On The Brink with Castle Island - TN (Pendle) on Stable Yield (EP.623)

Episode Date: May 12, 2025

Wyatt sits down with TN, cofounder of Pendle. Covered in this episode:  How Pendle works The evolution from alt yield to stable yield DeFi's future core assets

This is Wyatt, and on today's episode, I was joined by TN co-founder of Pendle. We discussed Pendle's fixed yield offerings and the migration towards earning yield and stable coins over other assets. I hope you enjoy our conversation. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and hosts may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their

personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to protect. and Zailing Economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry.

So out of this worry, we have something called a Bitcoin. TN from Pendle, thanks for joining us on the podcast. Excited to have you. Would love to hear a little bit more about your background to kick off maybe. Yeah, thanks for having me. I'm TN, the CEO co-founder of Pendle. Pendle is a protocol for the trading and the tokenization of yield. So we started out in 2020 and eventually found pretty healthy traction product market fit in late 2023, early 2024, with the whole points tokenization mania.

And then right now we're also very focused on stable coin. But before Pendle, I was part of the founding team member of Khyber. So I've had the privilege of watching Defy growth from probably front row perspective. and knew about compound, Eastland, which is now known as Ave, from pretty long ago. So it's been a while, but it's really good to stick around and see how the landscape has evolved. And I'm just feeling very, very privileged to be part of the movement. Why did you start Pendle? I was farming shit coins with my co-founders.

True story. Defy Summer, I think we had the first taste of farming with Yam Finance. and we were putting in not a lot of money, but maybe $200, something like that. Did you get into crypto for shit coins and meme coins? So I was experimenting with different parts of crypto. Between 2019 and 2020, I actually spent some time helping out with rock miner, which is one of the larger miners, and then also did DevOps. So operated an entity that is Google partner, and then we built solutions for the likes of

Eos and Tezos, some of these first generation, second generation at once. Then eventually we saw what happened with compound firstly in 2020, and then Yearn really popularized that whole yield farming notion. And then I think what was more interesting was with Yem. They took in synthetics, land token, com token, Link, and they had all these different tribes pitted them against each other. There's Link Marines and Synthetics, Synthetic. Yeah, a couple of others. And these assets suddenly became more valuable because of that interest from community. So overnight, our few hundred dollars ballooned to thousands of dollars. But unfortunately, there was a bug in the governance system. So suddenly the value collapse. But it was

my first introduction to yield farming. And then from there on, we were pretty diligently looking out for yield sources. But as much as we like the 20, 30,000 percent API, there just wasn't a way for us to lock in the rates because we knew that these APYs we're not going to sustain. We've been hopping around and we're not the only ones doing so. That 20,000% APY,

even if we could lock in at 100%, that would be pretty sweet. But no instrument there. So that was, I think, the first time we started to think about building a product. I think just for a bit more context, my co-founders and I, we used to work together. One of them was with me at Khyber

and then the other ones, IM token and diggs. So we've always wanted to build a product, but 2019, 2020, the market wasn't really exactly the best. Opportunities were relatively limited. So that's why we were doing services because we needed to find an income source and without any track record, it was just very difficult to build product.

So when we saw an opportunity to build a fixed rate product by enabling yield-bearing assets to be stripped into P-T-Y-T and traded independently of each other, we thought that would be a meaningful addition to the Defi landscape. So that was our core motivation. And many would say DeFi is killer use case in a way is this yield generation and a natural market discovery of rates that people will lend and borrow in response to what you can then go speculate on and how speculative people in that economy are feeling. but to your point, it's not the best user experience when your rates could fluctuate by

hundreds of percent on a day-to-day basis. So to circle back, you guys, to my knowledge, created Pendle with that problem in mind and the point you're making that you want to offer fixed rate, more stable lending, and better yield offerings in general. That is correct. We also had the benefit of we were mostly cross-referencing the state of defy to what a mature financial ecosystem should look like. And we noticed that in any financial market, fixed income products are typically one of the most important verticals. And if we believe that more money is going to flow into crypto space, then that vertical has to exist. But at that point in time, some five years ago, it was largely absent. So that gave us fair amount of confidence

