Pendle

Pendle is where maturity dates drive PT and YT yield trade-offs

Pendle is a DeFi market that splits a yield-bearing token into principal (the original value) and yield (the earnings before a fixed maturity date). Its Principal Token (PT) redeems for the accounting asset at maturity, while its Yield Token (YT) receives yield and rewards until that deadline. Traders therefore price time and future yield separately.

That split creates three main choices: buy discounted PT, buy time-limited YT or supply PT/SY liquidity. The maturity date controls each choice, and the external protocol still supplies the underlying return.

Choosing a headline APY before checking maturity

Selecting a market from its displayed APY alone is the most common Pendle mistake because every PT, YT and pool belongs to one fixed maturity.

Two markets tied to the same Aave, Lido or Ethena position represent different time windows. The shorter maturity gives YT fewer days to collect variable yield and gives PT less time for its discount to close. A longer maturity sells a larger block of future yield, so its YT costs more in accounting-asset terms and its PT normally carries a deeper discount. Implied APY is the market's annualised price of that split. Pendle displays underlying APY as a 7-day moving average, while implied APY comes from PT and YT demand rather than the external protocol's latest payout.

Read a market name in three passes: the yield-bearing token, the accounting asset in parentheses and the maturity. PT-ezETH (ETH), for example, settles in ETH worth of ezETH rather than one whole ezETH. That distinction follows from Renzo's exchange-rate design and changes what 1 PT ultimately claims. The chosen maturity then defines when YT stops and PT redemption opens.

The same explanation is given in practice. Match maturity to the planned holding window; an early sale replaces settlement arithmetic with the live bid available at that moment.

Fees shrink with time remaining

Pendle fees follow the yield claim and the remaining term, so two equal trades can carry different protocol costs on different maturity dates.

YT pays a 5% fee on accrued yield, including point allocations treated as yield. PT and YT swaps also carry a market-specific fee tier. The formula divides that tier by 365 and multiplies it by days remaining, which makes the charge fall as maturity approaches. Network gas and route price impact sit outside this formula. After maturity, redeeming PT carries a 0% protocol redemption fee; the wallet still pays the chain's gas cost. Each market shows its tier in the trade specifications. The displayed output therefore provides the useful execution figure.

Liquidity providers receive 20% of swap fees. The remaining swap fees and all YT fees split 80% to PENDLE buybacks, 10% to treasury and 10% to operations. The split changes cash flow, not the PT redemption ratio.

What happens when PT and YT reach maturity?

Barring an unusual setup, Pendle maturity converts PT from a tradable discounted claim into a redeemable claim and ends YT's right to new yield. Before expiry, redemption to SY requires equal quantities of PT and YT. At maturity, PT becomes redeemable 1:1 for the accounting asset, while YT stops accruing yield and has a terminal value of 0. Accrued pre-expiry YT yield and LP rewards remain claimable, while unredeemed matured principal no longer produces yield for its holder.

Standardized Yield connects external yield to PT and YT

Standardized Yield (SY) gives Pendle one adapter interface for assets whose yield, reward accounting and redemption logic differ across external protocols.

Wrapping the yield source

An SY contract holds or represents the integrated yield-bearing asset and exposes common deposit, redemption, exchange-rate and reward functions. Aave aUSDC, Lido wstETH and GMX GLP therefore reach Pendle through asset-specific adapters while the core market reads a consistent interface. SY has no maturity date. It remains the collateral and accounting layer from which dated PT and YT pairs are created.

Splitting through the PY index

Minting sends SY to the YT contract, which issues equal quantities of PT and YT measured through the current PY index. If 1 SY represents X accounting-asset units, the contract creates X PT and X YT rather than assuming every wrapper stays at a 1:1 exchange rate. The YT contract tracks the separate interest and reward indexes, then pays earned interest in SY.

PT fixes the maturity claim while YT concentrates variable yield

PT and YT turn one yield-bearing position into two distinct exposures: a known maturity claim and a variable stream ending on that date.

PT as a discounted principal claim

Buying PT below its maturity redemption value fixes the asset amount received when held through expiry. The return comes from the gap between purchase cost and the 1:1 accounting-asset claim, not from ongoing Aave interest or Lido staking rewards. PT holders surrender variable yield and points to YT holders. Selling early remains possible, but the exit price then determines the realised return.

YT as a finite yield claim

Buying YT concentrates exposure to underlying yield, rewards and eligible points without purchasing the full principal. One YT receives the economic yield associated with 1 accounting-asset unit until expiry. Its terminal token value reaches 0 because no future yield period remains. Profit therefore requires collected yield plus any sale proceeds to exceed the YT purchase cost and applicable fees.

A worked maturity split

In this single hypothetical worked example, every changing input is invented: the accounting asset stays at 1 unit, 100 PT costs 92 units, 100 YT costs 8 units, 180 days remain and gross realised yield reaches 11 units. Holding PT to maturity returns 100 units, producing an 8-unit gain and an 8.70% holding-period return on 92 units. YT incurs a 5% yield fee, equal to 0.55 unit, so it delivers 10.45 units. After its 8-unit cost, the YT result is a 2.45-unit gain, or 30.63% on paid capital, before gas.

The comparison flips when realised yield falls below the YT cost or an early PT sale clears below its maturity path.

One PT/SY pool serves both sides of the yield trade

For a first attempt, Pendle's automated market maker (AMM) uses one PT/SY pool to quote both principal and yield trades for a single asset and maturity.

