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TN Lee from Pendle Finance
Pendle’s current TVL is at $6 billion. A roughly 30x increase year to date. Its market cap has also quadrupled in this period. This seemingly overnight success is the result of three years of preparation, experimentation, and relentless commitment to finding the perfect product market fit.
TN Lee - Pendle’s co-founder joins us as our guest for today's episode.He shares how Pendle navigated the challenges of the crypto winter and emerged stronger.
Launching in 2021, TN leveraged his experience from co-founding Kyber in 2017. He focused on building a treasury to ensure a three-year runway, fostering a culture of rapid iteration, and maintaining a commitment to long-term vision among his team.
Pendle’s success is also credited to strategic marketing investments, market-trend awareness, and strong partnerships that align with their vision. In this episode, TN delves into their growth strategies and offers advice for early-stage startups. Tune in for insights from an operator who has built two of DeFi ecosystem's largest projects.
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Twitter Handles
TN Lee: https://x.com/tn_pendle
Decentralised.co: https://x.com/Decentralisedco
Joel John: https://x.com/joel_john95
Saurabh Deshpande: https://x.com/desh_saurabh
Hi, this is the Deco Podcast and I'm your host, saurabh. Before we begin, views expressed here are personal opinions. None of this is any kind of advice, let alone financial or legal. It's a conversation about things we find interesting. Welcome to episode 11.
Speaker 1:Joel is my co-host today and brilliant TN Lee from Pendant Finance is our guest. We discuss his background in DeFi and the journey of Pendle. He explains how the bear market in 2019 was different from the one in 2022 and how Pendle prepared for it. The protocol went live in 2021 with interest rate swaps as the main product and has evolved since, with a 30x growth in TBL and USD terms in 2024, pendle is an overnight success with three years worth of effort. Tn credits Pendle's success to some factors like an internal culture of experimentation, growth and marketing and building synergies with other protocols. The episode is filled with rich insights from a two-time DeFi founder. Let's jump in. Welcome to episode 11. Joel, as usual, has joined me as a co-host and we have brilliant Tian Li from Pendle. Tian is a co-founder of Pendle and before this he was involved with Kyber Network. Welcome, tian, thanks for having me. Let's just start quickly with your background how you got into DeFi and what made you start Pendle.
Speaker 2:I actually got started with DeFi because of my involvement with Kyber back in 2017. So I joined Kyber as one of the founding team members, learned everything that I know about DeFi during that opportunity. But then again, like back in the days, defi wasn't really quite a thing, and I think a lot of the products that we take for granted now for example, uniswap, aave Compound they all came out around the 2017 period, so I had a very good opportunity to witness the growth of all these protocols. But shortly after 2017, in 2018 and 2019, there weren't a lot of tractions and it was a pretty bad bear market. And at that point in time and it was a pretty bad bear market and at that point in time, I've actually decided to take a leave from Kyber and wanted to explore opportunities in and outside of crypto. But, of course, like along the way, I've always been involved in crypto one way or another. And also during this time, my co-founders and I started a shop and became involved in multiple different types of business ideas. None of them worked out, fortunately or not.
Speaker 2:And I think in 2020, because of our continuous involvement in crypto and DeFi we saw a major adoption of a lot of these protocols that I just called out during DeFi summer, because I think, like DeFi summer, there was a huge uptake in liquidity inflow and the adoption of all these different DeFi protocols because something that Yearn YAM pioneered they basically allowed for deposits to a lot of these tokens protocol tokens to be accepted as deposit assets in various venues.
Speaker 2:And then suddenly the TVLs across all these different protocols built up overnight and then there was a lot of capital rotation as well from one farm to the other.
Speaker 2:But it was then, I think, we were participating in a lot of these different protocols and really, really captivated by the extremely attractive APYs that these protocols were offering.
Speaker 2:We're talking about like 10, 20,000% APY. So it also occurred to us, as much as we enjoyed the high APYs, we also knew that the APYs weren't sustainable and we wanted to have a way or an instrument to lock in the rates. So I think for us, that was the moment we realized that a fixed income product could actually make sense in crypto Because, again, largely driven by innate need for certainty and the lack of instruments for us to express a view on, say, apys, and, more importantly, when we compare the state of DeFi to a very mature financial ecosystem, we realized that fixed income products are usually one of the more important verticals within a mature financial sector, and it was absent in crypto. So, with all the different factors at play, we decided to basically take up that opportunity and construct a product that could resolve our need for certainty, and we thought interest rate swap could be a good instrument to achieve that Right.
