TLDR

In this episode of BidCast, Jason interviews Tien, the co-founder of Pendle, discussing the dynamics of yield token (YT) supply and demand, Pendle's revenue model, partnerships, and the introduction of a new protocol called Boros (@boros_fi). Tien emphasizes the importance of improving value propositions and the potential for growth in the DeFi space, particularly through institutional collaborations and innovative trading solutions.

Chapters / Timeline

• 00:00 Opening

• 01:06 Introduction to Pendle and Market Dynamics

• 04:17 Sustainability of YT Supply and Demand

• 07:17 Value Proposition and Market Strategy

• 09:54 Revenue Generation and Fee Structure

• 13:11 Partnerships and Institutional Products

• 15:59 Innovations in Trading and Collateral Management

• 31:37 Exploring Asset Variety and Revenue Streams

• 32:55 Understanding Market Mechanics and Liquidity

• 34:48 Position Sizing and Trading Volume Goals

• 37:20 Revenue Potential and Market Opportunities

• 40:40 Target Audience: Hedgers vs. Speculators

• 43:13 User Education and Adoption Strategies

• 45:28 Future Expansion Plans and Risk Management

• 48:50 Institutional Adoption and Real World Assets

• 51:58 Long-Term Vision and Market Potential

Transcript

<< Jason Kam (01:06)>>:

All right, and we're live. Welcome to another episode of BidCast I'm your host, Jason Kam, aka @Mapleleafcap Today is May 13th, 2025, 8 p.m. Hong Kong time. BidCast is being live streamed to BidClub members. Questions are from the members and my own. Today I'm speaking with Tien, the founder of Pendle. Tien, welcome.

<< TN (01:28)>>:

Yeah, thanks for having me.

<< Jason Kam (01:30)>>:

Nice. We were chit chatting before the set. I really wish I'd bought it at five million. You should have grabbed me by the collar. But I think back then it was Eigenlayer that was most of the TVL. And then now it's Ethena I guess the first question, which is probably on the of the viewer's mind, which is, I was never quite sure how sustainable the demand and the supply of YT would be.

And therefore, was never that kind of confident in the longevity of the bottle. It kind of always concerns me that with every maturity of the big sort TVL wave, it will always make me nervous a little bit if I were a Pendle investor. How would you as the founder address this issue of the kind of longevity of both YT supply and demand?

<< TN (02:25)>>:

Sure. So we started gaining more traction when we tokenize points, primarily starting early last year. And then we started seeing pretty healthy traction around like YT and PT dynamics.

With time, more data points emerge. And I believe that now the point speculation has become a lot more sensible versus when it first started out back in early last year. So what I'm seeing right now is that the, because there had been a lot more data points from the last one year or so, the

Yeah, YT pricing is also a lot more competitive now. The premium attached to YT is not as significant anymore compared to, again, like ⁓ Q1 last year. ⁓ And more importantly, what we're seeing right now is that points have become quite an essential part, a go-to-market strategy for upcoming projects, especially the pre-TGE ones. Sometimes even the ones...

that have already done TGE, but they're looking to make...

like try to gain traction. For example, like Syrup, like they also have points in place. Ethena is another good example. So like from our perspective, points will be here to stay. The onus is on us to try to look for opportunities that can enable us to retain liquidity to the best of our ability. So on average, I'd say whenever there is a maturity event, we would see about 30 % of retention.

in the first seven days. Usually if we have good markets, the liquidity will continue to flow in over the next couple of weeks. we have, like if you look at the Pendle TVL chart, it would go up and then it will come down at maturity event, and then it will continue to climb back up over an extended period of time. So the way we stay relevant is continue to be very thematic in our approach. We need to look for good opportunities. So for example, last year,

Aside from Eigenlayer and its ecosystem, we also saw very healthy traction with the launch of Ethena pools. And then towards the end of the year, we also experimented with BTC markets and that did fairly well. So we were able to capture like these opportunities, work with the top projects in that particular segment to try to stay relevant and then of course, like help them grow. This year, we see a lot more interest around stable coin and real asset tokens. So.

we have been very aggressively listing these markets to cater to demand. So when one maturity happens, at least there are optionalities for existing liquidity providers to roll their assets into. So, yeah, as long as we provide a healthy and competitive opportunity, like let's say APY in a range of 10 to 15 % for LP for fixed rates, we would be a top of mind.

when it comes to liquidity provision and yield opportunities.

