How Can You Maximize Yield With Pendle V2?
ETH Staking Queue & Client Failure
GM, this is your Daily Bolt briefing.
In this Sunday edition, we’ve provided you with our full notes report on Pendle V2, discussing everything from the best strategies to deploy for the highest APYs, Pendle’s upcoming features, and more.
We’ve also included some brief points on the latest Ethereum ecosystem news, discussing the recent client failure and ETH staking queue.
Keep your guard up in the markets⬇️
1/ The Daily Gwei Refuel #585 - Ethereum Updates
Preview: In this episode of The Daily Gwei Refuel, Host Anthony Sassano provides a daily recap, every weekday, covering all the latest developments in the Ethereum and cryptocurrency ecosystems from the preceding 24 hours. Click here to listen to the full episode (28 mins).
Read our Note (10 mins) and save 18 mins.
Here are some key takeaways:
Anthony states that on May 15, 2023, there were finality issues in the Ethereum ecosystem that resurface 24 hours after the initial event. He wasn't surprised by this because there hadn't been a fix implemented. The network experienced problems, leading to questions about the cause.
The root cause was attributed to two culprits - Prysm and Teku. They were using up too many resources, leading to a death spiral and causing the client to crash. This was not perceived as a malicious attack but an unfortunate event leading to a significant drop in network participation.
Anthony states that both Prysm and Teku have released fixes for the issues, and he suggests that anyone running those clients should update to the latest versions to avoid encountering the problems again, as he hasn't heard of any recurring issues since the updates were made.
Sassano emphasizes the importance of client diversity in Ethereum. He explains that if Ethereum had only one client, this situation could have been catastrophic, potentially taking the entire network offline. He asserts that a global settlement layer like Ethereum must have built-in redundancy to safeguard against bugs and attacks.
Anthony shares a tweet that he had posted about Ethereum staking, noting that about 50,000 validators were waiting in the $ETH staking entry queue, with only three validators in the exit queue, highlighting that there was no mass withdrawal or "death spiral" of validators as some feared.
The actual number of pending validators is 49,343, with 64 exiting validators, marking an almost month-long entry queue to get into staking, a situation he had anticipated and warned about.
He also mentions the process of converting his mini pools (Rocketpool) from 16$ETH to 8$ETH and setting up new validators, which took about two weeks, indicating the length of the queue.
Anthony explains that due to a large number of validators being added to the network, there have been renewed discussions about the validator cap or the active validator cap. He mentions a post by Vitalik Buterin that discusses this in the context of single-slot finality.
DeFi Raiders - Pendle, Pendle V2 and Yield Tokenization
In this episode of DeFi Raiders, Rel3ntless invites TN to discuss Pendle, the upcoming Pendle V2 upgrade, yield tokenization, Pendle Wars, and new narratives in DeFi. Read our notes below to learn more.
Background
Rel3ntless (Host) - Owner of DeFi Raiders.
TN (Guest) - Co-Founder of Pendle.
Pendle - a permissionless DeFi yield-trading protocol, currently built on the Ethereum blockchain, where users can execute various yield management strategies.
TN's Background and Before Pendle
TN explains that he started crypto professionally when he joined Kyber Network as one of the founding team members in 2017. He says that he stayed with Kyber Network until 2019 which helped him to learn a lot about the crypto ecosystem.
He states that after leaving Kyber Network, he gathered a group of people who are now co-founders of Pendle to look into various opportunities.
He expresses that one of their first projects was a mining software that focuses on using Field Programmable Gate Arrays (FPGA) to mine certain privacy coins. However, it wasn't very successful due to the bear market in 2019.
TN says that they decided to move on from that venture to focus more on building new products. He explains that during the DeFi summer in 2020, they were farming tokens with attractive annual percentage yield (APY) rates but realized that these rates were unpredictable and volatile; by locking yields at some fixed rate, this unpredictability would be eliminated.
He states that they made a comparison between TradFi and DeFi and realized that fixed-rate components of TradFi were largely absent in crypto at that time.
TN explains that their thesis was that there would be more money flowing into the crypto ecosystem, making fixed rates more prominent over time.
TN states that they started developing solutions to offer fixed-rate products native to DeFi which led them to create Pendle.
TN believes the crypto ecosystem needs fixed-rate yields to drive mass adoption. He also believes that yield trading has the potential to attract traditional finance players into crypto markets.
What is Pendle?
TN explains that Pendle is a protocol that enables the tokenization and trading of DeFi yields.
According to TN, users who want to obtain fixed rates can do so on Pendle, while traders who want to speculate on yield can also do so on Pendle.
He says that Pendle offers fixed-rate products native to DeFi which were largely absent in crypto at that time. He states that it allows users to lock in attractive APY rates for a certain period of time. Traders can speculate on the yield by opening long or short trades on the yield.
According to him, providing liquidity and obtaining assets at a fixed rate are two simple ways users can participate in the Pendle protocol and earn yield.
Successful Strategies for Using Pendle
TN believes that providing liquidity is an easy way to participate in the protocol and earn yield.
He says that the base APY on Pendle pools is generally higher due to the way Pendle’s Automated Market Maker (AMM) is designed.
Example: stETH pool on Pendle offers 10% APY at the time of this discussion, but if boosted with $vePENDLE, the yield can go as high as 20-25%.
According to TN, obtaining assets at a fixed rate involves purchasing the principal token (PT) on Pendle. This achieves the same purpose as buying crypto assets on centralized exchanges.