Speaker 1:Can you just quickly explain what interest rate swap is?
Speaker 2:Yeah, so interest rate swap is a kind of instrument that allows for different parties to basically swap their rates. Most of the time it's between two parties that have differing views, right? So one party might want to have, let's say, fixed income stream, the other side is willing to take on a more volatile rate. So an interest swap venue basically facilitates that transaction and allow for party A and party B to swap for the rates exposure that they want.
Speaker 1:Okay, before we get into more technical details, I think you mentioned 2019 bear market, right? Can you just lay down the contrast between then and what happened in 2022 and how different those two were?
Speaker 2:I think it was very different then. The attitude is similar. Like bear market, everyone feels hopeless. But I'd say back then in 2019, it felt even more so because crypto and DeFi weren't as proven and I think there were a lot of doubts around just how sustainable these protocols were. So the bull run happened in 2017. It lasted maybe until mid-2018. The primary driver of the interest around crypto in general was ICOs, so it was peak hype in 2017. And then, shortly after, a lot of teams that raised money either ran out of funds and couldn't sustain their operations because of poor treasury management or they failed to deliver what they set out to do. And then a lot of community members lost faith and started to sell the tokens and take the money off the table. And then, yeah, it kind of just led to a gradual decline in interest. But again, like in 2018 and 2019 period, the big difference, I think, was just that there wasn't a very strong PMF for any of the products Versus in 2022, we've actually seen how DeFi products could make sense, right, like nobody's got a question Uniswap or Aave or Compound about their relevance in DeFi.
Speaker 2:Everybody knows AMM is important. Everybody knows the money market facilitates the lending and borrowing of assets. So I think in 2022, the attitude towards the market was a lot more, I'd say, forgiving, and I think people don't take it for granted anymore. I think a lot of people understood that the market was generally cyclical so with a bull there's always a bear, and I think a lot of people in the community had anticipated that bear, and I think a lot of people in the community had anticipated that. So I would say, like most people were relatively well equipped to stay through the bear, or at least the ones that I know in my circle.
Speaker 1:Ah, makes sense. You just said that the crypto market is cyclical, so I want to understand how that impacts strategies for a protocol like Pendle.
Speaker 2:So when we started out again, fortunately for me and my co-founders, we've been through the bull bear cycle back in the 2017 to 2020 period, so we've experienced how things were like in a bear market and we were relatively prepared to go through, I'd say, a bear market if needed to.
Speaker 2:So a couple of things right. When we designed Pendle as a protocol, we were quite comfortable that a product like Pendle because of its novelty back in 2020, would take some time before it gets to product market fit stage. This was mostly just taking a reference point from the 2017 period, because when I was at Kyber, we started to talk about decentralized exchanges and its propositions and the respective propositions since 2017. But it took the entire sector a couple of years before a natural product market fit was published in 2020. So, taking that as a reference, I think we were anticipating a similar kind of frame to hit product market fit. So when we did the ideation of Pendle in 2020, and then effectively launched the protocol in 2021 June, we had some expectation that it will take a couple of years.
Speaker 2:So the fund raise was important for us.
Speaker 2:We needed to have sufficient runway to make sure that we could last through at least three years, just so that we can cover the expected time frame in order to survive a bear market, and hopefully by then we could last through at least three years, just so that we can cover the expected timeframe in order to survive a bear market, and hopefully by then we could identify the types of markets that our products could fit or serve.
Speaker 2:So I think, if I were to summarize basically, it's just to have an anticipation of that, and then, based on that particular expectation, we raised sufficient amount of money through private round and also did a public liquidity bootstrapping program on Balancer in April 2021.
