Penta Lab's first in-depth research report reveals that PENDLE surged 40% to a new high

PentaLab.io was launched in early 2024 as the world's first research institute that combines AI with a self-developed ten-dimensional crypto asset valuation system. Since the release of the first in-depth research report on Pendle Finance on January 17, the price of PENDLE has risen from US$1.98 to US$2.8, achieving an astonishing increase. PentaLab.io is committed to providing global investors with cutting-edge market insights to help everyone make more informed investment decisions. Welcome to pentalab.io for the full report.

The following content is excerpted from "Token Economics, Data Verification, Code evaluation, competition comparison (part), valuation (part)", "Project introduction, track analysis, product revenue,Media community, team background, financing situation, road plan, Risk Analysis" and more, please see the full report.

Tokens Economics

1 Introduction to Token Economics

Pendle adopts the Ve token economic model (VotingEscrowedTokenomics) with mixed inflation. The Ve model was originally proposed by Cruve. Holders must lock their tokens for a period of time in exchange for Ve-tokens with voting rights and other rights. This model incentivizes users to participate in the long term and reduces the amount of tokens circulating in the market.

The 270 million PENDLE tokens that have been issued are mainly used for liquidity incentives, about 110 million, accounting for 41%. The remaining tokens are mainly distributed among teams (21%), ecosystem funds (17%) and investors (14%), with team and ecosystem fund tokens accounting for a relatively high proportion. The tokens allocated to investors and advisors are gradually unlocked quarterly in the first year. Half of the team tokens are unlocked at the end of the first year and gradually locked quarterly in the second year. The tokens planned to be allocated to teams, investors, consultants, and ecosystem funds have all been unlocked in April 2023. Since then, the token supply has stabilized, and the PENDLE currency price has increased since February 2023 (only the last team token remains Unlocked (approximately 7 million coins) fluctuated rapidly.

Chart 05: 40% of tokens used for liquidity incentives

Data sources: Pendle official website, MediumPendleTeam, PentaLab

2 Liquidity Incentive Unlocking Mode

PENDLE token issuance adopts a hybrid inflation model. According to the current token economic model, there is no upper limit on the token supply. Pendle’s official website and team Medium show that the release of tokens used for liquidity incentives (LiquidityIncentives) is divided into three stages:

1. First 26 weeks (April 26, 2021 to October 2021): 1.2 million PENDLE will be released every week;

2. Week 27 to Week 260 (until April 2026): Weekly liquidity incentive reduction of 1.1%;

3. Starting from Week 261: 2% annual inflation based on the amount of circulating tokens to incentivize users (current plan).

3 Income distribution

3.1 VePENDLE Income distribution< /h4>

PENDLE holders can obtain VePENDLE by locking tokens, thereby participating in voting and governance, and earning protocol income. The locking period ranges from 1 week to 2 years. As the locking time increases, the number of VePENDLE exchanged for 1 unit of PENDLE increases linearly. When locked for 2 years, the maximum exchange ratio is 1:1. As the expiration date approaches, the number of VePENDLE decreases linearly to 0. Each wallet can only choose one VePENDLE locking period, but can choose to extend the locking time.

At this stage, only VePENDLE holders enjoy the distribution of agreement fees, and the Pendle treasury does not receive any distribution. VePENDLE holders can directly receive allocations of the following two protocol fees:

1. VePENDLE voters You are entitled to 80% of the transaction fees of the voted pool, which will be distributed in proportion to all voters in the pool, forming the Voter Annualized Yield (VoterAPY).

2. All YT charges constitute the basic annualized rate of return (BaseAPY).

3.2 LP income composition and VePENDLE governance

Pendle encourages injecting assets into the liquidity pool to increase the TVL of the pool. The liquidity provider (Liquidity Provider, LP) will receive the income and token incentives generated by the pool during the period, in proportion to all LPs in the pool. Proportional distribution. The income structure of LP includes the following 4 aspects:

1. The fixed income generated by PT in the liquidity pool Interest rate income;

2. The underlying asset income generated by SY in the liquidity pool;

3. < p style="text-align: left;">20% of the transaction fees generated by the liquidity pool;

4. PENDLE token Incentives: The token incentives released each week are distributed proportionally based on the number of VePENDLE votes obtained by the liquidity pool.

VePENDLE holders can vote their votes to different liquidity pools in independent proportions to guide token incentives assigned to this pool, thereby effectively guiding the direction of asset injection and forming governance. In addition, when VePENDLE holders act as LPs, they can choose to boost their LP positions to amplify their PENDLE token incentives up to 2.5 times. This governance model can greatly encourage the behavior of injecting liquidity.

