Pendle

Pendle takes a yield-bearing asset and splits it into two tradeable pieces: one representing the principal returned at maturity, and one representing all yield until then. That single operation creates something DeFi otherwise lacks — a market price for future yield, and therefore a yield curve.

Principal and yield become separate assets

Deposit a yield-bearing token and receive a principal token redeemable for the underlying at maturity, plus a yield token collecting everything earned before then. Selling the yield token locks in a fixed return up front; buying it is a leveraged position on rates rising. Both sides of a trade that previously had no venue now exist.

Fixed rates arrive in DeFi

Because the principal token trades below its redemption value and converges to it at maturity, holding it to maturity produces a known return. This is the mechanism behind fixed-yield products on-chain, and it works the same way as a zero-coupon bond — a familiar instrument reconstructed from crypto primitives.

An AMM designed for decaying assets

A yield token loses value as maturity approaches by construction, which would produce constant losses for liquidity providers in an ordinary pool. Pendle's AMM accounts for time decay explicitly. This is the technically hardest part of the design and the reason simpler attempts at the same idea did not work.

Where the risk concentrates

You inherit the risk of whatever underlying asset generates the yield — a liquid staking token, a lending position, a synthetic dollar — plus Pendle's own contracts, plus the possibility that yield falls far below what you paid for. Buying yield tokens is a directional bet on rates, and it is regularly mistaken for a savings product.

What PENDLE does

The token uses vote-escrow locking to direct incentives towards specific pools and to share protocol fees with lockers, following the model Curve established.