Pendle: Building the Blueprint for DeFi Fixed Income in the Era of Yield Splitting and Restaking

Pendle has evolved from a niche experiment into a DeFi blue chip, using PT/YT yield-splitting to bring fixed income markets on-chain and driving its TVL from millions to billions.

LSDfi and LRTfi turned Pendle into a yield hub, where users hedge or leverage staking and restaking rewards, with some pools delivering yields above 40% APR.

Strong token economics and governance battles (“Pendle Wars”) anchor the protocol, while challenges remain in user education, liquidity concentration, security, and regulatory compliance.

FROM NICHE CONCEPT TO TECHNICAL FOUNDATION

In the aftermath of DeFi Summer in 2021, Pendle entered the scene as a “yield splitting” protocol but drew little attention. Its core idea was to tokenize future yield by splitting assets into Principal Tokens (PT) and Yield Tokens (YT). This allowed users to lock in fixed income or take leveraged exposure to yield. At that time, the concept felt too advanced for most users, who were more familiar with liquidity mining and short-term arbitrage than with bond market logic or interest rate curves. The team, however, did not give up. Through the long bear market they kept building. At the end of 2022, they launched the V2 upgrade, introducing a new AMM mechanism with concentrated liquidity, dynamic pricing curves, and time decay models. This improved capital efficiency many times over.

The design was similar to Uniswap v3’s concentrated liquidity but better suited to pricing yield-bearing assets. With these improvements, Pendle solved early problems such as thin liquidity and high slippage, creating a more sustainable trading environment. This technical accumulation became Pendle’s moat. When Ethereum’s Shanghai upgrade triggered the LSD boom, Pendle was ready to capture it. From early 2023 to year-end, Pendle’s TVL grew from $200M to $4.4B, and later surpassed $6B during the restaking narrative, completing its journey from a niche concept to a DeFi blue chip.

THE CORE HUB FOR LSDfi AND LRTfi

Pendle’s rise is inseparable from the growth of LSDfi and LRTfi. In the past, holders of LSD assets like stETH could only passively receive rewards. Pendle gave them new flexibility: sell YT to lock in future yield, or buy YT to leverage exposure to staking returns. This recreated fixed income markets on-chain and gave users tools to manage risk and return. With EigenLayer driving the restaking wave, Pendle became a magnifier of market activity. Users could not only bet on extra restaking yield but also compete for airdrop points through YT markets. In 2024, whales and institutions used Pendle to stack leverage on EigenLayer, Ether.fi, and Renzo assets, pushing trading volumes sharply higher. Some YT pools even delivered annualized yields above 40%, far higher than normal staking rewards.

At this stage, Pendle was not just a “futures market for airdrop yield.” It became a critical node in capital flows. Many users combined hedging and speculation: redeeming part of their fixed yield early while using leverage to chase higher returns. At the same time, Pendle expanded beyond LSD assets to stablecoins and RWAs. Examples include Ethena’s USDe and sDAI backed by Treasury yields, which both found active markets on Pendle. This diversification turned Pendle from an ETH staking derivative platform into a broader interest rate hub. For institutions, Pendle is not only an arbitrage tool but also a live window into on-chain yield curves. Much like Curve became the standard for stablecoin swaps, Pendle is playing a similar role in fixed income.

TOKEN ECONOMICS AND GOVERNANCE BATTLES

Pendle’s token economics has been central to its success. The total supply of PENDLE is around 250M, and all team and investor allocations were fully unlocked by 2023, removing long-term sell pressure. At the same time, the protocol introduced vePENDLE, encouraging users to lock tokens for up to two years in exchange for governance rights and revenue share. This quickly gave rise to what the community calls the “Pendle Wars,” where LSD and LRT projects lobbied vePENDLE holders to direct more incentives to their pools. Governance votes directly determined how inflation rewards and trading fees were distributed, making it a true contest of power.

This process created a new phenomenon: projects began forming “governance alliances” or offering extra incentives to vePENDLE holders in return for votes. The interaction made Pendle’s governance look more like real politics and market competition than one-way protocol management. At the same time, over one-third of circulating tokens were locked long term, reducing sell pressure and stabilizing governance. In 2024, Pendle generated about $40M in annual revenue, turning PENDLE into more than just a governance token—it became a cash-flow asset. Looking ahead, with the Boros module set to bring perpetual funding rate yield into Pendle, token holders may gain broader revenue streams. PENDLE’s role is shifting from a speculative token to an equity-like token with real income rights, laying the foundation for long-term strength.

CHALLENGES AND FUTURE OUTLOOK

Despite rapid growth, Pendle still faces many challenges. First is the user education barrier. Yield splitting and fixed income are complex for the general public, and many users joined Pendle only for airdrop points, not because they understood the system. This makes activity heavily dependent on external narratives. Second is liquidity concentration. In 2024, Pendle’s TVL relied heavily on restaking assets. When these pools matured or lost appeal, overall metrics fluctuated sharply. Stablecoins and RWAs helped ease the risk, but keeping a balanced structure remains a long-term task. Security is another major concern. Although Pendle’s core protocol has never suffered a major hack, its ecosystem partner Penpie lost tens of millions in an exploit, showing that risks extend to aggregators and surrounding projects. In the future, Pendle must strengthen audits, insurance, and risk isolation to keep the ecosystem safe.

Finally, regulation is a looming pressure. In some jurisdictions, fixed income products may be classified as securities or derivatives. As Pendle grows, compliance will be unavoidable. The team has already explored KYC-enabled products and Islamic finance-compliant versions for institutions, but balancing decentralization with regulation will remain a long-term challenge. Even so, Pendle shows resilience and vision. It has grown from a niche experiment into the standard for DeFi fixed income, reflecting the evolution of crypto finance. It also signals where the industry is heading: beyond speculation, DeFi can offer stable, predictable financial tools. Just as Uniswap became the backbone of spot trading and Aave of lending, Pendle has the potential to become the foundation of on-chain interest rate markets. In the next cycle, it may not only benefit from the narrative—it may help drive it.

〈Pendle: Building the Blueprint for DeFi Fixed Income in the Era of Yield Splitting and Restaking〉這篇文章最早發佈於《CoinRank》。