Speaker 2:Raised sufficient amount of money to last us a couple of years. And then I think the other part of the challenge was actually to assure team members who join us as maybe fresh grads with no job experience, and giving them and make sure that they understand what's going on, because I think in 2021, a lot of them joined crypto during a bull market, so the expectation going into crypto was quite different. Managing that expectation in 2022 and needing to assure them that we'll be all right that takes quite a lot of effort as well. So I think it's mostly these things Strategy-wise not so much right, because in a bear market. What we wanted to do was mostly to just make sure we can survive and we stay top of mind and relevant, focusing a lot less on revenue generation. But I think at that point in time it was really just more of a matter of survival.
Speaker 1:All right, thanks for that. So before we move on to the next segment, I just want to set the context in terms of Fendel. So the protocol went live in June 2021. So it was interest rate swap was the main product back then. The product suite evolved over time. The TVL was somewhere around 220 million at the beginning of 2024. So from June 21 to 24, it was around 220 million at the beginning of 2024. So from June 21 to 24, it was around 220 million. And in the next five months around, like we are on May 30th 2024 at the time of recording and the TVL is over $6 billion. So that's like close to 30x growth in the recent five months in terms of dollar value and, I think, around 50 next-ish growth in terms of ETH value. So, tien, I mean, take us through this growth trajectory of Vendorland. I mean it seems like an overnight success, but I'm pretty sure there must have been many trials behind the scenes. So, yeah, what did that look like?
Speaker 2:Yeah, so, counting this year, it's going to be the fourth year that we're operating Pendle and I would say a lot has changed, right? Because first implementation, as you pointed out, launched in 2021, june. There wasn't a lot of traction for many, many reasons, but I think most importantly, we were introducing a new concept to a group of DeFi users who were much more comfortable with farming assets and there were so many good options they could choose from instead of considering Pendle. And more than that, the product was complex. If you've actually used Pendle v1, you can appreciate what I'm talking about. Gas optimization was quite marginal and I remember at one point in time, if a user were to do end-to-end transactions so basically tokenizing their asset into a YTPT all the way until, let's say, locking in fixed yield by selling PT it could cost the user a little bit more than $1,000. So from a cost standpoint, it was already very prohibitive and we kind of excluded a lot of smaller users because of the cost structure of it. So it didn't make a lot of sense, right, but we were very convicted to the overall direction, right, Like we think that the product will have a strong use case in crypto if we do it right, and the fact that a lot of people generally skew towards certainty was, I think, a major consideration for us when we designed the product. So we took pretty much the entirety of 2022 to redesign the product. So we took pretty much the entirety of 2022 to redesign the product. So we took observations and learnings from our time in 2021 and incorporated those learnings into the design of Pendle V2.
Speaker 2:And I think, during which one of the more important things that happened, which convinced us even more that there's a space for rate swap, was when we listed an asset called Wonderland. So Wonderland was a fork of Olympus. It existed on Avalanche. We had no idea how the asset would perform, but in the spirit of experiments, we decided to list the asset that was, and I think at that point in time it was probably offering around 8,000% APY, if I remember correctly, and we thought it would be interesting for us to tokenize that and allow the trading of it. And we did just that right and shortly after the interest for this product showed up, we did our, I think, biggest 24-hour trading volume day during then. By then, I think we were looking at maybe around $5 million in daily trading volume. So that was, I think, a moment for us and we were very convinced that if we're able to find assets like that and structure it, simplify the user experience, we should be able to find an angle to continue to operate in the DeFi sector.
Speaker 3:Just to build context here. Right, one of the things we noticed is that you raised money. There was a token that was live. It was trending lower, but you knew that there actually is demand for something like this. Right, what was the energy internally and how were you navigating token prices trending down with your business that this would eventually happen?
Speaker 2:Yeah, so I think token price was something that we have never focused on internally. It's there, right. But also the easier part for us was to look at historical data looking at, say, eth land, which eventually became APE and then compounded, quite like synthetics as well Quite a lot of the blue chip assets that became really big in 2020, they've been through something much worse. So we don't have to look too far. We just have to look at what happened a couple of years ago and then find comfort in it, because a lot of the big brands that we know today have been through something similar and I would argue that they've probably been through worse, because for some of them, they might have days where there were zero interaction or zero trading volume. We never had that. We've always had trading volume. It might be small, but there was never a zero day.
