Introduction:
In the rapidly evolving world of Decentralized Finance, or DeFi, it's crucial to stay informed about the latest breakthroughs and trends. Today, we're diving into a revolutionary DeFi protocol that has caught the attention of top AVAX influencers: Pendle Finance. This protocol is a groundbreaking pioneer in the realm of yield tokenization, transforming how we interact with and maximize yield in the DeFi landscape. By offering users an innovative means to separate and trade future yields and principal amounts, Pendle Finance is not just a passive player in the DeFi space—it's a game-changer. Join us as we explore the ins and outs of Pendle Finance, its unique approach to yield trading, and why it's become a hot topic among the AVAX community."
Definitions:
What is Pendle Finance?
Pendle Finance is a decentralized finance (DeFi) protocol that facilitates tokenizing and trading future yield via an automated market maker (AMM) system. It was launched on the Ethereum network in June 2021 and was the first yield tokenization protocol to go live on the mainnet. Pendle Finance has since been deployed on other EVM-compatible chains such as Arbitrum and Avalanche. Its aim is to provide a platform where crypto enthusiasts can implement various advanced yield strategies and maximize their profits irrespective of market conditions Pendle Finance launched on Avalanche on November 11, 2021, further expanding its functionality within Avalanche's growing DeFi ecosystem. As of that launch, Pendle supported Benqi's interest-bearing tokens representing AVAX and USDC deposits, as well as LP tokens representing AVAX/PENDLE and AVAX/JOE positions on Trader Joe.
Yield Tokens (YT):
These tokens represent a claim to the future yield accrued by a position. When users deposit their yield-bearing assets into Pendle, the protocol mints YT tokens that correspond to the future interest that those assets will generate. This process effectively separates the interest from the principal, allowing users to trade future yield separately. YT tokens are traded on Pendle’s AMM, which is specifically designed to facilitate trading of an asset that will degrade in value over time. This degradation happens because, as the token gets closer to its expiration date, there's less time for it to accrue interest, reducing its value.
Ownership Tokens (OT): :
These tokens represent a claim to ownership over the underlying assets deposited into Pendle. When a user deposits yield-bearing assets, the protocol also mints OT tokens. OT tokens are traded on conventional third-party decentralized exchanges. At the expiry of the YT tokens, the OT tokens are needed for redemption of the underlying asset. Both YT and OT tokens are required to redeem an underlying position until expiry, at which point only OT tokens are needed for redemption
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