Pendle
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Pendle

RealSatoshi AMA Highlights

We’ve recently taken part in our very first AMA, hosted by the RealSatoshi! We hope that those who attended the AMA have gained a deeper understanding of our protocol and what it aims to do. Here are some highlights we’ve picked out from the session.

Can you give a brief introduction to Pendle, what it does, and what its mission and vision are?

Pendle is basically two things: A protocol for tokenizing yield, and an AMM for trading time-decaying assets, such as tokenized yield. These two elements, in conjunction, allow yield-bearing token holders to lock in their yields, and traders to speculate on changes in yield.

Pendle makes on-chain yield tradable, creating new avenues to maximize or protect returns. Additionally, the ability to trade yield across different time horizons will create forward yield curves across supported pairs, giving lending markets greater visibility and efficiency.

In the near term, we will be focusing on creating a base yield trading layer across DeFi. We see vast opportunities in this space, as yield-bearing assets are not restricted to just individual tokens, but can apply to vaults, LP tokens and many more assets. As we progress, we will work to generalize our AMM to support any type of asset with time-decaying properties, such that Pendle will become key to trading options, bonds, and any contracts with an expiration.

Can you introduce the operating mechanism and technical implementation of Pendle?

What Pendle allows is similar to coupon stripping in the bond market, where the yield is separated from the underlying asset. We bring that concept to DeFi, and expand on it by enabling it for any yield-bearing asset.

Once the yield has been “stripped” (separated), asset holders can then sell their rights to the yield for a fixed period of time, allowing them to lock in their profits and receive upfront cash.

On the opposing side, buyers of these rights gain exposure to the fluctuating rates in a more capital-efficient manner as they do not need to purchase and stake the core underlying asset. As such, there is no need to worry about collateralization or liquidation risk. This can be very powerful as a form of leverage that is not currently available.

Through this, greater price discovery in the yield market will be achieved.

  • Hedgers can sell future yields when they are high.
  • Borrowers can hedge borrowing rates when they are low.
  • Traders and speculators can express views on future interest rates and gain exposure without owning capital-heavy assets.

How does Pendle’s AMM bring us a breakthrough in terms of AMM development?

While existing AMMs are imperative, we believe that innovation in AMMs addressing different market segments has only just begun. In the coming years, we are likely to see the exponential growth of financial products as the ecosystem matures.

To understand Pendle’s AMM, we will first have to understand tokens with time-decaying properties. When a token has an expiry date, the value of the token is also time-dependent. Depositing tokens with time decay on a typical AMM is highly inefficient because it would guarantee impermanent loss for liquidity providers.

The AMM which Pendle has designed caters to all assets with time-decaying properties. Initially, when the pool is created, the AMM curve resembles Uniswap’s constant product curve. However, when subsequent swaps happen, the AMM curve will shift at the equilibrium point and adjust itself to account for the time decay.

While we have been focusing exclusively on yield, Pendle’s AMM has the potential to be extended to support any type of asset with time-decaying properties. With Pendle, options, bonds, or any contracts with an expiration can be traded. We are excited to see how the future plays out as more and more structured products are built on DeFi.

Security is an important feature valued by people. What efforts have you made to secure your protocol and your users’ funds?

Security is definitely an extremely important aspect. Here are some of the measures we have undertaken or will undertake to ensure security of the platform:

1. Our contracts are being audited, and we will release the final report on our GitHub soon.

2. Beyond just the audit from an audit firm, we are also engaging whitehats to review our smart contracts to identify potential bugs.

3. We have a comprehensive system in place to ensure that we have sufficient test cases for each of the contracts and we are approaching 100% test coverage for our smart contracts.

4. We are planning on hosting bug bounties to leverage on community efforts to screen out and report potential exploits.

We hope these highlights have allowed you to understand us a little bit better! Do follow us on Twitter and Telegram and join our Discord community as we bring yield trading to the DeFi space.

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