Pendle Finance
Investment Thesis
Of all the financial instruments in TradFi, interest rate derivatives have arguably one of the largest total addressable markets. To illustrate, interest rate derivatives occupied over ~$500T in notional value in H2 ‘22, according to BIS. This market is generally supported by participants who want to speculate on or hedge yields on a myriad of asset classes, including foreign exchange, equities, commodities, and credit.
This class of instruments has been largely untapped in crypto until the arrival of Pendle Finance. So far, DeFi yields have embodied the form of floating rates driven by demand and supply. The introduction of Pendle brings fixed rates to the space, allowing users to access deterministic yields and investors to hedge and speculate on yields instead of price. Similar to other primitives (such as options), we posit that the interest rate derivatives market is also an essential pillar for institutions to participate in the digital asset space.
While the Pendle initially launched in May ‘21, the protocol did not achieve meaningful product-market fit until it integrated ETH liquid staking derivatives (LSDs) into its product suite. The timing made a lot of intuitive sense as ETH staking yields are often referred to as crypto’s native “...Reports you may have missed
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