Chart 06: VePENDLE holders receive more than 80% of the income distribution

Data source: Pendle official website, Penta Lab

3.3 Circulation ratio

h4>

Based on the calculation of the aforementioned release method, as of January 17, 2024, the total supply of PENDLE tokens is expected to be approximately 270 million, and by the end of the second phase, the total supply is expected to be approximately The total amount is 290 million. In-stage token incentives are expected to continue to attract user growth in the next two years. According to official website data, the number of PENDLEs in circulation is 154 million. Assuming that the supply as of the end of the second phase is the total supply, the circulating market value (MarketCap) only accounts for 58% of the fully diluted valuation (FullyDilutedValuation), and the remaining tokens are It is locked and exchanged for VePENDLE or held by insiders (Insiders), and it is expected that there may be subsequent selling pressure.

Chart 07: The current weekly supply of PENDLE is steadily decreasing

Source: Pendle official website, PentaLab

3.4 Advantages of Token Economic Model

Raise demand and reduce supply to support currency prices. The VePENDLE governance model encourages locking tokens by distributing protocol revenue, and the longer the locking time, the greater the reward. This model stimulates the demand for PENDLE tokens and reduces the supply of circulating tokens, thereby supporting the currency price.

Attract LPs to increase the scale of the platform and improve transaction slippage. VePENDLE voters can obtain more token incentives from the corresponding liquidity pool when they serve as LPs, which attracts more people to become liquidity providers, expands Pendle's TVL scale, and improves transaction slippage.

Improve user loyalty and protocol stability. "Whales" seeking short-term gains generally monopolize voting rights by temporarily acquiring large amounts of tokens to influence the distribution of incentives, and then sell them all after receiving token incentives. The VePENDLE governance mechanism locks tokens for a long period of time (the average locking period is 427 days), which to a certain extent hinders the short-term implementation of the "mining, raising and selling" process, avoids damage to the interests of small holders, improves user loyalty, and increases the number of tokens the stability and overall strength of the protocol.

Data verification

Multi-chain deployment and distribution< /p>

As of January 2024, Pendle has been deployed on the Ethereum, Arbitrum, BSC and Optimism chains. From August 2023 to January 2023, the transaction volume occurring in Ethereum and Optimism accounted for 97% of Pendle’s total transaction volume.

Chart 08: Arbitrum and Ethereum dominate trading volume

Source: Pendle official website, DefiLlama, PentaLab

From August 12, 2024 to January 12, 2024, Pendle’s TVL increased from US$140 million to US$310 million, with a monthly compound growth rate of 18.6%.

Chart 09: Pendle’s TVL changes in the past 6 months

Data sources: Pendle official website, DefiLlama, Penta Lab

Chart 10: Pendle’s circulating market value/ TVL

Source: Pendle official website, DefiLlama, Penta Lab

As of January 18, 2024, Pendle's average circulation market value/TVL ratio is 0.66, which is at the historical average of the past 12 months and has growth potential.

Code evaluation

1 Code update frequency

Github charts and code submission records show that the Pendle project's update frequency in the past year has exceeded 7 submissions per week. The average number of code additions and deletions per week is about 1,000 and -500 lines. The project has a net increase in code every week. The amount is 500 lines. It can be seen that the total amount of code in this project is considerable and the frequency of code updates is relatively high.

Chart 11: Pendle’s code submissions in the past year

Source: Github

2 Matching degree between code and roadmap

In terms of matching degree with roadmap, Pendle hopes to achieve better results by cooperating with other protocols (whether The integration of decentralization or centralization increases community leverage and provides users with better interest rates. In the recently released PendleV2, Pendle has achieved better compatibility, expanded the token function through ERC-5115, and opened Pendle’s interest rate tokenization mechanism to all interest-bearing tokens in DeFi, creating a An ecosystem with permissionless access.

3 Technological Innovation

Pendle uses ERC-5115 The standard, which was developed from ERC-4626, an extension of the Ethereum token standard ERC-20, provides Pendle with more powerful usage scenario compatibility.

• GYGP

ERC-5115 is a token standard used to encapsulate any revenue generation mechanism that conforms to the GYGP model. Each ERC-5115 token represents a share of GYGP and allows interaction with GYGP through a standard interface. In the ERC-5115 protocol code, the General Yield Generation Pool (GYGP) is defined. In each income-generating mechanism, a capital pool measured by assets is generated. Users contribute liquidity to the pool in exchange for shares in the pool. . Over time, the value of the asset pool grows and reward tokens are obtained, which are then distributed to users according to corresponding rules.

• ERC-5115

ERC-5115, as an extension of ERC-4626 and ERC-20, can cover most revenue generation mechanisms in DeFi, including tokens built on the ERC-4626 standard. In the protocol code of ERC-5115, the General Yield Generation Pool (GYGP) is defined. In each mechanism that generates income, a fund pool measured by assets is generated. Users contribute liquidity to the pool in exchange for shares in the pool. . Over time, the value of the asset pool grows and reward tokens are obtained, which are then distributed to users according to corresponding rules.

