Pendle is a decentralized protocol built on Ethereum that aims to enable on-chain options trading. Its native token PENDLE fuels the ecosystem. In this guide, we’ll take an in-depth look at how Pendle works and the utility of the PENDLE token.
Overview of Pendle
Pendle brings options trading to decentralized finance (DeFi) by allowing the minting, trading, and settlement of options contracts on-chain.
Key features include:
- Support for options on cryptocurrencies, tokens, and yield rates.
- An AMM decentralized exchange for options trading.
- Liquidity pools with yield for providing options liquidity.
- Governance mechanisms through the PENDLE token.
Pendle aims to establish on-chain options as a fundamental DeFi primitive.
PENDLE Token Utilities
PENDLE is the governance and utility token that powers Pendle. The token has multiple key use cases:
- Settlement of options contracts in PENDLE.
- Collateral for writing/selling options contracts.
- Transaction fees on trades accrue to PENDLE holders.
- Governance voting on protocol changes.
- Staking for yield and governance rights.
The value of PENDLE is thus strongly linked to platform adoption and usage.
How Pendle Options Work
Pendle implements an AMM model for decentralized options, centered on liquidity pools:
- Liquidity providers deposit tokens into pools to mint options.
- Traders can then buy and sell these options, with pools facilitating swaps.
- Options get settled directly against the liquidity pool when exercised.
- Decentralized oracles feed real-time price data to value options.
This model provides highly accessible on-chain options without counterparties.
Growth and Adoption Outlook
As of early 2023, Pendle had around $20 million in TVL and $2 million in daily trading volume.
Future growth drivers include:
- Supporting more underlying assets.
- Cross-chain expansions.
- New trading features like leverage.
- Integrating with centralized exchanges.
- Mainstream DeFi adoption driving demand for hedging tools.
Pendle brings the sophistication of options trading to decentralized finance through trustless on-chain settlement. PENDLE provides the utility and governance fueling this novel options AMM model. By expanding risk management capabilities, Pendle could see significant adoption among DeFi users and protocols.