to want to work on this particular opportunity. You mentioned Peter. and YT, can you speak briefly to how Pendle works at a high level? Sure. So Pendle works primarily with yield-bearing assets. So I want to give a little bit of context to why we decided to work with yield-bearing asset. Because in 2020, Compound and Ave, if I recall correctly, they were already sitting on maybe collectively $20 billion in TBL. So what we didn't want to do was to compete for liquidity against this big boys.

and what we thought was the right thing to do was it built on top of compound and Ave. So basically the AUSDC from AVE or A tokens or C tokens from compound. So that was the way we were thinking about it. So taking these assets from AVE and compound and then strip them into PT and YT. With respect to A tokens, when you deposit a base asset like USDC into AVE, you get AUSDC in return. And these AUSDC is a proof of your deposit firstly, and it also operates as a receipt token so that whatever interest that your position accrued will be streamed to your wallet. So what we do is effectively strip out these two functionalities and represent them in PT

and YT. So YT is where the yield accrues to, and then PT is where the original deposit gets represented. Now, by making these two parts independent of each other, then we can enable. them to be traded independently as well. So with Pendle, there's a very, very important relationship between PT and YT. In every asset that Pendle strips, PT plus YT has to equal to the value of one underlying. So PT and YT are naturally inversely related to each other. That means if PT increases in price, then YT has to count down in value.

So when you add these two components together, they should always equal to the value of one underlying. This is really one of the most important fundamentals of Pendle. And with that understanding, you can figure out the pricing for these two components independently. And how do those adjust in price? What causes them to move? How does that happen over time? Yeah, so YT actually gravitates towards zero as time passes, and PT, on the other hand, will increase the value to par. So at maturity, 1 PT is redeemable for one underlying, whereas YT will, by then, YT would become $0 in value. But the good thing about YT is that it is typically the smaller component of a yield-bearing

asset, and that means when it's stripped out, it is a lot cheaper compared to the PT counterpart. As an example, using STE, let's say it generates for 5% in APY. So in a typical context of PT, YT, stripping, with an expected 5% APY, YT would probably be priced at around, let's just say 5%, and then the PT would be the remaining 95%. So effectively what that means is one PT would be equivalent to 0.95th and then one YT would be 0.05 if in value. And the PT plus the YT tier point equals the price of one STE. Correct.

So the use cases are broadly speaking two types of use cases with PT. Users who are interested in locking in the fixed yield, they can buy PT. So that means if today the PT of SDEth is priced at 0.95 STEth, you acquire it, hold it onto maturity to redeem it for one SDEth. So your input is 0.95, holding it until maturity, the output is 1st.Eth. On the other hand, all the yield that YT accrues will go into the holder of YT, and then over time the value of YT will diminish to zero, but the gains that is paid out by the underlying protocol in this case, Lido, will accrue to the YT holder. For users who are more on the speculating of yield side, if they believe that,

that the underlying API could be 10% in a year, but right now it's priced at 5%. Then they should purchase YT, this regarding the underlying principle, and then just focus on the yield. So the payout is 0.05, and the year's time, if it's worth 10% APY, then the gain is effectively doubled. Yeah, makes sense because they're taking the other side of that trade. How do you guys select for assets that will be listed on Pendle? Yeah, so we're typically very, very thematic in our approach.

So we've had multiple rounds of experiments with narratives. So I'd say with the launch of Pendle v2 at the end of 2022, one of the first narratives we experimented with but wasn't very successful was NFT. We actually listed Apecoin and Lux Rare, Lux Token Market. Were those yield-bearing? Yeah, they were yield-bearing. So you could stake looks to get, I can't remember, the ticker now, but yeah, stick looks, for example. And then ape coin, you would be generating

more ape coin by sticking ape coin. That's the yield bearing part that we tokenize. They weren't too successful. But in the first half of 2023, we figured out a way to affiliate the Pendle brand with some of the heavyweights. We position Pendle as the top layer on Rocket and then on RocketEath, our ETH, and then balancer and aura. So we basically tokenized the aura, and users who participated in the pool would be entitled to yield from ORA, balancer, and rocket. So the effective APY there was fairly attractive.

