Pendle V2 (Part 2/3) — Open Access

The V2 AMM is in place, what’s next?

Experimentation thus far has been limited to a handful of protocols searching for the best approach to yield derivatives, and our nascent ecosystem is still a far cry from the traditional $6 trillion fixed-income market.

We are strong believers in the untapped potential of the yield layer, as well as the growth waiting to be unlocked with simpler tooling and easier access.

Seamless, permissionless integration of any yield asset is the next door we’re opening.

DeFi boasts a massive diversity of assets with unique yield-generating mechanisms. Even in the bear market, we’ve seen deeper experimentation and sustainable yield creation (hard to believe that the Merge was only 2 months ago).

Each yield-bearing asset represents an opportunity, but this is only possible if the yield market can be created in the first place. We’ve streamlined, decentralized, and democratized the process of creating yield markets, allowing anyone to create one with any yield-bearing asset.

Decentralizing Yield Markets

Uniswap revolutionized DEXes by decentralizing token pool creation — anyone can create a pool for any token. This allowed liquidity to bloom without the need for approval from a central authority, incentivizing innovation and ecosystem growth.

Just like how Uniswap has become the de facto token exchange for DeFi, Pendle strives to be the main destination for yield markets in DeFi.

So what’s stopping us?

Permissionless-ness has always been a goal we have been working towards, but the path is not so straightforward.

All DeFi protocols use different yield-generating mechanisms and each new token has to be manually integrated. While the ERC-4626 standard has mitigated part of the fragmentation, there are other yield-generating mechanisms that cannot conform to it (e.g. LP Tokens).

This makes building on top of yield assets difficult and time-consuming as developers have to account for many different yield-generating mechanics. As it stands now, yield markets cannot be fully permissionless.

Standardized Yield

Our answer to the fragmented yield market is EIP5115: Standardized Yield (SY).

Building on top of the ethos that inspired ERC-4626, SY is a new interface standard designed by Pendle, to wrap all ybTokens (yield-bearing tokens) into a single standardized yield interface.

Plug and Play

With SY, creating yield markets becomes trivially easy.

Specialized contracts are no longer needed, and developers can instantly access a ybToken’s yield.

This is not only possible with popular tokens like vault and lending tokens, but also with staking tokens (e.g. stETH, sJOE), and most notably, LP tokens.

Liquidity provision represents a significant source of yield in DeFi and remains a largely untapped market. With SY, yield markets can be created for LP tokens, making Pendle the only protocol that enables the yield of LP tokens to be standardized.

Standardization = Composability

This streamlined process makes it simple for both new and existing projects to work with yield.

It also futureproofs SY, as it is compatible with new yield innovations in DeFi — enabling future yield streams to be tokenized and traded with ease.

With this, Pendle’s ability to scale is passed on to the community, and market growth will not be bottlenecked by the team.

In such a world, every DeFi user will have yield at their fingertips.

Scaling

As a protocol grows, it must also be capable of serving beyond ETH as the base chain. Fortunately other projects have also been working tirelessly on such tooling and we have integrated both LayerZero and Kyber Network.

Cross-chain communication. Trade auto-routing. Done.

Contracts are flexible to accommodate more integrations that are in the works.

Pendle can scale.

Two down, one to go

There’s one last piece of the puzzle remaining.The final piece will explain the governance model and future plans for Pendle.

Keep yourself updated by following our Twitter and joining the community.

Appendix

Pendle V2’s AMM supports PT/SY pairs (e.g. PT-stETH / SY-stETH) where SY is the wrapped version of the underlying yield-bearing token. However, the protocol is designed in a way that users need not understand nor explicitly interact with SY to use the protocol. The user experience will be similar to as if you are interacting with a vanilla ybToken.

Auto-routing is built into V2, allowing anyone to trade or provide liquidity for PTs and YTs with any major asset. This is key to enabling the smooth UX everyone is used to and allows Pendle users to take advantage of the deep liquidity that already exists on major DEXes.

Stay tuned for our developers’ docs to dive deeper into SY’s implementation!