CryptoSlate report: According to DeFiLlama, the total value locked (TVL) of the yield trading protocol Pendle plunged by 45% in just a week, dropping from $6.2 billion to $3.5 billion.
This sharp decline occurred in several liquidity-thriving markets including Ethereum. Tokens like eETH from Fi, ezETH from Renzo, pufETH from Puffer, rsETH from Kelp, and rswETH from Swell all expired on June 27. As these markets matured, users were allowed to redeem their principal investments, leading to significant capital withdrawals.
Pendle’s CEO, TN Lee, informed The Defiant that a large-scale Liquidity Restaurant Token (LRT) pool that kicked off this year expired on June 27, totaling close to $4 billion.
On Pendle, LRT is divided into Principal Tokens (PT) and Yield Tokens (YT). Users receive PT-ETH when holding assets like ETH, which can be converted back to ETH upon maturity. YT represents the interest earned from staked assets, which can be traded separately from the principal.
Lee stated, “The Pendle machinery worked exactly as expected. Users claimed their PT and LP tokens, while YT decayed to zero, in exchange for leverage points.”
Another key factor in the TVL decrease is the reduced demand for YT. With some users exiting Pendle after the LRT expiration, the demand for YT decreased, causing the yield on PT to drop below 10%.
Data from CoinGecko shows that this decline led users to move ETH to other platforms, resulting in a 40% crash in the PENDLE token price, from $7 within a week to $4.2.
Lee concurred that post LRT maturity, some users withdrew from Pendle, leading to lower demand for YT. These tokens enable users to earn yields from their assets but become worthless upon expiration.
TVL Surges
In April, Pendle’s TVL surged by 40% to nearly $3.9 billion. This growth was primarily driven by increased demand for utilizing DeFi protocols.
Pendle leveraged this demand to provide traders with a way to gain leverage exposure to EigenLayer and LRT protocols (such as EtherFi, Swell Network, and Puffer Finance).
Character points can be obtained by restarting ETH or LST (like Lido’s stETH) through the protocol.
When traders purchase YT, they gain the ability to acquire additional airdrops of points. The underlying idea is that the received airdrops will be more valuable than the cost of purchasing YT.
According to Token Terminal, Pendle’s daily active users dropped from a peak of 23,000 in April to less than 1,000 today. During May and June, daily active users ranged between 3,000 to 5,000.
Pendle introduced features like rollover liquidity to help users transition their liquidity to new pools.
He said, “Despite the decrease in TVL, this is a natural part of our platform’s lifecycle. The rollover process ensures users can seamlessly move assets.”
Lee noted that APY is not as high as before (over 40%) due to reduced liquidity, and new pools may be impacted by price. “Nevertheless, Pendle remains a high-yielding destination in the ETH space.”
Recovery Plans
Lee highlighted that Pendle is collaborating with other protocols to recover TVL.
He mentioned, “We have been in talks with protocols, some of which offer higher multipliers.” “For instance, EtherFi provides us with 4x leverage, and some of our pools on the Arbitrum network incentivize LP with the $ARB token, so there are good opportunities in Pendle pools on Arbitrum now.”
Pendle also introduced features like zero price impact mode and limit orders. “We have enhanced PT and LP rolling features, and highlighted pools that currently offer good APY.”
Lee concluded that the Pendle team is developing PendleV3 to introduce new yield strategies and cater to emerging markets.
He added, “Pendle supports any income-generating asset. In the first half of this year, Pendle has evolved from enabling leverage point farming or very good fixed-income points. While this is still our top growth driver, we remain open to exploring and experimenting with other types of assets, whether internally or externally. We particularly support income-generating assets beyond ETH, such as BTC.”