Evaluating Performance of Pendle Liquidity Pools (Part 1)
Summary
- We have performed a study on the performance of the following Pendle pools against the underlying asset: PT-stETH-26DEC24/SY-stETH (Ethereum), PT-GLP-28MAR24/SY-GLP (Arbitrum), and PT-gDAI-28MAR24/SY-gDAI (Arbitrum)
- We found that providing liquidity on Pendle pools outperforms holding the underlying asset in all cases studied here even when excluding PENDLE incentives
- We have observed no impermanent loss (IL) incurred in all cases studied here¹
- The longer one provides liquidity on Pendle, the greater the outperformance of the Pendle LP
Introduction
It has often been said that the single-asset composition of Pendle PT/SY liquidity pools allows Pendle LPs to be the best form of providing liquidity. However, there have been no studies being performed on this subject to this date. In this report, we evaluate the performance of Pendle LPs.
Evaluating LP Performance
To begin with, we have two approaches to evaluate the performance of Pendle liquidity providers:
Approach 1: Providing liquidity on Pendle vs holding underlying asset
Approach 2: Providing liquidity on Pendle vs depositing in the underlying pool
To give an example of these two approaches, approach 1 would compare the performance of a Pendle stETH liquidity provider against ETH, whereas approach 2 would compare the performance of a Pendle stETH liquidity provider against stETH. In this study, we focus on approach 1, leaving approach 2 for a later study in the near future.
Within approach 1, we can further identify 2 cases for comparison:
Case A: Providing liquidity on Pendle vs holding underlying asset
Case B: Providing liquidity on Pendle with zero price impact mode vs holding underlying asset
For each case, we also evaluate the impact of PENDLE incentives in these pools, where we either include or exclude PENDLE incentives for PT/SY LPs.
Definition
In this study, we compare the yield of an LP on Pendle against a holder of the underlying asset without receiving any yield. For example, we compare the performance of a Pendle stETH pool LP against a naked ETH holder.
The specifics are defined below:
For each case, we shall define an in-pool value and an out-pool value that represent the value of the assets in the LP position (including all yield earned) and the value of the underlying asset.
The resulting LP performance is defined as:
LPPerformance = InpoolValue / OutpoolValue
An LP performance value above 1 indicates the outperformance of using Pendle, whereas an LP performance value below 1 indicates the underperformance of the Pendle position.
Case studies
For the following case studies, we shall evaluate three pools on Pendle, namely PT-stETH-26DEC24/SY-stETH (Ethereum), PT-GLP-28MAR24/SY-GLP (Arbitrum), and PT-gDAI-28MAR24/SY-gDAI (Arbitrum).
For each case study, please refer to the data on the following spreadsheets:
- PT-stETH-26DEC24/SY-stETH (Ethereum)
- PT-GLP-28MAR24/SY-GLP (Arbitrum)
- PT-gDAI-28MAR24/SY-gDAI (Arbitrum)
For each sheet, let the date on the y-axis d1 be the date of providing liquidity and the date on the x-axis d2 be the date of withdrawing liquidity. The number on row d2 and column d1 thus corresponds to the LP performance value defined previously.
Each sheet with the number 1 (e.g. sheet A1) refers to the study without including PENDLE incentives, whereas each sheet with the number 2 (e.g. sheet A2) refers to the study with PENDLE incentives.
Case A: Providing liquidity on Pendle vs holding the underlying asset
We define the in-pool and out-pool values to assess performance when providing liquidity on Pendle (e.g. the Pendle stETH pool) against holding the underlying asset (e.g. ETH) as below.
In-pool Value
Note that the PENDLE rewards can be excluded if we do not wish to take these incentives into account.
Out-pool Value
We shall evaluate the cases of each pool separately.
PT-stETH-26DEC24/SY-stETH (Ethereum)
For this study, we compare the performance of a stETH liquidity provider on Pendle against a naked ETH holder. The performance of a stETH liquidity provider on Pendle against a stETH holder that does receive yield will be evaluated in an upcoming study.
Sheet A1 shows that in all cases, stETH liquidity providers on Pendle outperformed naked ETH holders even without PENDLE incentives. The figure below illustrates the performance of Pendle LPs in certain timeframes.
In the diagram above, each line represents the date when a user provided liquidity, while the dates on the x-axis represent the time when this user withdraws liquidity from the pool. We observe that there is a positive correlation between the length of time deposited and outperformance, where a Pendle stETH LP that deposited on 24 April 2023 and withdrew on 21 July 2023 would have outperformed by 1.02%.
Including PENDLE incentives as shown in Sheet A2 leads to further improvement for LPs on Pendle. The figure below illustrates the performance of Pendle LPs in certain timeframes.
With PENDLE incentives, the outperformance of Pendle LPs reaches 10.82% as shown in the case of a stETH holder that provided liquidity on Pendle on 24 April 2023 and withdrew on 21 July 2023.
PT-GLP-28MAR24/SY-GLP (Arbitrum)
For this study, we compare the performance of a GLP liquidity provider on Pendle against a naked GLP holder that theoretically does not receive any yield. The performance of a GLP liquidity provider on Pendle against a GLP holder that does receive yield (in WETH) will be evaluated in an upcoming study.
Sheet A1 shows that in most cases, GLP liquidity providers on Pendle outperformed naked GLP holders (GLP holders who did not provide liquidity on Pendle) even without PENDLE incentives. The figure below illustrates the performance of Pendle LPs in certain timeframes.
