Yield’s Powerhouse
Pendle dominates the DeFi yield trading market. It’s the first institutional-grade, on-chain interest rate protocol with actual network effects and defensible infrastructure. The upcoming upgrade, Boros, can only extend the lead and solidify the moat. With growing liquidity, increasing volume, and the distribution channels already solidified, everything points to compounding network effects—Boros, SPVs, KYC-compliance, Islamic Finance offerings etc accelerate TVL growth, boost trading volume, and fee revenue translates into $PENDLE value accrual.
We are looking at an opportunity that targets a protocol that has already found product-market-fit and that’s now entering the pre-institutional adoption phase with three unmistakable moats: liquidity, distribution, and technological edge. As competitors face an overwhelming cold start problem, Pendle is in a position strength reinforced by solid catalysts: funding rates trading, TradFi gateways, Islamic finance, and multi-chain expansion.
Key Takeaways
- Core thesis: Pendle’s liquidity moat and distribution network create compounding network effects that will accelerate with Boros, driving substantial TVL growth, trading activity, and, as a result, more token value accrual in 2025.
- Entry point: Post product-market-fit, pre-institutional adoption. It is the market leader and the most dominant DeFi yield trading platform.
- Value capture: Direct fee share to vePENDLE stakers, and there is historical correlation between TVL and token price.
- Catalyst stack: Boros unlocks the perp funding market, KYC-compliant products will be enabled, and the protocol will open up to institutional capital and Islamic Finance.
- Invalidation criteria: Technical delays, team execution risk, liquidity drops, or market share erosion.
- Risks: Overexposure to Ethena assets, blockers on TradFi integrations, revenue downtrends, and subsidies exceeding present organic earnings.
- Entry Strategy: Staged positioning with trailing stops to manage risk amid short-term volatility.
From Niche To Necessity
Pendle has evolved from an esoteric yield-trading experiment to becoming the dominant platform for yield-trading in DeFi. Today, it is positioned to capture massive inflows as institutional capital seeks structured yield opportunities. This will be achieved by capturing not only on-chain yield opportunities, but also accessing off-chain opportunities. All of this will be packaged up in the investment vehicles that TradFi institutions expect.
Founded by TN Lee with a team of experienced DeFi builders and growth leads, Pendle was originally launched in 2021, survived the bear market, and emerged as category leader. In contrast, many competing projects with larger runway and private rounds were sunset, such as Yield or Sense. Others are still up and running after slight pivots, such as Spectra (former APWine) or Delv’s Hyperdrive (former Element).
Today, Pendle has established three critical moats: liquidity depth, distribution, and technological edge. The Lindyness of the yield-stripping primitive is now entangled with sticky liquidity, and growing demand suggests increasing trading volume as a result. Boros couldn’t come at a better time, directly addressing the exact areas where improvement would drive most value.
Market Position
Pendle is the leading DEX for trading yield, enabling fixed-rate and variable-rate swaps for any yield-bearing asset. As the leading yield derivatives protocol, it has become one of the most composable DeFi primitives on-chain, with PTs seeing increasing adoption as collateral.
The protocol splits yield-bearing tokens into yield tokens (YT) that act as coupon payments, and principal tokens (PT) that act as zero-coupon bonds. Traded in Pendle’s own AMM pools, swap history forms a yield curve with deterministic maturities and market-driven pricing. This solves the problem of yield speculation for DeFi farmers and enables interest rate risk management for more sophisticated capital allocators. That makes it a protocol that caters to both DeFi natives and institutional players.
Pendle is interesting for two reasons: it sits at the intersection of fixed income markets, which are poised for explosive growth as institutional adoption scales, and it is a market leader in the yield derivatives sector.
We’re entering a new market cycle where regulatory clarity and stablecoin proliferation will drive institutional adoption. The trend toward on-chain fixed income is structural, not transient, as evidenced by the rapid growth of yield-bearing assets like USDe. The underlying protocol design also enables Pendle to sit at the intersection of other fast-growing trends, such as yield on BTC derivatives or RWAs.