<< Jason Kam (05:49)>>:

I suppose I hear you on the point that the TVL know that you exist. So when the maturity happens, they roll off and because they're still aware of your platform, they look for other TVL opportunities and deploy accordingly. I suppose the question is a bit more thematic, which is it's kind of hard to point fingers to what the next big thing is after I can layer. And it just so happens if you have popped up.

⁓ It seems like if you know has staying power, you know, there's a lot of things they're working on ⁓ But invariably, you know that might taper off or that might kind of flatline and if your token holders are looking for this continuous growth I Get it here recently, you know the TVL D5 should be growing but but you know what gives you the confidence that you know, it will always kind of be this Potential points and airdrop dynamic where you will always be capturing an increasing share of the pie

<< TN (06:46)>>:

Yeah. So we have to keep improving our value proposition. So in the beginning, when we were much smaller, I would say we were trying to leverage on the hype of another project to try to grow our TVL. But right now we have also realized that we are able to offer certain kind of value proposition that no other protocols can offer. For example, we've been very focused on getting PT assets distributed to as many venues as possible.

Now, previously, the main offering for Pendle is to enable points to be tokenized and then traded freely. But on top of that, like we recognize that PT can actually be a very, very good asset to be collateralized across money markets. So that's what we've been working on. Now, Pendle probably accounts for more than half of more force TVL, Euler, maybe.

20 % or so. then recently we've also got onto Aave with a PT sUSDe and eUSDe. So in two weeks time, the overall TVL hovers at around like $800 million for these two PT markets on Aave. Where we see our core proposition here to other protocols is that like, because now we have healthy distribution outlets, if a protocol gets listed on Pendle and let's say they do well,

We help accelerate their growth. We promote them to the prime markets. There's a good chance that the curators across like different money markets can pick up these PTs, set up the markets and enable certain kind of strategies to take place with all these different distribution outlets. And with that in place, then there is some dependency on not just Pendle, but also on the underlying. And then it creates a very, very synergistic relationship between Pendle and the underlying here.

And yeah, it would help ⁓ both our protocols grow and gain like TVL traction. yeah. So aside from just money markets, right? We also will have other implementations, like for example, in our Citadel vertical, like we want to get like bridge PTs to other ecosystems. We also want to work with the likes of Ethena to enable like institutional products.

<< Jason Kam (08:48)>>:

Mmm, I can see that. Okay.

<< TN (09:11)>>:

So that will come in the second half of the year. But the broad theme here is to have better distribution for PT assets so that we can offer unique proposition to the underlying protocol and then help them grow. So it's not just like a one way relationship.

<< Jason Kam (09:30)>>:

I suppose it's cool because there's a scale benefit to this which is naturally the traders want a most liquid YT asset so by having size you get that and then Only when PT gets to a certain critical mass do all of these money market protocols want to onboard it as collateral because if there's a liquidity So I suppose that's a good that's a good argument And let's go ahead

<< TN (09:53)>>:

Yeah, I think, yeah.

I was going to say like how we're looking at it is like now because we have so many applications now, we try to at different stages of the say the TVL life cycle, we try to be value adding. Let's say when a new market sets up, it probably has 100, 200K of TVL. So we will do, we will provide some materials for these protocols to market themselves.

Once they get to one to $2 million in TVL, we would be more directly involved and then grow it to 10 mil. Like from 10 mil onwards, typically there would be interest from curators to get the market set up on Euler or Morpho. So with Euler and Morpho, the growth can continue to compound. Once they hit say like a billion dollars, for example, then that would be a serious case for Aave.

<< Jason Kam (10:47)>>:

That makes sense. And you did turn on permissionless listing through you, on ⁓ March of this year. How's that going?

<< TN (10:54)>>:

Hmm. It's going fairly well, but I'd say like there are some aspects of the listing process that we can continue to lubricate right now, how we, so we're not entirely, we, we allow for self-listing, but it's not a free for all kind of portal because with points, one of the more important

components of it is that the points are tabulated off chain and then distributed on chain. So there's a lot of trust that needs to be present in order for the points program to be effective and ⁓ sorry, mainly effective, right? So with Pendle, like in order to get the market set up on Pendle,

we need to know who the issuers are. So basically that means like we need to at least know like it doesn't have to be a completely KYB KYC kind of process, but we need to have someone to be accountable for the issuance of points. So whenever there's an interest, they would have to submit an application and what we'll have to do is to get like the telegram set up. ⁓ And then we can guide the listing process and the

The turnaround time target is around 48 hours. Like we're still maybe in the three day, four day kind of ⁓ time period, but we're working very actively to reduce the time to get listed to 48 hours. And the last thing we want is to have many, different random wallet addresses set up markets for, let's say, PT sUSDe.

they are unaffiliated to the official points issuer and having too many markets, maybe with just one day apart from each other, with no guarantee of points could be very dangerous for the end user. And that's what we try to avoid here with our listing process. I think we still have to go through several iterations to improve the process, but over the course of last month, ever since we really started to step up on our listing process, ⁓

we have already seen about 25 markets listed on Pendle through the community portal.