He explains that users can acquire $PT today, hold it until maturity (e.g., 90 days later), and withdraw their assets from the pool with guaranteed fixed rates.
TN believes that compared to earned products like Bybit Earn or Kucoin Earn, which offer only 1.5-2.2% fixed yield, Pendle's fixed yield can go as high as 7% for some pools.
Upcoming Features in Pendle V2
TN states that one of the most significant changes in Pendle V2 will be adding support for non-fungible tokens (NFTs).
According to him, another feature will be introduced that will allow users to create custom pools with different weights between protocols.
He says that there will also be improvements made to the user experience and interface design of the protocol.
Yield Tokenization and AMM Design
TN explains that users depositing a yield-bearing asset into a Pendle pool will receive rewards from the underlying protocol without suffering any opportunity costs.
TN says that in Pendle V1, users had to interact with two separate pools to get exposure to PT and Yield Token (YT). However, he explains that Pendle V2 allows users to trade PT and YT assets against the same pool, consolidating exposure into a single pool.
According to him, the contract allows for permissioned assets on Pendle, which enables developers or protocol token issuers to list their yield-bearing assets.
He explains that the new AMM design supports the trading of PT and YT in a single pool.
Differences between Pendle's AMM Pool and Uniswap
TN explains that Pendle's AMM pool functions similarly to Uniswap at the inception of the pool. He states that over time, the weight of assets in the pool will start shifting because the Pendle pool is composed of a principal token and an underlying asset.
TN says that the principal token appreciates the value of the underlying asset over time, causing changes in value that are not accounted for in most other AMMs.
He says that Pendle's pool takes into consideration a time element while most other AMM pools don't.
Supporting Different Types of Assets
TN says that there are many different forms of LP tokens and yield-bearing assets in the crypto ecosystem. So far, Pendle has only supported yield-bearing assets from money markets and vaults.
He states that other forms of LP tokens include those from AMMs and yield-bearing assets from liquid wrappers or ‘liquid lockers’.
He thinks that "degen" assets like $OHM are also interesting but they did not list them yet. TN says that the team wants to be open-minded about all these different kinds of assets.
Feasibility of Using PT as Collateral
TN believes that it is definitely feasible for PT to be used as a collateral asset that appreciates in value over time.
TN thinks that recognizing PT as collateral allows for leveraged yield trading because trading PT is one of the strategies that a trader can consider.
According to him, if a money market supports PT as collateral, interesting use cases can be seen and earnings can be amplified through leverage.
The Pendle Wars and $vePENDLE
TN explains that Equilibria and Penpie by Magpie are examples of protocols that have launched their own versions of Pendle's protocol. He adds that building on top of Pendle allows assets to be utilized more efficiently.
TN believes that these protocols help drive ecosystem development by creating more use cases for Pendle's protocol and increasing its adoption. He says that this should help with the adoption of Pendle and increase trading volume and TVL.
He says that $vePENDLE has multiple purposes, one of which is to boost the APY for liquidity providers.
According to TN, $PENDLE holders who are not liquidity providers can deposit their tokens into protocols like Penpie and Equilibria to generate returns.
He states that liquidity providers who are unwilling to have token exposure but want boosted yield can do so with either of these platforms (Penpie and Equilibria).
Popular Narratives in DeFi
TN believes that Liquid Staking Derivatives (LSD) is currently a popular narrative associated with Pendle due to its potential to benefit from yield trading for LSD products.
He says that the success of Shapella Upgrade has removed any technical risks previously associated with the fork.
He believes that people are now more willing to deposit assets into Lido and Rocket Pool for LSD exposure.
TN states that they are looking for new chains to build on. They are observing upcoming chains such as Berachain and Mantle Chain. He also says that the ZK ecosystem is a popular narrative and could be interesting for Pendle to have exposure to.
T-Bills are being tokenized by larger companies and protocols, which could be a potential real-world asset to tokenize.
Opportunities for Yield Trading in the Future
TN believes that to drive mass adoption, Pendle needs to improve its UI/UX.
He says that Pendle should be made more user-friendly for users without complex derivative knowledge.
He adds that crypto is developing too fast and it is hard to catch the trends so he believes that Pendle should stay on top of trends in crypto and have exposure to them.
Collaborations and Partnerships
TN explains that Pendle plans to deepen its relationship with existing partners such as Aura, Balancer, and Camelot.
He says that there are many interesting opportunities to explore with Camelot due to their various types of pools and large community on Arbitrum.
They didn’t decide on which chain to expand. The alternatives are BNB Smart Chain, Avalanche, Berachain, and Polygon.
Expanding the Use Cases
TN states that Pendle’s focus is on expanding the use cases of Pendle and getting people to adopt it.
He also adds that investing in marketing, growth, and business development is one of their priorities.
According to TN, their focus is to increase the number of people who will use Pendle actively by becoming a liquidity provider, earning healthy APYs or trade yields, or getting fixed rates on Pendle.
Barriers for Adoption
TN thinks that there are still roadblocks in attracting native DeFi users toward safer long-term yields.
He believes that leveraging positions on Pendle is difficult without a money market that supports principal tokens.
According to TN, pool size limitation prevents traders from making an outsized gain even if they are accurate in their assessment of the trading strategy.
He thinks that convincing money markets to recognize PT as collateral is quite important.
He says that greater adoption can only take place once these barriers are resolved.
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Good read thanks