So I remember it going as high as 17% at one point in time for ETH API fixed rate. So that was, I think, the first breakthrough for us. And then eventually we also pivoted a little bit and structured a narrative to align with arbitram. We also did real-world asset towards the Q3, Q4 of 2023. So that was with the launch of FUSDC from Flux and Sparks as Die. Last year, we were primarily focused on eigen and its ecosystem, LRTs.

Athena was a big contributor of our growth. And then end of the year was Bitcoin narrative. So Babylon and its ecosystem. This year, we focused a lot of our efforts in identifying high quality and promising stablecoin products and have the markets listed on Pendle. And to your experience and for anyone who's tried, typically if you want their in Yelvin Defi, you're exploring 20, 30 different protocols and the rates are all over the place and then fluctuate with you.

So to tie a bow on some things we've discussed, where you're going to. you guys have done is brought that all to one source. People want to access those sources at multiple levels, as you mentioned, with the RE and balancer, and you've also created this fixed rate structure, which just makes user experience infinitely better. Yes, we do our best, but it's a lot of learning and product integration over time. It didn't start off this way. We also didn't imagine points to blow up the way it did. We were basically using the same protocol mechanics on a slightly different product, but the output was much bigger than we thought. So now my view is that points have already become a very essential part of the go-to-market

strategy for projects, and we want to continue to serve this segment. So constantly improving the product and identify the best opportunities for users. Historically, we've had a lot of yield offerings to the point that you made earlier, ape coin and you earn more ape coin, and maybe you earn. eight points on top of that, which can go very well, especially when the market's doing very well. But I think my view is eventually we will probably collectively gravitate towards something like US dollars and you're earning yield in US dollars or at least assets, ETH being more comparable where there's more of a definitive value behind it, or at least you sleep a little better at

earning what feels like a true yield in that asset. Do you see a lot of the offerings you guys will have being stable coin based or blue chip token based as opposed to the longer tail of assets and points? Yeah, I believe so. I think now more and more protocols generating revenue, they would prefer to do the payouts in stable coins or one of the major assets. You're seeing that increasingly? Yes, we do. We do. There are still implementations like, S-Ina, which has worked out quite well. Generally, if a user is bullish on the prospect of Athena, which I believe that to be the case, buying into S-I-N-A or P-T-S-N-A, Y-T-S-E-Na, these are fairly good ways to express that view. But that aside, most of the time, we see users preferring payouts in

USDC or USDT or even ETH. But increasingly, I think the preference for ETH has declined. while the price has gone down. Yes. Yeah, but at one point in time, protocols that were giving real yield, they had their assets payout denominated in ETH. So there was one point in time. It was very relevant.

Does Pendle have a staking program? Do you distribute fees or revenues to token holders? Yes, we do. So with Pendle, the fees are distributed to V-E-Pendel holders. So in this case, Penel on its own does not have too much of a utility. It needs to be locked up between one week to two years. So the duration is fairly flexible. And with that, the user is entitled to voting rights.

And with the voting rights, V-Penel holder can choose which pool on panel to vote for. And when the pool generates fees, these fees will be prorated and distributed back to the V-Penel holder in the form of previously, up until recently, it was ETH, but this month on work, it would be USDC. Great. The gravitation towards rewards in real dollars. Yeah. I just want to ask, you live outside the U.S. I wanted to ask about your view on non-USD stable coins, or if you think that U.S. stable coins are the future. Yeah, well, I think in the near term, the demand for U.S. dollar denominator stable coins will continue to dominate because it is still the most accepted currency anywhere. And it just makes accounting a lot easier. I can very, very much.

very comfortably see how much I'm earning in US dollar terms versus ETH. And then I have to make mental adjustments just to see how much I'm earning for tax purposes for personal tracking, various considerations. I think gradually we should be seeing more forms of stable coins that are not necessarily USD denominated to show up. In Asia, I believe Singapore, Hong Kong, there are already attempts to get stable coins denominated in SGD, Hong Kong dollar. I'm sure several other jurisdictions are also experimenting with this stable coin implementation. And then euro, there are a couple of operators as well, to my knowledge. And we are exploring having euro market on Pendle.

