Introduction

As decentralized finance (DeFi) continues to evolve, yield tokenization has emerged as a key area of innovation. By separating and tokenizing future yields, users gain flexibility in managing their assets and seizing new yield opportunities. Yet, many traditional DeFi yield solutions still fall short in terms of liquidity, asset variety, and overall user experience, limiting access for a broader audience.

Pendle has been a pioneer in yield tokenization, attracting a large user base and capital through its ongoing platform enhancements. With the launch of Pendle V3 (Boros), Pendle aims to break through the limitations of the current DeFi yield market by offering margin yield trading and support for off-chain yield assets, delivering more efficient and flexible tools for yield management.

This article will explore Pendle’s journey, identify gaps in existing solutions, highlight Pendle V3’s innovations, and evaluate the challenges and value it brings to the DeFi yield landscape.

Revisiting Pendle

In our previous articles, we discussed how Pendle has become a key player in DeFi yield tokenization by overcoming the constraints of traditional yield management. Built on the Ethereum blockchain, Pendle has made its mark in the DeFi fixed-income market since 2021. Its unique design allows users to efficiently manage future yield streams, drawing significant attention.

Source: Official website

Pendle’s main innovation is its yield tokenization system, which splits yield-bearing assets (YBAs) into two separate tokens: the principal token (PT) and the yield token (YT). This setup allows users to trade the principal and the yield separately, increasing flexibility in managing and trading yield-bearing assets. For instance, users can sell YT to lock in future yields early or hold PT until maturity, redeeming the original asset at a 1:1 ratio. This design boosts capital efficiency and gives DeFi users more yield management strategies.

Additionally, Pendle’s automated market maker (AMM) model is a standout feature. Unlike traditional AMMs, Pendle’s model is specifically optimized for yield-bearing tokens. The first version of Pendle introduced the YieldSpace curve, which addresses liquidity fragmentation when yield tokens expire. The second version built on this using Notional’s Logit curve to further improve capital efficiency and liquidity depth, particularly in fixed-income trades. These innovations make Pendle’s trading experience more seamless and reduce user slippage costs.

Pendle’s rapid growth has also been fueled by its ability to capitalize on market trends. Notably, the rise of liquid staking derivatives (LSD) following Ethereum’s Shanghai upgrade in 2023 presented new opportunities for Pendle. By partnering with protocols like Lido, Frax, and Curve, Pendle successfully integrated popular yield assets like stETH and GLP into its ecosystem, driving a surge in total value locked (TVL). As of December 2024, Pendle’s TVL has exceeded $4 billion and expanded into layer-2 networks such as Arbitrum, solidifying its position as a top player in yield tokenization.

Source: Defillama

In Tokenomics Design: Pendle uses the classic veToken model, where users stake PENDLE tokens to receive vePENDLE. This allows them to participate in platform governance and share the protocol’s revenue distribution. 80% of the protocol’s revenue is distributed to vePENDLE holders, with the remaining 20% allocated for liquidity incentives and protocol operations. This design ensures long-term profits for token holders while encouraging more users to provide liquidity for the protocol.

From technical architecture to market strategies, Pendle has consistently driven the development of the DeFi yield market in a practical yet innovative way. By combining yield tokenization and the AMM model, Pendle not only provides users with flexible yield management tools but also injects new vitality into the entire DeFi ecosystem. As a result, Pendle has become an influential force in the DeFi yield trading space. However, with changing market demands and increasing competition, Pendle must continue innovating to maintain its leading position in the field.

Why Do We Need Pendle V3?

While Pendle has made significant progress in the DeFi yield trading space, some issues in actual user experience have emerged as the market continues to develop. Furthermore, the potential for integrating blockchain with real-world assets has not been fully realized. The influx of competitors and the limitations of Pendle’s own mechanisms make it clear that Pendle urgently needs a comprehensive upgrade. Pendle V3 is being launched to address these changes and challenges.

Firstly, for many users, the current Pendle operation process is still not user-friendly. Although yield tokenization technology has made yield asset management more flexible, understanding and using this mechanism is not easy, especially for trading YT (Yield Tokens). Many users need to have a strong ability to predict future yields to make profits, which is not simple for the average user. Moreover, YT token trading involves a leverage effect, which requires high liquidity in the pools. However, current liquidity support is insufficient, and there is a high slippage problem when making large trades, which directly lowers the user experience. For institutional users, the current yield management tools are also insufficient for meeting their needs for stable yields and risk hedging.

