Pendle is a decentralized finance protocol that enables trading, yield farming, and liquidity provision of tokenized yield assets. Pendle facilitates this market by splitting yield-bearing tokens into principal and yield tokens and offering liquidity pools by which these tokens can be traded. In doing so, Pendle offers a market for fixed and floating rates of supported yield-bearing tokens by which users can earn fixed yield and provide liquidity to the Pendle pool for the underlying token.
Pendle works by allowing users to trade and earn yields on tokenized yield assets and, additionally, earn rewards by staking the PENDLE token.
Yield Tokenization
Pendle allows users to split yield-bearing assets into two parts:
Principal Token: Represents the underlying asset.
Yield Token: Represents the future yield generated.
This gives users flexibility in managing exposure to both principal and yield.
Fixed Yield Opportunities
By selling Yield Tokens (YT), users can lock in a fixed yield on their assets — ideal for risk-averse investors.
Leveraged Yield Exposure
Traders can buy Yield Tokens to gain leveraged exposure to yield rates, amplifying returns if yields increase.
Governance & Utility Token
The PENDLE token is used for governance, staking (vePENDLE), and liquidity incentives. Moreover, PENDLE holders control reward distribution, thus aligning incentives across the protocol.
Using the Standardized Yield token standard, Pendle separates ownership of the underlying asset and future yield. This creates a Principal Token ( underlying asset), and a Yield Token (future yield).
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