Chart 12: GYGP code definition

Source: EthereumImprovementProposals

Chart 13: GYGP code Definition 2

Source: EthereumImprovementProposals

The protocol innovatively defines a variety of fields to facilitate Users perform asset operations. The maxWithdraw field returns the maximum share in the withdrawal call; the previewWithdraw and previewRedeem fields allow users to simulate the effects of withdrawal and redemption in the current block; the withdraw field defines the behavior of withdrawing shares from the fund library and sending them to the recipient; the redeem field defines the asset redemption behavior . These fields increase the flexibility of the treasury, allowing users to directly use assets or shares for deposit and withdrawal operations.

Since all token standards that meet the GYGP model can be defined using the SY standard, the ERC-5115 standard can support more usage scenarios. In Pendle Finance, PENDLE took the lead in using the SY standard and opened Pendle's interest rate tokenization mechanism to all interest-bearing tokens in DeFi, creating an ecosystem that requires no permission to access. For comparison with products on the same track, see competitive analysis.

4 Development Team and Contributors

According to PendleFinance’s code submission record on Github , Pendle has a development team of 7 people, including 2 stable code contributors. The number of code submissions is 746 and 437 times respectively, and the number of lines involved is 243981 and 93512 respectively. The size of the development team is slightly smaller than the current market value should be. Some development team configurations ($300 million+).

Competitive comparison

1 Market share

Pendle is the platform with the fastest TVL growth on the LSDFi track in 2023. In mid-2023, TVL is only 1/3 of the first Lybra and is comparable to Instadapp and Raft is tied for about US$50 million, but in half a year its TVL has expanded six times to nearly US$300 million, the same size as Lybra. In addition, although Instadapp has a TVL of US$2.5 billion, it has transformed into a digital financial service platform. And there is no clear revenue path. In the segmented track, the TVL scale of YieldProtocol, which also operates the coupon stripping business, is still struggling near one million US dollars. SenseFinance announced that it will cease operations in October 2023, and the team’s focus will shift to new protocols. development.

Chart 14: LSDFi track protocol market share comparison

Source: DefiLlama, PentaLab

2 Competitive Product Comparison

Pendle’s total financing scale is three rounds, with a public financing amount of US$3.7 million. YieldProtocol It received $10 million in financing in 2021, led by blue-chip crypto investment company Paradigm. SenseFinance raised a total of US$5.2 million in a seed round of financing in August 2021. Pendle does not have a clear advantage in terms of financing scale, but it is stronger in terms of financing rounds and its ability to continue to attract investment.

2.2 Underlying Token Protocol

The team is working on ERC- The ERC-5115 protocol was developed based on 4626, which is more scalable than competing products such as YieldProtocol and SenseFinance.

Chart 15: The number of product types launched by Pendle is significantly ahead of Yield Protocol and Sense Finance

Data sources: Pendle official website, YieldProtocol official website, SenseFinance official website, Penta Lab

2.3 Developer Configuration

According to PendleFinance’s code submission record on Github, Pendle has a development team of 7 people in total, including stable There are 2 code contributors, the number of code submissions is 746 and 437 times respectively, and the number of lines involved is 243981 and 93512 lines respectively. The development team size is slightly smaller than the development team size configuration that the current market value should have (more than 300 million US dollars).

Chart 16: Comparison of code submission records, from top to bottom, PendleFinance, YieldProtocol, SenseFinance

Source: Github

Valuation

We compare the Pendle price with TVL, weekly release volume, Ethereum price and the ten-year U.S. Treasury yield, and we can calculate the Pendle price It is positively correlated with TV and Ethereum prices, inversely correlated with weekly release volume, and has little correlation with the ten-year U.S. bond.

Further analysis and comparison of Pendle's total supply market capitalization and TVL ratio over the past year shows that the average is at 1.59, and the current valuation level of 1.85 is similar to the one-year average If it is lower than the average plus one standard deviation of 2 times, the valuation is relatively rational compared to the 2.5 times in March 2023.

Chart 25: Comparison of Pendle full supply market capitalization and TVL

Data source: DefiLlama, PentaLab

We assumed the growth rate based on the TVL of Pendle's existing tracks. Among them, USDC can reach 40% month-on-month and is expected to reach US$130 million in six months. CDAI is expected to reach US$110 million in six months. Based on this, it is predicted that the overall TVL is expected to reach US$670 million in six months. Further using the current average full supply market value of 1.59 compared to TVL's valuation, and the expected full supply of 274 million coins in six months, the current stock currency has a six-month target price of $3.9, which has 97% room for upside compared to the current price. .

Exhibit 26: PendleTVL main assumptions

Source: DuneAnalytics, PentaLab