What Is Pendle?

If you already hold “yield” tokens like stETH, aUSDC, or restaked assets and you’re wondering:

• Can I lock in a fixed rate instead of guessing APY all the time?
• Can I bet on yield going up or down, the same way I trade price?

…then Pendle is one of the main protocols built exactly for that.

This guide walks from zero to “I actually get what Pendle does”, no prior DeFi wizardry needed.

1. What Pendle Is (And What Problem It Solves)

Pendle is a DeFi protocol that lets you trade yield itself, not just token prices.

In normal DeFi:

• You deposit a token (e.g. stETH) into a protocol
• You earn some variable yield over time
• You can’t easily:
  • Lock that yield in at a fixed rate, or
  • Trade the future yield separate from the underlying token

Pendle fixes that by splitting a yield-bearing token into two parts:

1. Principal Token (PT) – the “base” asset you’ll get back at a future date
2. Yield Token (YT) – the right to all yield (and often points/rewards) that token earns until that date

These PT and YT tokens are then traded on Pendle’s own AMM (automated market maker), so you can buy/sell yield like any other asset.

2. The Building Block: Yield-Bearing Tokens

Pendle doesn’t magically create yield; it uses existing yield sources you already know, like:

• Liquid staking tokens (LSTs): stETH, wstETH, cbETH, etc.
• Lending protocol tokens: aUSDC or aUSDT from Aave, cTokens from Compound
• Restaked/LRT tokens: LRTs from EigenLayer, Symbiotic, etc.
• Sometimes even yield-bearing stablecoins or LP tokens.

Think of Pendle as a “wrapper + marketplace” that sits on top of these yield sources.

3. Step One: Wrapping into SY (Standardized Yield)

Different yield tokens behave differently on-chain, which is messy for a single protocol. To fix this, Pendle first converts them into a standard format:

Your yield token → SY token (Standardized Yield)

Example:

• You deposit 1 wstETH into Pendle
• Pendle wraps it into SY-wstETH

SY is a common standard (EIP-5115 / “SY standard”) that:

• Gives all supported yield-bearing assets a unified interface
• Makes them easier to plug into Pendle’s contracts and AMM
• Lets Pendle integrate any yield source in a consistent way

Once your asset is SY-wrapped, Pendle can do its main magic.

4. Step Two: Splitting into PT and YT (Yield Tokenization)

From SY, Pendle performs yield tokenization:

SY → PT (Principal Token) + YT (Yield Token)

• PT (Principal Token):
  • Represents the principal you’ll get back at maturity (a specific date).
  • Works like a zero-coupon bond: you buy it at a discount today, and at maturity it redeems 1:1 for the underlying asset.
• YT (Yield Token):
  • Represents all yield the SY earns until maturity.
  • If the underlying earns more yield (or more points, incentives, airdrops), YT becomes more valuable.

You can hold both, trade both, or sell one and keep the other.

5. Pendle’s AMM: A Market Built for Time

Pendle isn’t just splitting tokens; it also provides the market to trade them.

Its AMM is designed for assets that change as time passes:

• As you get closer to maturity, PT’s price should move toward 1.0 (because it will redeem 1:1 soon).
• YT’s value decays over time, because there’s less future yield left to earn.

Pendle’s AMM:

• Uses curves that account for this time-decay behaviour
• Minimizes reliance on external oracles (less oracle risk)
• Allows efficient trading between PT ↔ SY and YT ↔ SY

You don’t need to understand the math to use it, but the key takeaway is:

The AMM is built specifically to let markets discover a fair interest rate and yield price on-chain.

6. What You Can Actually Do on Pendle

Let’s make this concrete. As a normal user, Pendle mainly lets you do three big things:

6.1. Earn Fixed Yield (Like a DeFi Bond)

Say you have 1 wstETH, and you’re happy with a fixed return instead of variable staking APY.

1. Deposit 1 wstETH into Pendle → get PT-wstETH + YT-wstETH
2. Sell your YT on the market for stablecoins or more ETH.
3. Hold your PT until maturity.

Because you sold your YT, you’ve locked in a fixed yield up front:

• The price you get for YT ≈ the market’s expectation of all future yield until maturity.
• At maturity, PT redeems for 1 wstETH.

So you’ve effectively converted uncertain future yield into a known, fixed return, similar to buying a bond.

6.2. Go Long on Yield (Without Price Leverage)

If you’re bullish on yield (e.g., you think restaking yield or points will pump):

1. Buy YT (and optionally hedge price exposure with PT or the underlying).
2. If actual yield/points end up being high, YT should be worth more.

This lets you:

• Speculate directly on interest rates, staking rewards, and points meta
• Without taking 10x leveraged perps with liquidation risk

Your risk becomes:

• “Will yield be higher or lower than the market expects?” instead of
• “Will price go up or I get liquidated?”