To that extent, I'm fairly certain that there will be a broader diversity of stable coins. And then the yield sources will also be pretty diverse as well, not just coming from T-bills, but yeah, other forms of ruble asset revenues or yield generation. Do you think non-USD stable coins are used in defy? Or do you think those are more fintech products? I would think more fintech. I think they're good for transactions, but in terms of yield generation, I still think the U.S. denominated ones will be much more accepted. And what assets are popular on Pendle that are the new ones you're launching currently? Yeah. So I,

I think the biggest for us is still Athena's USDA and SUSDE. Recently, with the PT of EUSDE and SUSDE, getting listed on AVE Co-Market that has increased the total circulation of SUSD and EUSDE P-T assets. That aside, the newer ones that are gaining very, very healthy traction as far as we're concerned is, I would say Open Aden. We're seeing over $100 million in TVL on panel. already. This is after two to three weeks. And I think there's a bit more potential for growth there.

Level USD is another one. Yeah, cool product. Yeah. They were on the podcast a few weeks ago. Nice. Yeah. Super USB is also doing pretty well. I want to say very recently, Falcons USBF is also gaining traction on Pendle. So these are, I think, top of mind. Resolve usual. They've done well quite consistently. we'll just have to figure out ways to sustain the hype and interests in these opportunities. Why do you think people like Athena so much? I think they're not quite the first mover, but I want to say they're definitely one of the most competent teams that we've worked with. Guy and his team, they have a very clear idea of where they want to be, and their execution

is actually very, very strong. And I think with stable coins, the playbook is typically more bitty-heavy-heavy than tech-heavy. So the partnership lineups that they have is very impressive. And then to be able to have market set up on buy bid and a couple of other exchanges, so basically having USDA pair, I think that helps tremendously as well. So figuring out ways to get their asset distributed, I think that has been a very, very strong proposition of Athena. And I can see them growing even more from here.

Yeah, I don't think you can underscore the value of those partnerships. were naturally very herd mentality. People who deposit in defy, no one wants to deposit into the stable coin with $500,000 of supply because you just don't have the trust factor yet. Yes. In your view, is it the same user who was earning ape coin yield a couple of years ago

that is earning Athena or earning level USD yield now or is a different user profile? I think the profile has not changed all that much. I think people who are speculating on why, at least from our observation, they are largely retail users because it's very capital efficient. If you want to speculate on the potential return of, say, Edina points, there's a good amount of multiplier to offer that margin of safety. PTs, on the other hand, we see a lot more bigger funds, bigger ticket size, participating in that segment of the market. I think for us, even though the

product is fairly complicated, especially if you don't really understand derivative. I think understanding Pendle can take a little bit of time. With that knowledge, we were still quite insistent on targeting the sophisticated retail first, more so than targeting the institutional users. This is something that we learned over time, and it applies to how we go to market for various stable coins or even something like boros. With respect to product like ours, especially because it involves some form of speculation. The target user group that we should be focusing on in the beginning are likely the sophisticated retail.

