In the current cryptocurrency market, investors are increasingly focusing on the potential for income trading. However, actual returns are often difficult to predict due to market fluctuations and various factors. As an innovative income trading protocol, Pendle provides investors with new opportunities through improved methods and becomes the "Uniswap of the interest rate market." This article will delve into Pendle’s investment logic, market prospects, valuation analysis and potential risks.
1. Investment logic and narrative
Income Trading Challenges and Pendle’s Solutions
Cryptocurrency income trading, while highly profitable, exposes investors to greater risks due to the uncertainty of its actual returns. Traditional earnings agreements often have flaws that result in significant reductions in earnings. Pendle optimizes investor returns by introducing improved income trading methods. This approach allows investors to profit from future gains while reducing the risk of market volatility.
Huge potential of market space: As a derivatives market mainly dominated by institutions, interest rate swaps account for 80% of the derivatives market. Among them, Pendle is in an on-chain market that has not yet been fully developed, with huge market space. With the introduction of Pendle, the transaction volume of on-chain interest rate swaps is expected to increase significantly.
Pendle’s overall data performance is also quite impressive, with its trading volume, total locked value (TVL) and currency price all hitting record highs. This shows that the market’s recognition of Pendle is constantly increasing.
2. Driven by institutional needs
Institutional entry into the Staking track: As institutional demand for the Staking track continues to increase, Pendle will usher in greater market opportunities. Banks, hedge funds, mutual funds, ETF issuers and others are looking for solutions to hedge interest rate risk. The v3 version of Pendle will introduce traditional interest rate swaps to the chain and is expected to target a trillion-level market.
Room for growth in the LRT track: Pendle currently relies on the development of the LRT track, and the overall LRT track still has room for growth at multiple levels. Although Pendle mainly relies on LRT in the early stages, as the market matures, Pendle has the opportunity to gradually reduce its reliance on LRT, expand its business scope, and attract more institutions to enter.
3. Valuation analysis
The scale of the traditional market and the prospects of Pendle: In traditional finance (TradeFi), interest rate derivatives occupy the vast majority of the derivatives market. As of June 2023, the entire derivatives market has reached US$714.7 trillion, of which the open positions of interest rate derivatives are US$573.7 trillion, accounting for 80.2% of the market share. As staking enters TradeFi, this demand will explode. As a pioneer in on-chain interest rate swaps, Pendle has huge market potential.
Pendle’s growth potential: Currently, Pendle’s currency price has exceeded its previous high, and its future growth space is no longer restricted. If the overall TVL of the LRT project increases five-fold, Pendle’s TVL will also have room to increase five-fold. With the introduction of the traditional interest rate market in 2024, TradeFi's demand for Pendle will further increase, providing strong support for its future growth.
4. Main risks
Although Pendle has promising prospects, investors still need to pay attention to potential risks:
Smart contract risks: Although Pendle has asked multiple audit institutions to audit its program code, there may still be loopholes in the smart contract, leading to loss of funds.
Impact of market conditions: Failure of the ETH spot ETF may have a greater impact on the overall pledged TradeFi market, thereby affecting Pendle's performance.
Unknown risks under extreme market conditions: Under extreme market conditions, Pendle may face some unknown risks, which requires investors to remain vigilant.
Single risk of relying on LRT: Pendle currently relies heavily on LRT, and if it cannot effectively expand its business scope, it may form a single risk exposure.
Liquidity issues: Due to too many types of tokens, Pendle's liquidity may be insufficient, especially in long-tail assets, and it cannot meet the rich arbitrage needs of some institutions. This is a long-term concern.
5. Summary
As an emerging project for cryptocurrency income trading, Pendle Token has attracted the attention of many investors with its innovative income trading methods and broad market prospects. Although it faces some potential risks, its pioneering position in the on-chain interest rate swap market and growing institutional demand make Pendle a good investment value. In the future, as the market develops further, Pendle is expected to occupy a place in the cryptocurrency field. While investors are paying attention to Pendle, they should also remain rational and carefully assess related risks.