Secondly, the integration of diversified real-world assets with DeFi is becoming an important trend in the blockchain space. More users hope to access traditional financial yield assets such as funding rates, bonds, and other fixed-income products directly on-chain. However, Pendle’s current support is limited to on-chain assets (e.g., stETH, GLP), and coverage of off-chain assets is still very limited. This not only restricts Pendle’s ability to expand its market size but also prevents users from fully utilizing a broader range of yield assets.

In addition, the pressure from market competition is non-negligible. In recent years, projects like Notional and Element in the fixed-income space have continuously optimized their products and mechanisms. Their efforts in liquidity management, user experience optimization, and expansion of yield assets have directly competed with Pendle. These competitors are even attempting to combine diversified real-world assets, further expanding the yield asset market. In such an environment, if Pendle cannot quickly overcome its limitations, it risks losing its competitive edge.

Looking at Pendle’s mechanisms, some areas need improvement. While the AMM curve in version 2 has significantly optimized yield token trading, it remains inflexible in responding to dynamic market demands. For example, YT token trading faces liquidity issues when used at scale. Additionally, although Pendle has expanded to EVM chains like Arbitrum and BSC, it still lacks support for non-EVM chains like Solana, which limits its multi-chain ecosystem.

In summary, whether it’s user experience, market trends, the competitive landscape, or the protocol’s mechanisms themselves, Pendle is at a crucial point where an upgrade is necessary. The launch of Pendle V3 is not only a response to these issues but also a strategic move for the future. By improving mechanisms, expanding the asset range, and enhancing user experience, Pendle V3 will lay the foundation for Pendle to maintain its competitive position in the DeFi yield space.

Pendle V3 Solutions and Innovative Advantages

Pendle V3, also known as Boros, is a new upgrade introduced by the Pendle team. The name Boros comes from the Greek word for “eat,” which reflects the goal of Boros to absorb more opportunities from the DeFi yield market. By introducing margin yield trading, optimizing capital efficiency, and expanding the yield coverage, Boros not only improves the protocol’s functionality but also demonstrates Pendle’s forward-thinking approach in the DeFi field.

Introducing Margin Yield Trading to Enhance Capital Efficiency
The core innovation of Boros is the introduction of margin yield trading, which significantly expands the DeFi yield market. Traditional yield management could only operate in the spot market, but Boros allows users to leverage yield assets, greatly improving capital efficiency. Users can more flexibly engage in speculative or hedging operations on yield assets, such as amplifying returns through leverage or locking in fixed funding rates.

Especially in the perpetual contract and funding rate markets, Boros is the first to introduce “funding rates” as a key yield source in DeFi yield trading. Funding rates are a core variable in perpetual trading, and in the past, users had difficulty trading or hedging them separately. Boros’s design allows users to trade funding rate fluctuations with precision—institutions can achieve yield stability through fixed funding rates, while speculators can use leverage to capture excess returns from market fluctuations. This ability not only meets the needs of professional traders but also introduces a new dimension of yield strategy to the entire DeFi market.

New AMM Design Supporting Multi-Chain Ecosystem and More Assets
Boros has significantly optimized the AMM (Automated Market Maker) model. The new Base module, which runs in parallel with Pendle V2, further improves liquidity utilization efficiency while reducing slippage in trades. Boros’s AMM supports a wider range of asset types, including both on-chain and off-chain yield assets, and it expands support to non-EVM ecosystems (e.g., Solana). This cross-chain compatibility not only provides users with more trading choices but also helps Pendle expand its multi-chain market layout.

Additionally, Boros incorporates a dynamic adjustment mechanism into the AMM curve, allowing liquidity to automatically be allocated to the areas where it’s most needed based on market demand. This optimization reduces slippage in large transactions, improves the trading experience, and attracts more institutional users and large capital participation.

No New Token Needed, Strengthening Ecosystem Value Capture
Unlike many protocols that introduce new tokens with major version upgrades, Boros does not introduce a new token model. Instead, it continues to capture ecosystem value through the existing PENDLE and vePENDLE tokens. This design reduces the learning curve for users and avoids potential token inflation issues.