6.3. Liquidity Provision & Advanced Strategies

You can also:

• Provide liquidity to Pendle pools (e.g., PT–SY pools) and earn:
  • Swap fees
  • Incentives
• Build structured strategies (used by vaults, DAOs, treasuries), for example:
  • Fixed-rate income strategies
  • Delta-hedged yield plays
  • Rate hedging for borrowers/lenders in other protocols

For a brand-new DeFi user, you don’t need to jump into LP right away, just know that smart vaults and aggregators can sit on top of Pendle to package this complexity into simpler products.

7. What Makes Pendle Different from Other DeFi Protocols?

Pendle looks and feels very different from:

7.1. Traditional Lending Protocols (Aave, Compound, etc.)

• Aave gives you variable borrow/lend APY and sometimes stable rates, but you still hold one “aToken” that bundles principal + yield.
• Pendle splits that into two tradeable pieces (PT & YT) and builds liquid markets for them.

Result:

• On Aave: you can lend or borrow, but you can’t trade only the yield.
• On Pendle: you can lock in fixed yields, trade future yield, or build rate hedges.

7.2. Other Yield Tokenization Protocols

Pendle isn’t the only project to do PT/YT, but it’s:

• Currently the dominant yield-tokenization protocol by TVL and volume, especially in LST, LSDFi, and restaking markets.
• Built around a standardized SY token system and an AMM tuned specifically for yield markets.

Competing designs like Element, APWine/Spectra, etc. also tokenize yield, but Pendle has become the main “fixed income / yield trading layer” many protocols integrate with.

7.3. A Narrative Hub: LSTs, Restaking, Points Meta

Pendle has also become a hub for big DeFi narratives:

• LST yield (Lido, Rocket Pool, etc.)
• Restaking yield (EigenLayer/LRTs, new AVS-linked tokens)
• Yield-bearing stables & exotic sources (like points/airdrop farming)

Because YT captures everything the underlying earns (yield + incentives + points), Pendle markets often become the clearest place to see how the market values those rewards.

8. Simple Mental Model: How to “See” a Pendle Position

Let’s build a simple story in your head.

You hold 1 stETH:

1. You deposit it into Pendle.
2. You get:
   • PT-stETH, redeemable for 1 stETH at some future date (say, 1 year).
   • YT-stETH, which gets all staking rewards + incentives for that year.

Now you have three basic options:

• Want safety & predictability?
  • Sell YT now, keep PT.
  • You’ve locked in a fixed yield (whatever you got from selling YT).
• Want to bet on yield going crazy?
  • Buy more YT (maybe even with stables).
  • If staking yield / restaking rewards / points spike, your YT position wins.
• Want to keep it simple?
  • Just hold both PT + YT (equivalent to HODLing 1 stETH in Pendle form) and maybe add them to a vault that auto-optimizes.

That’s the entire Pendle story in one example.

9. Risks to Understand Before You Touch Pendle

This is still DeFi, so there are real risks:

1. Smart contract risk
   • Pendle is audited and battle-tested, but bugs can exist in any protocol.
2. Underlying protocol risk
   • If stETH depegs, Aave gets exploited, or an LRT blows up, your PT/YT tied to that asset will reflect those losses. Pendle doesn’t magically remove underlying risk.
3. Market & interest-rate risk
   • PT/YT prices can move against you if the market reprices future yield.
   • If you buy YT expecting high yield and yield collapses, YT will likely underperform.
4. Liquidity risk
   • Some Pendle markets are deep and liquid; others are niche.
   • In thinner markets, slippage can be high when trading PT/YT.
5. Complexity risk
   • For new users, it’s easy to misunderstand what you’re actually long/short. If you’re not clear whether you’re betting on price or yield, pause and simplify.

And of course: none of this is financial advice. Treat Pendle like any advanced financial tool: powerful, but not magic.

10. How to Start Exploring (Safely)

For a new DeFi user, a sensible way to approach Pendle might be:

1. Read the official docs “Introduction to Pendle” to see the latest UI & supported assets.
2. On mainnet or an L2:
   • Start by viewing markets, not trading.
   • Watch how PT price creeps toward 1 as time passes, and how YT volume behaves.
3. Try a small fixed-yield position only once you clearly understand:
   • What asset you’re using
   • The maturity date
   • What you’re doing with PT vs YT

Final TL;DR

• Pendle = a protocol to trade yield itself.
• It wraps yield-bearing assets into SY, then splits them into PT (principal) and YT (yield).
• Its custom AMM lets markets discover fair prices for future yield.
• You can:
  • Lock in fixed yield
  • Go long/short yield
  • Build more advanced strategies or use vaults that do it for you
• It’s different from Aave/Compound because it focuses on yield markets, not just lending/borrowing.
• It’s currently the leading yield tokenization / fixed income layer in DeFi, especially around LSTs, restaking, and points.

If you want, next step I can draft a second post just on “Pendle strategies for beginners” with concrete, step-by-step examples like “fixed yield on stETH in 5 clicks” or “simple YT punt without blowing yourself up.”

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Disclaimer: The content of this blog is for informational purposes only. It is not investment advice. Please do your own research and consult with a qualified financial advisor before making any investment decisions. DeFi investments carry significant risks, and past performance does not guarantee future results. More details here.