As with the case of stETH, we observe that there is a positive correlation between the length of time deposited and outperformance, where a GLP holder that deposited to Pendle on 24 April 2023 and withdrew on 21 July 2023 would have outperformed by 8.04%.
Including PENDLE incentives as shown in Sheet A2 leads to further improvement for LPs on Pendle. The figure below illustrates the performance of Pendle LPs in certain timeframes.
With PENDLE incentives, the outperformance of Pendle LPs reaches 20.23% as shown in the case of a GLP holder that provided liquidity on Pendle on 24 April 2023 and withdrew on 21 July 2023.
PT-gDAI-28MAR24/SY-gDAI (Arbitrum)
For this study, we compare the performance of a gDAI liquidity provider on Pendle against a naked DAI holder that does not receive any yield. The performance of a gDAI liquidity provider on Pendle against a gDAI holder that does receive yield will be evaluated in an upcoming study.
Sheet A1 shows that in most cases, gDAI liquidity providers on Pendle outperformed naked DAI holders even without PENDLE incentives. The figure below illustrates the performance of Pendle LPs in certain timeframes.
As with the case of stETH and GLP, we observe that there is a positive correlation between the length of time deposited and outperformance, where a Pendle gDAI LP that deposited on 24 April 2023 and withdrew on 21 July 2023 would have outperformed by 2.36%.
Including PENDLE incentives as shown in Sheet A2 leads to further improvement for LPs on Pendle. The figure below illustrates the performance of Pendle LPs in certain timeframes.
With PENDLE incentives, the outperformance of Pendle LPs reaches 8.03% as shown in the case of a gDAI holder that provided liquidity on Pendle on 24 April 2023 and withdrew on 21 July 2023.
Case B: Providing liquidity on Pendle with zero price impact mode vs holding the underlying asset
We define performance for providing liquidity on Pendle (e.g. the Pendle stETH pool) against holding the underlying asset (e.g. holding ETH) using zero price impact mode on the Pendle Trade UI as below.
In-pool Value
Note that the PENDLE rewards can be excluded if we do not wish to take these incentives into account.
Out-pool Value
We shall evaluate the cases of each pool separately.
PT-stETH-26DEC24/SY-stETH (Ethereum)
Sheet B1 shows that in all cases, stETH liquidity providers on Pendle (using zero price impact mode) outperformed naked ETH holders even without PENDLE incentives. The figure below illustrates the performance of Pendle LPs in certain timeframes.
We observe that there is a positive correlation between the length of time deposited and outperformance, where a stETH holder that deposited to Pendle on 24 April 2023 and withdrew on 21 July 2023 would have outperformed by 1.18%.
Including PENDLE incentives as shown in Sheet B2 leads to further improvement for LPs on Pendle. The figure below illustrates the performance of Pendle LPs in certain timeframes.
With PENDLE incentives, the outperformance of Pendle LPs reaches 10.89% as shown in the case of a stETH holder that provided liquidity on Pendle on 24 April 2023 and withdrew on 21 July 2023.
PT-GLP-28MAR24/SY-GLP (Arbitrum)
Sheet B1 shows that in all cases, GLP liquidity providers on Pendle (using zero price impact mode) outperformed naked GLP holders (GLP holders who did not provide liquidity on Pendle) even without PENDLE incentives. The figure below illustrates the performance of Pendle LPs in certain timeframes.
As with the case of stETH, we observe that there is a positive correlation between the length of time deposited and outperformance, where a GLP holder that deposited to Pendle on 24 April 2023 and withdrew on 21 July 2023 would have outperformed by 5.54%.
Including PENDLE incentives as shown in Sheet B2 leads to further improvement for LPs on Pendle. The figure below illustrates the performance of Pendle LPs in certain timeframes.
With PENDLE incentives, the outperformance of Pendle LPs reaches 16.87% as shown in the case of a GLP holder that provided liquidity on Pendle on 24 April 2023 and withdrew on 21 July 2023.
PT-gDAI-28MAR24/SY-gDAI (Arbitrum)
Sheet B1 shows that in all cases, gDAI liquidity providers on Pendle (using zero price impact mode) outperformed naked DAI holders even without PENDLE incentives. The figure below illustrates the performance of Pendle LPs in certain timeframes.
As with the case of stETH and GLP, we observe that there is a positive correlation between the length of time deposited and outperformance, where a gDAI holder that deposited to Pendle on 24 April 2023 and withdrew on 21 July 2023 would have outperformed by 1.90%.
Including PENDLE incentives as shown in Sheet B2 leads to further improvement for LPs on Pendle. The figure below illustrates the performance of Pendle LPs in certain timeframes.
With PENDLE incentives, the outperformance of Pendle LPs reaches 7.44% as shown in the case of a gDAI holder that provided liquidity on Pendle on 24 April 2023 and withdrew on 21 July 2023.
Conclusion
From our study of the three pools on Pendle above, we can conclude that:
- Pendle LPs outperform the underlying asset in almost all cases. There is zero impermanent loss (IL) incurred.²
- There is a positive correlation between the length of time deposited and the LP performance.
It can be seen that Pendle liquidity pools provide an attractive source of yield for yield farmers who wish to generate yield from their assets. However, how do Pendle LPs fare compared to just depositing into the underlying pool? We shall continue this study in an upcoming report.
[1] Outliers resulting in losses lasting for 1 week have been seen in 1% of cases with a max drawdown of 0.2%. We deem these to be statistically insignificant, as the impact is smaller than even swap fees.
[2] See [1].