The Pendle Thesis
We believe Pendle is positioned as the first institutional-grade, yield trading platform with a genuine moat. Our thesis is that returns will be driven not only by the historical correlation between TVL expansion and token appreciation, but also by growing volume and fee capture. Liquidity begets liquidity, and Boros acts as the catalyst that will bring improved capital efficiency and new use cases, such as funding rates hedging.
Our view is that the current downwards trend in $BTC is causing the market to overlook Pendle’s role as key DeFi infrastructure. As institutional capital flows into DeFi, Pendle stands to capture disproportionate value as the primary venue for fixed income trading. This hasn’t gone unnoticed, and the largest vePENDLE lock in the last 1.5 years took place last week, locking 3,768,594 $PENDLE.
Pendle collects a 3% fee from all yield (including points) and, for the time being (although changes in the fee structure have been announced), the protocol collects no revenue for itself, distributing 100% of this fee (the base APY) to vePENDLE holders. Lockers also earn 80% of the swap fees from the pools they vote for, which constitute what’s known as the voter’s APY. Combining the base APY from yield and the voter’s APY gives you the total rewards. On top of that, when there is an overlap between a ve and a LP position, your $PENDLE incentives and rewards for all of your LPs will be further boosted as well, by up to 250% based on your vePENDLE value. This way, to earn the maximum boost you would have to own an equivalent % supply of vePENDLE as your ownership % of LP in the pool.
However, the value of being a vePENDLE holder also comes from receiving unexpected rewards, such as retroactive airdrops from protocol partners. This can go a long way considering the distribution power of Pendle. For instance, earlier this year, Pendle announced a series of airdrops for vePENDLE lockers, with the snapshot being taken on December 31, 2025. These lockers would receive a pro-rata airdrop from points that the protocol collected from protocols like Eigenlayer, EtherFi, Puffer, Renzo, Ethena, and more.
The vePENDLE system is crucial for boosting staking ratios, reducing circulating supply, and potentially creating $PENDLE buy pressure in tandem with a supply sink.
Recently, official changes will be introduced to alter the fee distribution. This stands to reason, as the Pendle ecosystem has grown and it must ensure sustainability while continuing to grow. That has pushed the team to make the strategic decision of splitting protocol revenue such that, moving forward, 80% goes to vePENDLE holders while the remaining 20% is allocated to the Protocol Treasury and Operations Wallet respectively (10% to each).
As the TAM expands and Pendle’s ecosystem grows, the value flows to vePENDLE holders are expected to increase substantially. Last year alone, vePENDLE holders were the biggest beneficiaries of Pendle’s growth, generating ~40% APY on average, not including $6.1M worth of airdrops distributed in December 2024.
Catalysts and Growth Drivers
On the backdrop of Ethena’s and Securitize’s chain, Converge, which further reinforces the thesis for increased adoption and use cases for Pendle, other project-specific tailwinds can further help the bullish case to materialize:
- Funding rates trading – Integration with Ethena’s USDe ($3B+ locked) to solve structural negative funding issues
- TradFi integrations – On-chain interest rate swaps mimicking LIBOR
- KYC-compliant offerings – Specialized pipelines for TradFi entities via regulated SPVs
- Islamic finance expansion – Tapping into a $3.9T market with 10% annual growth
- Boros implementation – Bridging off-chain yields to DeFi and improving the protocol’s capital efficiency
Previously referred to as Pendle v3, Boros will be the key unlock for market expansion, supporting new yield types including off-chain rates and, most significantly, perpetual swap funding rates. For reference, the daily trading volume on CEX perps exceeds $100B in open interest daily, and Pendle will be the only venue for hedging these funding rates. This addresses a critical market gap that affects both on-chain and off-chain crypto enthusiasts, driving substantial increases in trading volume and fee generation as a result.
In addition to that, Pendle’s growing TAM (Total Addressable Market) will now also include strategic integrations with TradFi players, aiming to bridge on-chain and off-chain fixed income markets to attract institutional capital. To measure the size of the opportunity, consider the size of the interest rate derivatives (IRD) market in TradFi, which exceeded $500T in outstanding notional in 2024.