They are the ones that typically have higher risk tolerance and then they would be more willing to try out new products and they would be very interested in that outside's earning. So we just have to focus on this core group of users and then we realize that over time when the traction of this segment improve, because these are probably users who are punting on YTs, it also creates a very good opportunity on the PT side. So when PT becomes cheaper, then the big funds have a reason to come in and scoop up like the PTs. And that's kind of how we establish that dynamic and the equilibrium between the YT and PT side. Do you think that DeFi yields outpace or remain competitive to try?

traditional yields, especially as on-chain and traditional systems blend together? Yes, I do believe that to be the case. Rawley speaking, how I think about the yield in Defi is that it will very likely be higher that whatever Trafai offers for two reasons. One is that the composability aspect of crypto assets, that makes it a lot more appealing from an APY standpoint. This was something that we took advantage of when we launched ETH market back in 2023. So we were basically stacking up the yield of rocket ORA unbalancer.

That would be a lot harder to achieve outside of Defi context. So with that, very important offerings, I do think that the yield in crypto should be higher, naturally. And then secondly, crypto, like Defi, is generally more efficient. So I think protocols across the board don't need to have a lot of headcount to monitor transactions, and that should help with the margin. So without incurring a lot of overhead, the cost to the protocol operator also lowers.

All things considered, assuming status quo on the yield between the C-5 and D-5 products, I think D-5, because of the lower overhead and the cost is lower, so the effective return would be more attractive for participants. Yeah, and you've natural capital efficiency because if you have a stake to ETH, you can then take that stake to ETH,

where you're already earning the yield for staking it and earn rewards for depositing it into a two-sided pool. You're getting the trading and staking yield. Correct. What other protocols are you interested in? Or what assets do you think we'll see emerge in the near future that you guys would work whether see as being high potential? So I maintain the view that yield on Bitcoin is quite inevitable, but right now we don't have a very good way to generate yield on Bitcoin. Is that the number one? one desired thing for users in your view? I'm not sure about the broader user base, but at least for me,

that would be the case. So earning yield on Sables is attractive, and I think it will continue to exist. But just given the sure size of Bitcoin right now, to be able to generate, I don't know, like 2 or 3% of Bitcoin, then we'd be pretty sweet. I'm sure there are multiple sources of yield on Bitcoin right now,

but they might not be on chain. So lending seems to me to be the one that is most consistent and broad base. And then we also have structured products. Some of the OTC desk, they could be structuring products that offer yield on Bitcoin. But beyond that, I'm not seeing too many opportunities. And then if you look at money markets, red BTC on Ave, the API is generally very low. I think that is definitely an avenue that would be interesting.

But in the near term, I'm not too sure what needs to take place before we see greater adoption in that particular segment. Yeah, we completely agree. It almost feels like an irony that we haven't created good yield around Bitcoin when the things that crypto has produced are Bitcoin and yield. Whereas if you want to go borrow Bitcoin outside of Defi through CFi off chain, it's typically double digit percent. So it shows you that the yield is there.

It just hasn't been created in Defi yet. I'm curious. Why do people borrow Bitcoin? Is it too short? That's a good question. I don't know why people borrow Bitcoin. I think there are a number of reasons. potentially to have more exposure to Bitcoin, right? Yeah, I'm curious.

You use your Bitcoin collateral and borrow more Bitcoin? No, I don't. I use it as sort of value, personally. Right. I'm saying some people could, though. Yeah, some people do that, yes. Yeah, I think it's just people who want to have as much exposure to Bitcoin as they possibly can. Okay, okay. Fair enough. But yeah, the rates are in the 10 plus percent. I'm told, yes. What are the wrapped BTC rates on Ave actually that now that you mentioned, I haven't checked? It's definitely less than 1%. Yeah, I'm not too sure at this point. Big difference, yeah?

Yeah, no kidding. That's quite a spread. We clearly haven't gotten to efficiency quite yet. On that point about Bitcoin, I also wanted to ask you, how do you view the different blockchains and making business decisions? Because there's obviously a core difference when we talk about native Bitcoin here versus Bitcoin existing on other chains. And how do you guys select for chains and assets?