Speaker 3:So how much of your experience at Kyber actually fed into this philosophy? If my understanding is right, you were early with Kyber. You saw that whole cycle play out and I think that kind of gave you the understanding of let's just write this out Did being a repeat operator help in this context?
Speaker 2:Yeah, for sure. I would credit a big part of it to the experience just being present at Kyber. If not for that Kyber opportunity, I don't think I would have responded the same way, right, I would panic and then maybe I would start questioning my conviction. I think it would be a lot harder if I were a first-time operator, compared to me having that experience.
Speaker 3:And were you also having pushback from your investors at the time, because I'm presuming that they're open to investing right around the bear market? How were you guys managing that?
Speaker 2:So investors were actually very understanding because I think when we raise our RAL our investors we make sure that they have a long-term view, not someone that would just come in, buy up an allocation and then start dumping the moment the tokens vest. So we were comfortable with the set of investors that we have, a lot of them actually stuck through the bear market and some have probably taken a profit, but they remain very, very supportive and we continue to have great relationship until today.
Speaker 3:I think you know on to one of the technical things that we were discussing a while back, right, interest rate swap. So was that a business right from the get-go, right from the pitch, or is that something that you guys noticed in the market and evolved into?
Speaker 2:No, so it has been. I think interest rate swap was something that we aspire to do, but I don't think the current implementation of Pendle is a very good representation of that. Of course we've taken inspiration from the conventional interest rate swap, but I think Pendle V2, it's probably more synonymous with coupon stripping right, you take a bond and you strip the coupon out of it and then you have a zero coupon and you have a coupon. So in our case we actually take the yield bearing asset and strip it into PT, yt. So PT stands for principal token and then YT stands for yield token, and these two aspects, they represent different parts of a yield bearing asset. So conventionally, for anyone who wants to lock in fixed yield, they can just buy PT Before we get more technical.
Speaker 1:Let's get into what Pendle is today. What is it that a user can do with Pendle today? And then we can get into PT, yt and pricing and all of that.
Speaker 2:Okay, okay, yeah, so Pendle V2 today I think in continuation of the question that you asked earlier, right, pendle today is more known for being the venue for points trading, but the underlying protocol, the mechanics, have not changed since we launched Pendle V2 in December 2022. So throughout the entirety of last year until today, the product remains the same. What's changed is actually the narrative and, I think, our speed to execution. Back in the days, I think there was experiment a lot more to find a product market fit and constructing different types of case studies and use cases that the community members could easily reference to. And then, over time, I think, with the context that we saw today, we were applying the same kind of mental model to work on points, which is, I'd say, not quite a new phenomenon, but it is something that got popularized by Eigenlayer and, I guess, along with multiple factors, including market sentiment, there's a lot more liquidity getting into crypto, defi and, as a result of that, because of what Pendle V2 enables with points trading, I think the users saw a good way to express views on a protocol through the points, through points trading and speculation, right, and then, at the same time, we also enable very attractive fixed rate for core assets like ETH as an example. Right, for ETH, I think at one point in time fixed APY was trading at around 60%. So to most people, I think, even by today's standard, that's a very, very attractive proposition. Where does the 60% come from, right?
Speaker 2:So for context, I think the mechanics of Pendle involves the stripping of a yield-bearing asset into PTMYT. So the yield-bearing asset in this case I'm just going to use, like EETH as an example. So EETH from Ether5 in itself is generating some underlying APY of maybe 3-4%, and then on top of that it is also issuing points that might not have any value but it can be exchanged for tokens at a later date. So this is at the Ether5 layer, but beyond that there's also Eigenlayer as well. That was also introducing points. So now what Pendle does is to strip the ETH from Ether5 into the principal token and the yield token. So now this is where I think it gets interesting, right, because PT the principal token generally represents the underlying, the principal token generally represents the underlying, the principal component, whereas the YT represents the yield that is paid out from the underlying protocol and on top of that, all the points will get accrued to YT. So as a user.
Speaker 1:So points for PT as well as YT. Go on, no points for.
