Penpie is a governance layer for Pendle (similar to Convex for Curve). I believe it is set to go on a run soon for the following 3 reasons:

1.      Pendle Adoption

Pendle is potentially the biggest defi success story of this cycle (at least in the ethereum ecosystem). Over the past 6 months, Pendle has seen:

-          TVL growth from 270 mil to 6,581 mil:

-          Daily trading volume from low 7 figs to low-mid 9 figs:

-          Almost 5x price appreciation:  

Pendle has found true product market fit with the points trading meta, a meta which I don’t forsee changing anytime soon (most point programs that have finished season 1 continue with a season 2).  Defi natives are now comfortable with yield trading, a huge milestone for a sophisticated defi product like Pendle.  

Pendle has essentially no significant competition in the yield trading space (although some other existing/new protocols are targeting the space, such as apw, ipor, napier).  It has also begun to expand beyond L1 and Arbitrum (it’s recent Mantle deployment specifically has received a lot of attention). Pendle is obtaining the reputation as a “kingmaker” for defi protocols and L2s.

Pendle is clearly a new defi blue chip.  Despite that, it is not even in the coingecko top 100 yet (currently number 106).  It has a market cap of 856 mil MC and a 1.42 bil FDV.  

As the clear leader in a rapidly growing sector of defi, I expect Pendle to continue to perform well.  This is especially true with the eth ETF providing tailwinds for eth defi.

2.      Relative Value

Pendle utilizes Curve style ve-tokenomics, wherein vePendle lockers receive additional yield for their Pendle farms and can also vote on the distribution of Pendle incentives.  Penpie is a governance aggregation layer built on top of Pendle that utilizes its treasury vePendle to boost yields on its Pendle pools as well as generate bribe revenue.

Penpie’s most obvious comparison is to Convex.  Convex currently holds the following governance power, which totals to approximately $258 million, while trading at a market cap of $195 million.     

Similarly, Penpie (PNP) controls about 12.6 million vePendle, which is about $69 million, while trading at a market cap of $17 million.  Comparing these two projects, we can see that Penpie is trading at a significant discount to Convex on a market cap / treasury ve-token value basis. 

I believe the reason for the relative discount is largely explained in item 3 below.

3.      Dramatic Change in Supply Dynamics

Penpie has underperformed Pendle, but this dynamic is beginning to shift. 

I believe this relative underperformance is largely caused by PNP supply dynamics.

Penpie launched on June 19, 2023.   During its first year of trading, its supply is inflating rapidly (see above graph).  The majority of this inflation comes from IDO participants, who are currently receiving about 1.17% of total supply (or about $375k at current price) per month.  When combined with the liquidity mining and pendle rush (incentivization for people to lock vePendle with Penpie) allocations, about 1.93% of total supply is likely hitting the market per month.

Starting June 20th, 2024 (in ~2 weeks), the rate of inflation that is expected to hit the market each month decreases dramatically from about 1.93% to about 0.58%.  After this date, inflation will come only from the Magpie Treasury allocation (sits in Magpie treasury to earn yield for magpie holders but will not be sold), marketing/BD (assume most won’t be sold), and liquidity mining (assume all is sold).  This is a reduction from about $616k a month to $187k a month at current prices (into a $2.2 million liquidity pool).  This is a dramatic shift in supply dynamics and the main reason I’m excited about this trade.

Risks:

vlPNP (PNP locked to earn yield...currently ~14%) can be unlocked at any time with a 60-day cooldown.  As ~61% of circulating PNP is currently locked, this has the potential to represent a large supply event.  That said, it is easy enough to monitor the vesting details to see when large amounts will be vested.  For example, currently a total of 182k PNP are expected to be unlocked over the next 60 days. 

Most of this unlocking supply is to these two wallets:

https://debank.com/profile/0xec448f4b62b502ae3343205eecda588f3d7b4b20

https://debank.com/profile/0xee439ee079ac05d9d33a6926a16e0c820fb2713a

Another risk is this wallet, which holds ~$1.5 mil of liquid PNP.  A good wallet to put on alert if you are a PNP holder.

https://debank.com/profile/0x4c8be1d302f60434574ed21a007a8ac0bb24e2bf

Conclusion

Given the Eth ETF tailwind, the point meta, and the virtual monopoly that Pendle has on the yield trading sector, I expect Pendle will continue to perform well.  I believe Penpie is undervalued currently due to its extreme rate of inflation.  That rate of inflation will decrease quite dramatically in about 2 weeks.  For these reasons, I believe PNP is a good small cap beta play for Pendle. 

Resources

https://dune.com/beacon_early/penpie

https://dune.com/beacon_early/pendle-wars