Yeah, so for us, it's fairly straightforward because we are a second-order derivative, So that means without the primitives and then without the TBL, it really wouldn't make sense for Pendle to exist. We need deal-bearing assets before Pendle would make sense. So when we evaluate whether to go onto a new chain or a new ecosystem, we would typically just observe whether there are good assets for Pendle to work with. And then if they are, how's the TBL traction? If the TBL traction is still very low, that means it might be premed,

and then we'll give it some time to observe. And if it grows to, let's say, a couple of hundred million dollars in TVL size, then it might make sense for a pedal to deploy there. Because from our perspective, whether it's five mil in TBL or $500 million in TBL, the effort to deploy is consistent. We still need to work with Oracle. We still need to maintain an infrastructure to run the products. So it would make sense for us to prioritize the one with higher TVL.

just because the return would be more meaningful. Sure. Makes sense. So you guys wait until you tell that there's something meaningful in an ecosystem and then you go versus trying to go to the new chain pre-launch and know that it's going to work. That's right. There's no first-up advantage for Pendle. You guys have emerged and done incredible things in the space.

I think a lot of people in the D-Fi sphere would say to the point that people in conversation talk about uniswap, talk about Athena, talk about aerodrome, talk about Pendle. do you think Defi activity will center around a number of these really meaningful applications, or do you think there will be a longer tail? How do you think activity spreads out eventually? I think activities will likely concentrate around a few core protocols. I think people generally gravitate toward familiarity, and especially in Defi, with new products, there are always risk that you might not be able to see, especially if it's very fresh in the market.

So, for example, like Athena, it's been around, and Uniswap, it's been around for years now. The trust level for these products is very high. And the fact that these products have processed many, many billions of dollars is definitely very valuable. So relative to a product that has only been around for two days and processed maybe like $100 in training volume, As a user, you would naturally feel more comfortable with a product that is a lot more established, and I think that wouldn't change with time.

And you guys are doing assessment of how trusting your users will be of those partners, right? Because when they use Pendle in an Athena offering, it's two degrees of trust they're implementing. Yes, which is why I think it's important for us to know who we're dealing with. We are more open now from an infrastructure standpoint, but even then, we still need to do our best to do a basic, due diligence on the counterparts. Do you expect you'll one day have tokenized equities on Pendle, earning yield in DFI somehow?

Potentially, yes. I would like that, yeah. Is that in the near future? How long do you think it takes us to get there? I think it ultimately depends on the protocol that issues equities. Yeah, so if they tokenize equities on chain, that is potentially something that we can work with. And then the yield accrued, the YTA would be maybe dividends.

That's interesting. I mean, I hope you can also, when we have tokenized equities and defy, earn yield on them as you would with defy assets, just by providing liquidity to a pool or something along those lines. Yeah, we'll see, perhaps. I wanted to ask you in closing, is there anything that keeps you up at night or anything that you worry about when it comes to the ecosystem currently or pendle? I want to say that as we grow and as we scale up, because we have also increased the surface

area that we're operating, there are a lot more problems that we're encountering. But in a way that I can really appreciate it, because I think when we were smaller, we had maybe problems, but they were a lot more minuscule. Right now, we're operating a much bigger protocol, and then we also have a lot more problems compared to before, but I think this is a good sign that we have grown. And fortunately, for me, by now, we have. a very, very capable team of operators. So each and every one of us, we take care of our own vertical. And that allows me to sleep more peacefully at night.

But that aside, there are definitely a lot of consideration. Like how do we continue to scale up? Because ultimately, I'd like for Pendle to not exist only for two years. I'd like for Pendle to continue to be relevant for a long, long time and grow into new segments. take on new challenges and be world-class in our product offerings, and then thinking about how the ecosystem could change what kind of things that we should be anticipating and prepare,

these are definitely something that I think about there very much. That makes sense, and I'll leave it there. Thanks, Chan, for coming on the podcast. We'd love to have you back at some point, and it was a pleasure. Yeah, thanks for having me. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit Castle Island.V.C. To listen to all of our podcast episodes, please go to On the Brink-Podcast.com

or just click on the tab in our website. Thanks for listening.