Speaker 2:YT's only, YT's only. Okay, yes, yes. So this is where I think it gets relatively interesting for users. From a user standpoint, if you're bullish on Ether5 and you don't want to have the underlying ETH exposure, the way to go about it is to buy YT's. So we've seen quite a number of cases where users acquire a decent amount of YTs and then accrue enough points, and when the points are convertible to tokens they make a pretty good amount of profit. But of course there's no certainty on how many points they could get. And then the conversion rate between points tokens. These were all uncertainties, but some users were open to that uncertainty and I think some of them have made the right call there. But at all uncertainties, but some users were open to that uncertainty and I think some of them have made the right call there.
Speaker 2:But at the same time, I think if you're someone who values certainty, then you could effectively just acquire the PT. So by acquiring PT, the implication here is that you are foregoing any yield that the underlying protocol pays out and you're also foregoing any points that the underlying asset accrues. You're just buying into a fixed APY and you know exactly how much you're going to get in maturity. So this is, I think, the biggest proposition that Pendle offers to users and as a result of that, we saw a lot of different types of strategies that users could express right Like yeah, if you're bullish on the protocol, buy YT. If you're not bullish on the protocol and you just want certainty, you can just go for the PT and then, of course, the in-between. If someone wants to have a bit of exposure in PT and YT, the general suggestion that we typically offer to users is to become a liquidity provider, so that way they gain exposure to the points and they also have some exposure in PT.
Speaker 1:Right, so this is the pool from which people are trading PT and YT. Right, that is correct. Okay, so I mean I want to understand the relationship between PTYT and the underlying token, and when I go to Pendle and when I try to swap or sap into Y, the pricing changes depending on the market conditions. So let's just break that down.
Speaker 2:Yes. So in the case of Pendle, one underlying is always equal to the value of one PT plus one YT. One underlying is always equal to the value of one PT plus one YT. So in this particular case, right because of the relationship that I've just described, pt plus YT has to equal to one underlying. Effectively, pt and YT are inversely related. So that means if YT price increases, pt price will have to come down, because when you add the two components together they have to equal to one underlying.
Speaker 2:Now, so the price fluctuation between PT and YT is very, very much subject to the demand and supply of each of these assets in the secondary market. So, for example, if a broad base of the community is interested in the YT, the demand for YT would go up and as a result of that, the price of YT would generally increase. So that also translates to a price decrease in PT. Because, again, if we go back to the relationship between PT and YT, they are inversely related. So when YT demand increases, the expected outcome is cheaper PT. And because the PT is cheaper, let's say, if you buy PT when it's cheaper, you can expect a bigger fixed APY and maturity.
Speaker 1:Right. So how do maturities play into this?
Speaker 2:Right. So maturities are, I think, like just 10 years, right that we put in place so that we can refresh the pool Maturities, at least I think in the case of a lot of these restaking assets and some of the more recent pools involving Athena or Circuit, we typically do shorter term maturities because there are a lot of changes that we have no idea about that could happen in the next couple of months. So, generally speaking, I think as a gauge for us when it comes to the setting of maturities, we usually aim for quarterlies. Now, the importance of maturity, right, is that it allows for the pool to come to an end and then we can restart again based on the new information that we have. But yeah, generally I think in regards to maturity, it has a couple of functions, right, specific to Pendle with maturity.
Speaker 2:We know for sure that PT can appreciate to the value of the underlying one-to-one. So usually when a user acquires PT and hold until maturity, the asset can be redeemable one-to-one for the underlying. So that's how the fixed rate is obtained. And then for liquidity providers, having that maturity is important, right, because that's how we have a pool that negates any effects of impermanent loss as long as the asset is deposited into the pool until maturity. So, for example, if a user deposits the PT and its underlying into the AMN pull-on panel, the price can fluctuate anytime, right, but as long as the asset stays in a pool until maturity, effectively all the, because PT is going to be redeemable one-to-one for the underlying. So what that means is that at maturity, all the assets in the pool will have the same value, so there's actually no impermanent loss if you look at it that way. Right, because assets are the same, and yeah, so when a user withdraws anytime after maturity, they have no impermanent loss, and I think this is one of the main propositions from Pendle to liquidity providers, right?
