking tokens, restaking receipts, RWA yield instruments — are added to Pendle markets, each expands the potential TVL ceiling. A rising TVL trend across successive maturity cycles is a stronger signal than any single month's number.
Revenue trend. Pendle's revenue is a function of both TVL and the level of underlying yield rates. When DeFi yield rates are high — driven by leverage demand, staking rewards, or restaking incentives — the yield fees Pendle captures per dollar of TVL rise with them. When rates compress, so does revenue per unit of TVL. This means revenue can fall even when TVL is stable, and vice versa. Tracking the revenue-to-TVL ratio over rolling 30-day periods is more informative than either figure in isolation.
FDV/TVL. Unlike protocols where FDV and market cap are nearly identical, Pendle's token supply is meaningfully split between circulating and locked/unvested allocations. FDV/TVL therefore reflects a higher potential dilution than market cap alone would suggest. The relevant comparison is market cap to TVL (the dilution-adjusted version), which gives a picture of how the liquid market values the protocol today relative to the capital it manages.
Risk factors
Maturity and liquidity risk. Pendle markets have fixed expiry dates. As a market approaches maturity, liquidity can thin out, making it harder to exit a position at fair value without meaningful slippage. Users who need to exit before maturity may face unfavourable pricing, particularly in smaller or newer markets with shallower liquidity.
Underlying asset risk. Pendle's yield markets are only as sound as the assets they wrap. If an underlying yield-bearing asset — a liquid staking token, a restaking receipt, a lending position — experiences a depeg, exploit, or collateral failure, that risk flows through directly to PT and YT holders in the corresponding market. Pendle cannot isolate its markets from failures in the assets they reference.
Yield rate risk on YT. The Yield Token is explicitly a speculation on future yield rates. If underlying yields fall significantly after a user buys YT, that position can lose most of its value before maturity. This is the intended design — YT is a high-beta instrument — but it is a risk that investors unfamiliar with yield derivatives may underestimate.
Smart contract and AMM risk. Pendle operates a purpose-built AMM with mechanics that do not exist elsewhere in DeFi. Purpose-built systems carry the general smart contract risks of the space, plus the specific risk that edge cases in the time-decay AMM logic may behave unexpectedly in novel market conditions. The protocol has been audited, but no audit eliminates this category of risk.
Governance and emissions risk. A meaningful share of PENDLE's total supply is allocated to liquidity incentives distributed over time. The level of these emissions influences the effective cost of Pendle's TVL. If incentive levels are cut significantly, some liquidity may exit; if held too high, they dilute token holders. Governance decisions around emissions are therefore directly relevant to both TVL and token economics.
How to monitor Pendle without daily research
The key signals to track are TVL trend across maturity cycles (not single-month snapshots), the revenue-to-TVL ratio, and trading volume on PT/YT markets as a proxy for user engagement. TokenSignal monitors all core metrics automatically — connect Pendle to your watchlist for a daily digest and alerts when meaningful changes occur. Free for up to 5 assets.
Related: What is TVL in DeFi?