This will materialize in “PTs for TradFi”, allowing institutions to capitalize on fixed yield opportunities by packaging the offer in a KYC vehicle that can provide TradFi entities access to the best crypto-native fixed yields.
Islamic Finance is another sector that Pendle aims to capitalize on. This is a financial system that operates in compliance with Islamic law (Sharia). Islamic finance is today a $3.9 trillion industry spread over more than 80 countries with the bulk of it concentrated in very few markets. 95% of the world’s sharia-compliant assets are in the hands of just 10 countries, with Saudi Arabia and Iran leading the way.
Importantly, it is not just about bridging the off-chain and on-chain world, but also about being present in those ecosystems commanding most market share in terms of both attention and capital. Because of that, Pendle will also be deploying its protocol contracts on non-EVM ecosystems such as Solana and Tonchain, leveraging the large user base and distribution power of both chains.
Watchouts, Risks & Invalidations
We want to monitor some early signs of exhaustion if the token tanks or stagnates for too long. Warning signs could include declining TVL, team departures, or governance disputes that could jeopardize ongoing BD efforts, or delays on highly anticipated development milestones. One exit strategy might as well suggest that the core position should be gradually unwound if TVL drops uncorrelated with overall market conditions, or if large announcements have a negligible impact not only on price but also on vePENDLE locking behavior.
While key to its success, the dependence on Ethena assets can be a double-edged sword. For instance, Pendle’s TVL is largely concentrated on USDe, as well as a few other fleeting opportunities that come and go such as BTCFi, points, etc. The rejection of SPV proposals for TradFi onboarding could be a blocker on the road. Similarly, perps funding rates may as well be an invalidation trigger to monitor. A steep drop in USDe yield or a negative event for Ethena could affect Pendle’s growth.
Even though we have mentioned the multiple benefits of being a vePENDLE holder, one cannot overlook the fact that, even if there are airdrops and other subsidies, token incentives currently outpace revenue, resulting in negative earnings when accounting for organic activity alone.
This is worth highlighting, especially when you are dealing with a token that is trading at excessively large multiples. This could deter a specific profile of investors, who may perceive the token as overvalued relative to revenue being generated at the moment.
This valuation premium has increased by more than 3x since the start of the year, as protocol activity has dropped considerably. Markets are forward-looking though, and Pendle’s expansion to new chains and markets will boost fees and revenue generation. As the denominator gets larger, this ratio should come down gradually over time without a subsequent fall in $PENDLE’s valuation.
When it comes to token unlocks and anticipating sell pressure, one should be aware of downtrends in the average lock period, as well as monitor the vePENDLE schedule.
Even if one can spot surges in locking activity, it is worth noting that Pendle recently announced a monthly airdrop program for vePENDLE that may distort market dynamics between February and June 2025. These airdrops come from points negotiated by the team and that accrued to YT fees.
With snapshots happening on the 20th of each month at 00:00 UTC from Feb to June, we can work backwards to attribute the 3,768,594 $PENDLE locked in a single day on March 14 to this address: 0xa3291a2dcaa69399a4dae786479b92d9fc29bfec, which accounted for a 523,277 increase in vePENDLE that same day. This represents an average lock duration of ~3.5 months, taking us to the week immediately after June 20, since that is the shortest possible time to qualify for every airdrop snapshot.
Conclusion
DeFi is all about yield, and $PENDLE represents a liquid opportunity with convex exposure to a market leader that is likely to be on the watchlist of multiple liquid fund portfolio managers. A staged entry over the following weeks with trailing stops should help to capture upside beyond these levels without losing touch with the overall market. Outside of the noise that characterizes short-term fluctuations, $PENDLE is one of the few bets suggesting an optimal entry: post product-market-fit, pre-institutional wave.
Disclosures
Alea Research has never had a commercial relationship with Pendle and this report was not paid for or commissioned in any way.
Members of the Alea Research team, including those directly involved in the analysis above, may have positions in the tokens discussed.
This content is provided for educational purposes only and does not constitute financial or investment advice. You should do your own research and only invest what you can afford to lose. Alea Research is a research platform and not an investment or financial advisor.