The protocol income generated by Boros will be distributed as follows: 80% to vePENDLE holders, 10% to the protocol treasury, and 10% to protocol operations. This distribution mechanism further strengthens the long-term profit expectations of token holders, while incentivizing users to stake PENDLE for governance and ecosystem building. Additionally, vePENDLE holders will also benefit from the protocol’s other new features, including yield sharing and unique rewards from ecosystem activities.

Broader Yield Market Coverage, Driving Ecosystem Expansion
Boros redefines the boundaries of yield trading. Its goal is to cover various yield types across DeFi, TradFi, on-chain, and off-chain assets. In addition to traditional yield assets (like LSD and GLP), Pendle plans to partner with protocols like BTCFi to enter the Bitcoin ecosystem’s yield market. This expands the protocol’s potential user base and makes Pendle an important bridge between traditional finance and DeFi.

The introduction of funding rates is another key innovation. The perpetual contract market has daily trading volumes reaching $150–200 billion, with funding rates playing a critical role. By supporting funding rate trading, Boros provides unprecedented flexibility for traders and institutions, further expanding the market size of yield assets.

Through these innovations, Pendle V3 (Boros) not only addresses the pain points of the current mechanism but also opens up new possibilities for the DeFi yield market. From margin yield trading to multi-chain support and tokenomics optimization, Boros showcases Pendle’s deep accumulation in both technology and market positioning, laying a solid foundation for its leadership in the highly competitive market.

Additionally, it’s worth noting that Pendle V3 (Boros) is not a complete replacement of the existing version but rather a new functional module running alongside Pendle V2. The two versions complement each other in design, collectively building a more comprehensive DeFi yield trading ecosystem. V2 will continue to serve as the primary trading platform for on-chain yield assets, supporting fixed rates and yield tokenization. At the same time, V3 further expands the scope of yield trading by introducing margin yield trading and the funding rate market, catering to more advanced trading needs. Through this complementary design, Pendle can serve both beginner DeFi users and advanced traders, ensuring that the experience for existing users is not impacted while injecting new growth momentum into the entire ecosystem.

Value of Pendle V3

The launch of Pendle V3 (Boros) brings significant innovation and potential to the DeFi yield trading market. By introducing margin yield trading and the funding rate market, Boros provides users with a more efficient way to utilize capital and opens up entirely new yield trading scenarios. This new model not only meets the needs of professional traders for flexibility and leveraged returns but also offers institutional users precise risk-hedging tools, thus expanding Pendle’s market applicability. Additionally, Boros supports a multi-chain ecosystem and off-chain yield assets, with the first-ever coverage of non-EVM chains (such as Solana), positioning itself uniquely in the fusion of DeFi and TradFi.

However, Boros also faces challenges in user education and market promotion. The complexity of margin trading presents a barrier for ordinary users, and the introduction of funding rate trading may face regulatory challenges in different jurisdictions. Moreover, the DeFi market is highly competitive, and attracting sufficient liquidity and user participation to consolidate the market position will require continuous efforts from the Pendle team regarding technical optimization and incentive mechanisms.

Conclusion

Pendle V3 (Boros) represents a significant upgrade in the DeFi yield trading space, driving a transformation in yield management methods. By introducing margin yield trading, multi-chain support, and a funding rate market, Pendle offers unprecedented flexibility and tool options to users and institutions, further expanding the boundaries of DeFi applications.

However, the road to innovation is never smooth. Pendle needs to balance technical complexity with user experience, enhance liquidity attraction, and maintain its competitive edge in terms of regulatory compliance and market competition. With ongoing technical optimization and user education, Pendle is well-positioned to solidify its leadership in the yield trading space.

Overall, Pendle’s model demonstrates the immense potential of the DeFi yield trading market and represents the future direction of the deep integration between DeFi and TradFi. As financial markets gradually digitize, Pendle is poised to become a leader in this field, creating a more efficient, flexible, and open financial ecosystem.

Please note that investing in the cryptocurrency market is highly volatile and risky. Before making any investment decisions, conduct thorough research and make judgments based on your risk tolerance. This article does not constitute financial advice, and investment should be done cautiously.