<< Jason Kam (13:18)>>:

the last month.

<< TN (13:20)>>:

Yeah, last four weeks.

<< Jason Kam (13:21)>>:

Okay,

that's versus the pace of harmony like before this was implemented.

<< TN (13:27)>>:

Well, before it was, ⁓ because when we started up in March, the marketing wasn't done very right. So we probably had very minimal in the range of like single digits. ⁓ And we had to go out quite aggressively to reach out to some of these partners to submit the application. The most successful case that we have so far is actually Open Eden cUSDO.

⁓ We helped grew the market to over a hundred million dollars in about a month. ⁓ Now they're on prime and then we're also working with curators to get their assets listed on like  Therefore they've been listed on Morpho and Euler.

<< Jason Kam (14:11)>>:

Got it. Regarding the sort of three and a half to four billion of TVL today, I just want to talk through the numbers a little bit. Brush me through between how that revenue, how that TVL translates to sort of the fees and revenue for dependent protocol and how it occurs to the token itself.

<< TN (14:30)>>:

Sure. So Pendle has two sources of revenue. One is through the swap fees of the AMM. So PT YT trades will have a portion of that ⁓ fees attributed to V Pendle treasury. And then the other one is the YT fee. So YT fee is currently 5%. But what it means is actually 5 % of all the yield that is generated. So let's say ⁓ using stETH for example,

If the yield is 4%, that fee from Pendle is going to be 5 % of that 4 % APY. So it's actually not too significant to most users, but it actually makes quite a big difference to the vePENDLE distribution. Collectively, over the course of the last 12 months of fee distribution, basically from these two categories,

we've distributed closer to $30 million in fees back to vePENDLE holders. Now these fees consist of swap fees and then the YT component, which constitutes a portion of like points and then they realize into tokens and then we distribute the assets in kind. So the swap fees are actually fairly independent of the overall TVL. That TVL is where

the YT 5 % fee looks at. And yeah, basically with $3.9 billion in TVL, we estimate that the amount of fees that the underlying assets could generate probably in the range of 10 to 20%. And then of that, we take a small cut of 5%.

<< Jason Kam (16:24)>>:

Yeah. And that 30 million is inclusive of the, ⁓ of the YT trading fee of the swaps. Okay. Yeah.

<< TN (16:30)>>:

Correct.

Yeah, of the swaps.

<< Jason Kam (16:36)>>:

And then and then that on the 220 million sort of vePENDLE state based on the average yield is like 10 15 percent But if you stake it over four years you get to you know, the  choose to like 25 40 percent just about that's what you saw historically Are you are you raising your fees or reducing your fees keeping to the level going forward?

<< TN (16:51)>>:

Yeah, historically, yeah, that's...

Yeah.

we are optimizing the fees and we, because like we only started with the fee optimization end of last year, we realized that we've been undercharging because compared to what the other protocols, like the other yield protocols were charging, let's just say like Convex, they would take somewhere between like 17 and 20%. Whereas like for Pendle, we were charging 5%, excluding the swap fees. ⁓

So yeah, with respect to the other yield protocols, like we think we can be more aggressive in optimizing our fees without jeopardizing the trading activity on the platform. So ever since we started that fee optimization exercise in December last year, we've seen like fairly healthy traction. So the same amount of activity would give us two times or three times more fees relative to the previous period.

<< Jason Kam (18:00)>>:

Yes, and sorry, and that 30 million currently you gave me over the last 12 months only makes him part of that lift and take rate.

<< TN (18:09)>>:

Sorry, come again.

<< Jason Kam (18:11)>>:

The $30 million you gave me on the last 12 months revenue that accrues to pendle ve staker only takes into account part of that take rate lift. It's not the whole thing. Right, because it only started in December of last year. So if you flush through the optimization of take rate going from 5 % to whatever, 10, 15, 20 %... Okay. Okay. So...