Speaker 1:So just to close this conversation, would it be fair to say that YT is the price being paid to people for taking on uncertainty risk? I mean uncertainty or risk. Yeah, yeah, right. So as we get closer to maturity, yt would tend to zero and, as you said earlier, the PT plus YT is the underlying. So PT would get closer and closer to the underlying and price In between. I mean, the market is trying to figure out the price for uncertainty.
Speaker 3:Is it fair to compare this to bond? Is that like bonds and bond?
Speaker 1:maturity, it's like options.
Speaker 2:I think it's more to. I think generally, yeah, assets that have maturity. The closer they are to maturity, the lower the premium.
Speaker 1:Right correct, yeah, okay. And Correct correct, yeah, okay.
Speaker 3:And I think so. I just had one question right. So I think one of the things I've been thinking about is how TN said the product has not changed, but your narratives and GTM have kind of evolved right. Like, how do you guys hone in on you know, evolving, so to speak? Because one of the things that we see a lot of early stage teams doing is spending a ton of time behind engineering.
Speaker 1:And then I have an operator here saying hey, you know what we did? No engineering, we just changed the narrative. What made you guys do that and how did that come around? In that vein, was points meta serendipity, or it's something that you guys figured out internally quicker than other products?
Speaker 2:yeah, good questions, I'll address them. So, internally, I think we make experimentation part of the culture, sorry part of the values that we embrace. We make experimentation part of the culture sorry part of the values that we embrace. We have a couple of things right, but, for example, beyond everything that we've talked about, I think at the fundamental layer, the product has to make sense. If the product is broken, everything else doesn't matter.
Speaker 2:So we take a very iterative approach in improving the product. So, like sure, the contract doesn't change after it gets audited, but UI, ux, can continue to be improved as long as we have feedback and as long as the market changes and that we have to make adjustments to cater to user needs. And then I think the other very important changes that we have adopted or as a result of the learnings from Panel V1, is that we need to invest time and resources into growth and marketing, because far too many times I think, when we look around, there are definitely a lot of teams with good tech, but because of the lack of visibility across many different social media outlets or anywhere else, they don't get the same kind of visibility or attention that they could have or deserve and then they become irrelevant over time and then forgotten. So we don't want that. So that's why I think one of the more important things that we changed internally was to invest in BD and growth efforts. I think we have a reasonably strong network of influencers and thought leaders that we can readily tap to just to help us with the dissemination of information. We don't do that by force, right, and a lot of times it's all very organic, but it's because we value relationship and for a lot of them we just have very trusting and fulfilling relationships and engagements and then it kind of just flourish over time.
Speaker 2:And I think after all of the spirit of experimentation has to be in the team as well. It has to be part of the DNA. Because we have a product. It's our job to help the product find the product market fit, and a lot of times our assumptions initially might not be the right set of assumptions that the market was giving out. So we have to make a lot of, I guess, like adjustments along the way.
Speaker 2:So when we generally, I think when we spot a trend that we think could be meaningful for example, lst in Q1 last year we would have to figure out a way to try to align the brand, the panel brand, to this particular narrative and then write the narrative way and grow alongside. So we did that with LSTs. We constructed some use cases around LSTs and we help users learn about the propositions of becoming a liquidity provider on Petal, amm and then the PTYT stuff that we talked about. So through all these different interactions and actionable items we were able to garner the first set of users and that helped with our fundamental metrics. We also did something similar with Arbitrum and then RealWealth Asset to some extent and at this year it was restaking points.
Speaker 2:It also did something similar with Arbitrum and then Real World Asset to some extent and at this year it was restaking Points. Wasn't something that we anticipated but because of our implementation with one of the protocols called Swell. Last year they were offering Pearl, so we had some idea of how we could work with points and we introduced that to all the restating protocols. That kind of changed. I think that helped shape more significant product market fit for Pandora.
Speaker 3:So I think, Tian I presume you're talking to an early stage startup, right how do you define going about creating good marketing, Because you said you invest in good marketing. You know, just want to double tap on what does good marketing look like, and actually, what does terrible marketing also look like?
Speaker 2:I think it all starts with a generic awareness of the strengths and weaknesses of the team, right? So, like, as an example, right, if the strength of the team is aggregating community, then I think the strategy has to revolve around that. There are teams who are very good in doing that and we've seen some successes with, for example, synthetix, kane and the team. They're just naturally good at aggregating communities to rally behind. And then, for Pendle, we're not that. So we have to think about things a little differently and I also think, knowing the strengths and weaknesses, you can identify what are the gaps that you need to fill and then you find the resources to help you fill those voids.
