Introducing Ankr's Partnership with Pendle Finance
March 20, 2023
4 min read
In this article, we will talk about how we at Ankr are partnering with Pendle to launch a liquidity pool and listing our ETH/AnkrETH Aura pool on the platform as well as dive into the basics of Pendle, explore how it works, the opportunities it presents, and the risks associated with it.
What You Need to Know About Pendle
What it is
Pendle enables the permissionless tokenization and trading of yield. Pendle allows anyone to purchase assets at a discount, obtain fixed yield, or long DeFi yield. Their protocol enables users to enact advanced yield strategies like long assets at a discount, fixed yield for low-risk and stable growth, and long yield strategies with ease. They take the complex, multi-protocol strategies out of the picture and make everything accessible within their web app.
How does Pendle work?
Pendle saw that DeFi yields fluctuates, yield rates shoot up during volatile periods and are depressing during bear markets. Pendle allows users to speculate on the yield of any asset, increase your yield exposure in bull markets or hedge against yield downturns via fixed yield during bear markets.
Pendle enables users to trade and speculate on future yields. This is enabled by first, tokenizing the yield of a yield-generating asset into two separate components (Principal Token and Yield Token), and trading those assets with the Pendle AMM.
YT (Yield Token) receives the yield of the underlying yield-bearing tokens while PT (Principal Token) represents the principal capital of the asset. As the yield have been stripped from the underlying, PT trades at a discount and is redeemable for full value of the underlying at maturity. Since YT represents only the yield of the underlying, trading it is equivalent to speculating on how much yield it will receive up to maturity.
The Opportunities Presented by Pendle
Pendle lets users have the reign on their yields by getting fixed yield with PT, long DeFi yields with YT or earn extra yields by simply providing liquidity. These yield strategies can be executed on Pendle with various assets on their platform such as LSDs, stablecoins as well as GLP and gDAI on Arbitrum.
Users can get fixed yield by purchasing PT on Pendle. As PT’s final redeemable value is known, the yield is fixed at the time of purchase. This is especially useful during bull markets where users can secure a high fixed yield if they deem yields are unsustainable at that level.
Those with higher yield tolerance can purchase YT to long yields of the underlying asset. Since YT holders receive the yield from the underlying, purchasing YT is equivalent to buying the yield of the underlying. Similar to a spot trade, users buy YT if they think that the underlying will generate more yield than what they paid for. A right trade with this strategy can significanly amplify the yield of the underlying as seen in this twitter thread.
Users that are not looking to understand the intricacies of yield trading can simply provide liquidity on Pendle to earn more yields on top of the underlying. The liquidity provided on Pendle flows down to the protocols that they support, deepening liquidity for all of the ecosystem that they’re built on top of. In Ankr’s case, the ankrETH liquidity on Pendle flows down to Aura and Balancer, deepening the ankrETH liquidity to enable a better trading experience for our users.
Overall, with yield-tokenization and yield-trading, Pendle gives users more control over their own yields. Same asset, multiple yield strategies.
Ankr and Pendle
Ankr is creating a pool with Pendle for the ankrETH/ETH Aura LP which will provide more exposure to Ethereum staking yield and will increase the APY on Ankr’s liquid staking ETH (ankrETH).
This will allow users to perform a variety of different things with their ankrETH, from buying ankrETH/ETH Aura LP with a discount, obtain fixed-yield, long the yield of ankrETH/ETH for potential outsized yield, or earn simply earn extra yield by providing liquidity.
In conclusion, the Ankr and Pendle partnership offers exciting opportunities for users to earn higher yields on their assets. Pendle opens up more utility for ankrETH, allowing users to have more control of their asset while simultaneously deepening ankrETH’s liquidity. While there are risks associated with using any DeFi protocol, the benefits provided by Pendle may outweigh the risks for those willing to take on the smart contract risk. The liquidity pool created by Ankr and Pendle will provide more exposure to Ethereum staking yield and increase the APY on Ankr's liquid staking ETH (ankrETH). Overall, this partnership is a step towards creating a more accessible and efficient DeFi ecosystem.