The curve adapts a model associated with Notional Finance and concentrates liquidity across an implied-yield range. A direct PT trade swaps PT against SY. A YT purchase uses a flash swap: the router draws extra SY, mints matching PT and YT, sends YT to the buyer and sells PT back to repay the pool. Selling YT reverses that relationship by pairing it with borrowed PT, redeeming the matched tokens to SY and returning the excess. This mechanism follows the economic identity linking principal, future yield and the underlying position.

The router also mixes AMM liquidity with signed limit orders, so the final fill can come from both engines.

A first position begins with the accounting asset

A first Pendle position starts by choosing the chain, accounting asset and maturity before selecting PT, YT or an LP deposit.

MetaMask, Rabby and Safe connect to the EVM networks Pendle supports. The wallet needs the intended input token plus the network's native gas token. The router accepts supported inputs such as ETH, USDC and USDT, then converts them through the underlying asset and SY when a route exists.

Read the preview from output backwards. Confirm the exact PT or YT maturity, the accounting asset, minimum output, route price impact and gas estimate. A PT trade should show the redemption value at expiry. A YT trade should show the cost of the remaining yield period.

Using the accounting asset as input removes extra conversions, so route depth rather than wallet convenience sets the cleaner execution path.

Liquidity provision combines four return streams and expiry exposure

Realistically, Pendle liquidity positions combine four return streams: PT fixed yield, SY underlying yield, swap fees and PENDLE incentives assigned to that pool.

Each pool holds PT and SY for one maturity. Because both sides reference the same accounting asset, their values stay more closely related than an unrelated Uniswap pair. The AMM curve tightens as expiry approaches and pushes PT toward its redemption value, reducing time-driven divergence for liquidity providers. The position still inherits changes in the external asset and loses active fixed-yield accrual after maturity.

A standard liquidity deposit routes part of the input through PT, which can create price impact. Keep YT Mode instead wraps the input into SY, mints matching PT and YT, supplies the PT with remaining SY and returns YT to the wallet. Retained YT earns its own yield and points but doesn't earn the LP return. Its token value still reaches 0 at expiry.

After expiry, accumulated LP rewards stay claimable until the position is removed or rolled into another dated market.

External dependencies define the failure boundary

From a timing perspective, Pendle's risk boundary includes its own contracts, each SY adapter, the external yield source and every route used to enter or exit.

Asset and adapter dependency

An aUSDC market inherits Aave's lending mechanics and USDC exposure; a wstETH market inherits Lido's staking and withdrawal mechanics. The SY adapter adds another contract layer and translates the asset's exchange rate into Pendle accounting. If the external position pauses redemption, changes reward logic or departs from its expected accounting relationship, PT and YT outcomes follow that changed asset rather than an abstract fixed-value promise.

Rate and time mismatch

PT fixes a maturity amount only when held to that date. YT remains sensitive to realised yield, implied yield and time decay, so a high underlying APY doesn't automatically cover its purchase cost. Unlevered PT and YT positions have no borrowing liquidation mechanism. Supplying PT as collateral through Aave, Morpho, Euler or Silo introduces the separate loan-to-value rules and liquidation conditions of that money market.

Liquidity and routing conditions

Every maturity has an independent pool and order book. Thin depth increases price impact, while an external conversion through 1inch or KyberSwap adds another quote and liquidity dependency. The router enforces minimum output; if the route moves below that amount before confirmation, the transaction reverts.

Oracle integrations such as Chainlink support collateral pricing elsewhere, but a Pendle swap ultimately clears against available AMM and limit-order liquidity.

Networks, PENDLE and sPENDLE serve separate jobs

Once the basics are settled, Pendle market contracts run across EVM networks, while PENDLE and sPENDLE handle incentives, governance and protocol-reward distribution rather than PT settlement.

Chain identifiers provide durable routing boundaries: Ethereum uses chain ID 1, Optimism 10, BNB Chain 56, Mantle 5000, Base 8453 and Arbitrum 42161. A market address, token address and maturity belong to one chain. Selected cross-chain PT integrations use LayerZero's Omnichain Fungible Token standard, but the source liquidity and destination collateral market remain distinct components.

In the common configuration, PENDLE stakes into sPENDLE at a 1:1 ratio. Fee-free unstaking uses a 14-day cooldown; immediate unstaking charges 5%. Active sPENDLE participates in governance and pro-rata reward distributions. The buyback program receives its 80% share of protocol-directed fees, purchases execute through a 1-hour time-weighted average price schedule and the protocol distributes rewards every 2 weeks. The older vePENDLE system is deprecated as its remaining locks wind down.

Governance participation and staking economics change when proposal eligibility or fee allocation changes, while PT maturity rights remain attached to their market contracts.

Pendle's design sits beside lending, staking and fixed-rate alternatives

For that reason, Pendle belongs to the yield-tokenisation branch of DeFi, so alternatives separate into direct yield markets, term lending and ordinary variable-yield positions.

The V2 design combined Standardized Yield adapters with an AMM adapted from Notional Finance's interest-rate model. That architecture made PT, YT and LP positions composable ERC-20 assets rather than dashboard-only accounting entries.

Spectra offers the closest mechanism-level alternative by creating PT and YT from ERC-4626-compatible interest-bearing tokens. Term Finance reaches a fixed rate through collateralised term-repo auctions, so its lender receives a maturity claim funded by a borrower rather than stripped yield from an existing asset. Aave and Morpho keep lenders in variable-rate markets without separating future yield. Holding Lido stETH preserves direct staking exposure with no PT/YT maturity split. The right choice follows the desired output: a dated principal amount, leveraged yield exposure, market-making income or an unsplit variable yield position.