Speaker 2:And then, very importantly, it's really setting the objectives that you want to attain, like after setting some strategies in place, I think by objective right, it can be something as simple as wanting to have maximum coverage on LinkedIn. That can be an objective, and then from there on, you think about what kind of tactics and potentially refine the resources that's needed in order to achieve that. And, of course, having measurable outcome is always good, but not necessarily the case. For example, if you want to have 5,000 impressions in 24 hours. That is something that is quantifiable and can immediately tell you whether you're on track or not.
Speaker 3:So I think an extension of this is how do you also decide which protocols to work with? I know you're working with a number of LSTs. You're also working with a number of L2s. How do you decide who do you integrate and who do you not, and what are the risk parameters? You know your team considers internally when you do that.
Speaker 2:I think, generally we try to have a view on the market right. So because I think in retrospect, I would attribute the ability to react to major trends and narratives to be one of the more important factors that led us to the current state. So this is a result of having a view on what the market prefers. So, from there, how we actually determine the trends to work on, actually pretty straightforward right. We just have to look at Twitter and see what the more influential people talk about, and then we also speak with funds and other teams that we respect. With funds and other teams that we respect, get a view on their outlook of the market. If 9 out of 10 people say that we need to focus on, for example, ai, then chances are AI is going to be big and that we have to be prepared for that.
Speaker 2:So spotting the trends early on help us refine the kind of teams that we should be reaching out to and then focus on building the relationships with.
Speaker 2:So, for example, as soon as we identify restating to be a major trend, we started reaching out to the restating protocols when they were relatively small, yeah establish direct line with them, and then the rest of it is really just exploring synergies, because in order to work with the team, we have to make sure that both parties will be better off by working with each other.
Speaker 2:So a lot of times we would construct certain kind of proposals and then discuss with the team, see whether it makes sense. It's usually multiple iterations of idea exchanges, but at a high level. That's kind of how we approach. So in a similar way, we have a view on, say like, say Bitcoin, say Bitcoin, bitcoin L2, because not that we have the teams to work with in mind already, but as like, just broadly speaking, right because of involvement, I think a lot of the big funds today already have some exposure in the Bitcoin ecosystem through, you know, different protocols. I think it can be pretty significant, maybe in the second half of the year. And then how do we position ourselves to capitalize on opportunities like this?
Speaker 3:If I were to paraphrase what you just said, that is, stay close to your customers and speak to them as frequently as possible, right? That's how you stay in touch with the meta. Is my interpretation? Is that right?
Speaker 2:Yeah, yeah, not just customers, right, like anyone that you respect, as long as they have a view, try to listen to what they have to say.
Speaker 3:Quite interesting, I think, even for marketing and even for you know, building your top of the funnel. I like how you just double down on relationship as part of your GTM right. Yeah, that's something unique I just noticed.
Speaker 1:You mentioned how you decide to work with a particular protocol. On the other side, how do you take decisions when it comes to different chains, which chains to deploy on and where Pendle should be present?
Speaker 2:So actually this is quite simple. Pendle is a second order derivative. So that means if a chain or an ecosystem does not have primitives or the TVLs that would make sense for Pendle to deploy on, then the answer is always a clear no Because, again, as a second order derivative, without the underlying asset, there's really no need for Pendle. So what we typically do is to observe ecosystems that are promising and then see who are the deployers of protocols on these ecosystems. So let's say, again, using EthinR or EtherFi, because these are close partners of Pendle. Whenever they move to a new ecosystem we pay closer attention because we know that they have the ability to attract liquidity and I think the confidence in these brands from the community is very high. So yeah, assuming they hit a certain amount of TVL on the chain, it might make sense for Pendle to deploy. But then again, these are just references.
