Recap of the Pendle AMA with Blockchain Space
On Thursday, June 3rd, we had the pleasure to welcome to our Telegram chat:
TN, The project lead at Pendle.
We asked him questions about the development of Pendle.
Q~ Thanks for joining us today. Please start off by introducing yourself to the Blockchain Space community and your role in the team?
A~ Hi, thank you for having me! I’m TN, the project lead for Pendle.
Q~ Tell us what Pendle is, how it works, and what kind of value the protocol adds to the ever expanding DeFi ecosystem?
A~ Pendle is a protocol that enables the trading and hedging of future yield. This trading happens on an AMM we’ve developed for assets with time decay/assets that are time aware.
This allows for a higher level of trading in the DeFi ecosystem, functioning similarly to an interest rate swap. This is an essential aspect of a fixed-income market, and we believe that Pendle will create the next building block of DeFi, allowing the entire ecosystem to evolve further.
To understand Pendle, it’s important to first understand the tokens and mechanisms involved.
There are three main tokens:
- A yield-generating token (e.g. aUSDC from Aave, cDAI from Compound)
- An ownership token (OT)
- A future yield token (XYT)
OT represents ownership of the underlying
XYT represents the right to future yield
At a very high level, a user can deposit a yield-generating token (e.g. aUSDC) into Pendle to mint OT-aUSDC and XYT-aUSDC.
After which, XYT can be freely traded on Pendle’s AMM. The experience will be similar to using Uni or Sushi Swap.
Q~ Can you share with us detailed information on the $PENDLE tokenomics and it’s usecases?
A~ For now, $PENDLE will function as a governance token.
I think it’s still premature to share details, but we have plans in place for value accrual. We’ve taken inspiration from xSushi and veCurve tokenomics with regards to fees and control over incentives.
Majority of it is intended for liquidity incentives and ecosystem fund.
Q~ Can you give us an update on what Pendle has accomplished to date and your future plans for Pendle ?
A~ Sure, we’ve actually recently deployed an updated testnet on Kovan.
The development team has been working on bug fixes, UI improvements, and codebase rewriting for enhanced security. We’ve also optimized swapping gas consumption by 50% since our initial deployment.
We’ll have more updates coming and we’re excited to share the final product soon! In the meantime, come try out the testnet here:
With Pendle, you're in charge. You get more options to manage your yield to maximize your profits. Trade on Pendle now.
Back in April, we held our token distribution event, which involved the use of flashbots to distribute liquidity in order to. outrun the bots. I think in all, it was a pretty good achievement, considering that there were no frontrunning or backrunning by bots.
On the marketing and outreach side, we’ve held contests and AMAs to engage our community, and saw pretty good growth over the course of the last few weeks.
We’re most active on Discord, so come join us here:
Join the Pendle Discord Server!
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We have many plans in the future for Pendle. Without going into details, we’re looking into multiple fronts, including the expansion of supported pairs and expiries, deployment on other blockchains and Layer 2s, governance, amongst others.
QUESTIONS FROM BITCOINTALK
Q~ Multiple AMMs like Uniswap, Sushiswap, Balancer, Curve, etc. already coexist, with each solving different specific issues, How does Pendle contributes to the AMM landscape and how do you plan on becoming one of the key AMMs in DeFi’s credit ecosystem?
A~ The AMM space has been evolving quite rapidly and I believe that Pendle AMM is part of the natural progression of this development.
Pendle’s AMM is designed for assets that are time aware. We believe that as the DeFi ecosystem matures, we’ll expect more financial assets that are time sensitive to emerge.
While the current focus of the Pendle AMM is more on yield tokens, the AMM can be extended to support any type of asset with time-decaying properties
In the longer term, we look to generalize the AMM to support the trading of options, bonds, or any contracts with an expiration.
Q~ As I know Pendles Tokenize two components (OT and XYT) but what is the difference between Ownership Token (OT) and Future Yield Token (XYT)? what are the features of each token on the yield field?
A~ A yield generating token like aToken or cToken essentially has two components:
The first component is the ownership of the underlying and
The second component is the right to future yield streams.
Pendle separates the two components of a yield-generating token into OT (ownership token) and XYT (future yield token).
OT represents ownership of the underlying while XYT represents the right to receive the yield from the underlying yield generating token.
By tokenizing these two components into OT and XYT, it allows us to separate these elements and allow them to be traded individually.
Yield generating token holders can sell their yield away by selling XYT and buyers of XYT will receive the yield without having to own the underlying asset.
For example, if traders have a view that yields will increase, purchasing XYT will give them direct yield exposure. On the flipside, if yield is speculated to decrease, traders can hedge their risks and sell XYT, locking in the returns and earning immediate cash.
QUESTIONS FROM TWITTER
Q~ One of the major issues experienced on typical AMM’s is trading tokens affected by time decay which results in Impermanent losses for liquidity providers, how does Pendle’s AMM intend to counteract the time-dependent impermanent loss ?
A~ For everyone’s benefit, I will briefly explain time-dependent impermanent loss.
Trading tokens affected by time decay on a typical AMM is highly inefficient because it would guarantee losses for liquidity providers (because the constant product curve doesn’t not account for time-decay).
Note that the value of a yield token is time-dependent, i.e. holders of a yield token are entitled to less yield as time passes and the token ultimately becomes worthless upon expiration, once there is no longer any yield to collect.
To account for the time-decay in an asset as described above, we designed an AMM that caters to all assets with time-decaying properties.
Initially, when the pool is created, the AMM curve is similar to 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.
It’s really hard to go into details because it gets very technical, but if you’re interested, this one here is a good resource:
Q~ What type of time decaying assets will be supported by Pendle’s AMM, is it only limited to yield tokens, also when can we expect the mainnet launch, any dates announced yet ?
A~ For now, yield tokens will be our priority as it is something that most DeFi natives are familiar with and it serves as the next step for the DeFi landscape to evolve.
In the future, we want to enable a generalised tokenization of future income. We aim to reach a stage where any avenue that promises any form of yield can be considered for tokenization.
Regarding the launch, we plan to have our contracts live on mainnet sometime in June, but it is still contingent on our audit status. Follow our Twitter or Discord server to stay updated.
Q~ Is it possible to exchange the underlying before the expiration of the contract? If possible, are there any penalties for those who cancel their contracts before the agreed term? In which token are the earnings received?
A~ Yes, tokens are not locked up in Pendle. You can redeem your underlying at any given time without penalty.
Before expiry, both OT and the corresponding XYT are required to redeem. Past expiry, only OT is required. This creates a more dynamic and free market where users can move in and out of their yield positions to retrieve their underlying.
Holders of XYT are entitled to the future yield. This will be accrued and can be claimed from our platform.
For incentives from the base protocol (i.e. stkAAve for Aave and COMP for Compound), holders of OT are entitled to them from the base protocol, since OT represents ownership of the principal.
QUESTIONS FROM TELEGRAM
Q~ To give you full confidence and reinforce the trust of your users in the brand, have you considered any audits on the contract of Pendle? if yes, is the audit report available for viewing?
A~ Yes, reports will be made available soon.
Q~ Can you share some details about your seed investors? Also since we are secondary buyers how can you guarantee that they will not dump on us?
A~ All our investors are subject to lock-up, tokens vested over a year.
Look out for our announcements by joining our public channels (Twitter, Discord).
It’s really nice having the Pendle project in here!!!
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