Speaker 2:Ultimately it still boils down to I mean there will be other factors to consider as well. We have to think about just sustainability of that ecosystem, whether the team that's operating behind these ecosystems are they reliable, things like that. Along that direction, when Solana so we have a couple of things in the pipeline I want to say that Solana has always been on the table. We recognize Solana to be a very important ecosystem that could use Pendle, but at the moment there are more important things that we need to ship, so the deployment on Solana would likely happen a bit after. But yeah, it's a timeless fluid, so maybe things might change.
Speaker 1:Okay. Next question is from Sam. Shout out to Sam. He wanted to know how does the team plan to increase liquidity for YT and PT tokens on primary and secondary markets?
Speaker 2:So I think on the primary side, we have to continue to scout for good projects and good assets to list. This involves us having a view, so, like what I said about taking a view on the market trends, right, so identifying the trends, first and foremost, and then identify good projects that we can work with. We share the same kind of values as we do. We want to be here for a long term and then see how we can best support them, thereafter explore ways that we can accelerate or prioritize the listing of the assets.
Speaker 2:So I think this is more on the primary side. For secondary, yeah, it's how we can help the projects generate interest from the community. And then I think the other aspect that is also very important is to continue to have protocols building on top of Pendle Because, for example, if there's a money market that takes in PT as collateral and there are a few of them they generally help with the demand for PT. And then, in the same way, any kind of products that help with the adoption of YT is also very much welcome and encouraged, and I think these are ways that we can also increase the general utility of PTTYT. Hence the secondary demand.
Speaker 1:Right, okay, you mentioned about having a clear goal. So, internally, what does the metric for success look like? And, as corollary, how is Pendle making money?
Speaker 2:Yeah, so for Pendle, there are two metrics that we pay attention to very, very closely. First one is TVL, because we are an AMM and an AMM requires liquidity in order to facilitate trades. The other one is trading volume. So for trading volume, I think the one that we pay close attention to is the daily trading volume, 24 hours. How much transaction activity is there represented in the value right? So how we can generate fees are actually directly from these two different metrics.
Speaker 2:The first one is YT fee. So Pendle actually collects 3% of all the YTs that's minted and that means as long as the TVL increases, it should translate to higher fee component for this like YT site. And then the other one is more straightforward. It's actually the swap fees. So, yeah, any kind of transaction that takes place, taddle collects, depending on the pool right, anything between, say, 0.1% to percent, yeah, of the transaction. So yeah, collectively, these fees get aggregated and accrued in the treasury and at this point in time all the fees will be distributed back to the panel voters okay, voters not just, not just holders, but yeah, mostly voters make sense I think, uh, you know, one of the things I was thinking of is you guys have grown substantially in terms of TVL over the last two years, right, but what's next if you had to think of internal KPIs?
Speaker 3:I mean, like you know, one of the metrics that everybody recognizes Pendle right now. Or is your TVL? Right? You have, but what if you had to focus on a single KPI going into the next year? What would that be for you?
Speaker 2:I think it will have to be trading volume, because for an AMM at some point in time, if the AMM is efficient, right, say, a dollar should be able to facilitate maybe $10 of trading volume. So we want to. I think, of course, like both metrics are important and we cannot have one without the other, but if it's just one, I think, of course, like both metrics are important and we cannot have one without the other, but if it's just one, I think the trading volume is most important. So, internally, we have a new implementation that is scheduled for launch, hopefully later this year, that can potentially help with the trading volume.
Speaker 1:Gotcha. What should we be looking forward to? Is there a new version of major chains around the corner?
Speaker 2:So I think the more immediate ones would be new asset listings. We just announced Karak Pools and we want to continue to be involved in the restaking segment, so Karak Pools are high priority at the moment for us. We have an interest to make our partnering protocols do well, so that's something for us. And then, of course, I mentioned about BTC L2. We're still figuring out our penetration strategies and seeing how we can be more involved in that segment, so that is something that I'm also very excited about. And then in the next six months or so, we will have a new implementation, externally known as B3. So this is where I think we can scale up yield trading. There will be leverage component as well, and I think we can enable new use cases. That is currently unachievable with Pendel V2. So, quite a bit, I think we will have an eventful year. That's fantastic.
Speaker 1:Looking forward to VTC, l2s and the V3 for sure. And yeah, thanks a lot for spending time with us this postpartum.
Speaker 2:Likewise Thanks for having me. It's a very delightful conversation.