<< TN (18:34)>>:

Yeah, yeah, yeah. It could improve.

<< Jason Kam (18:39)>>:

Okay, so on the same $3.94 billion, you could be looking at $50 million, $60 million. Is that fair? Or is that too much?

<< TN (18:50)>>:

I think potentially possible, ⁓ but it will be very gradual. It's not going to be, it's not going to be a two X like in a month.

<< Jason Kam (18:53)>>:

Okay.

Okay, got it, makes sense. And just so I get the right numbers, the vePENDLE to get paid in more Pendle or to get paid in USDC?

<< TN (19:12)>>:

Well, so USDC is the... Starting May, the distribution will be in the form of USDC. Previously, it was ⁓ ETH.

<< Jason Kam (19:20)>>:

Yeah.

Okay, how do you feel like the SEC would feel about this?

<< TN (19:28)>>:

So with the vePendle distribution, actually it's not ⁓ a free distribution. Users are required to vote for markets in order to be entitled to the fees. Effectively what that means is if you have VE Pendle and you do nothing about it, you don't get the fee distribution. You have to use the votes that you have, which is in the form of vePendle, and then vote for the pool.

<< Jason Kam (19:45)>>:

Hmm.

<< TN (19:52)>>:

that you think would generate you the highest amount of fees. Let's say in the last couple of weeks, it has been eUSDe. So let's say if you pledge your vePendle votes to eUSDe on a weekly basis in between epochs, whatever fee that the market generates, it will be prorated to the fee votes that you contributed to the pool.

<< Jason Kam (20:17)>>:

⁓ Did you talk to Paul Atkins or anybody at the SEC about this design or you kind of just talked to lawyers and they blessed it?

<< TN (20:25)>>:

It was more, so we didn't speak with SEC. We, we, learned it from, yeah, we learned it from, from, yeah, the likes of, vePendle like, sorry, ve curve, ve curve was the inspiration for us. And then consulted legal counsel to, structure, ⁓ a design that we think would, would make sense.

<< Jason Kam (20:29)>>:

Okay.

Yeah.

Mmm.

It certainly feels better now than before November of last year. think the users would prefer this and I would imagine, we looked at PenPy in the past, but do you see any sort of convex attempts in the future where it's kind of vePendle owned, auto-compounding through this USDC? Do you fund any yourself? Do you see anything that's legitimate?

<< TN (21:17)>>:

I don't know that's really hard to say because Yeah, no comments there like we we yeah

<< Jason Kam (21:21)>>:

Okay.

No offense.

Okay, worries. I'm just curious. By the way, that question is on every Protocol Founder's Mind. We'll get more clarity, I think, by August or September of this year. I mean, if you know takes up a big part of your TVL, I forgot what percentage it is. What can you tell us about that partnership going forward? There's a bunch of stuff like the potential TVL ramp.

<< TN (21:39)>>:

Yeah.

<< Jason Kam (21:51)>>:

There's a bunch of other things they're working on. There's the SPV they're talking about. You talked about the PT efforts. ⁓ Walk us through your relationship with them and what's exciting on that front.

<< TN (22:03)>>:

So with Adina, it's been a very synergistic, cordial relationship. They're arguably one of the best teams that we've worked with because they are so focused on their positioning and they have the, they are very competent and they have the ability to execute well. We account for approximately 50 % of sUSDe, TVL. And in the same way, they're also

a pretty significant portion, about 50, 55 % of Pendle's TVL. So the reliance from both sides is definitely very, very present. We typically explore, like at least for now, in the schemes that both of us are expanding towards, like with Ethena, the convergence, like the institutional products, like we typically would partake in

their expansion efforts in the same way with Boros. They have also an interest to take part in the products that we're going to build. ⁓ So I would say right now, yeah, we're very tight to each other and we need to make sure that we perform well together so that we can continue to grow.

<< Jason Kam (23:25)>>:

In particular on the PT effort, I forgot where I read about it, but like the SPVs that the institutions they work with, like, can you give us a bit more color on what that effort is all about?

<< TN (23:39)>>:

Yeah, sure. So with...

With the institutional play from Ethena, it is more a partnership with Securitize and then they announced that they will be launching iUSDe. So this iUSDe is basically a Securitize SPV ⁓ acquiring USDe and then issuing iUSDe that can only circulate among the white listed addresses.

<< Jason Kam (23:56)>>:

Yeah.

<< TN (24:13)>>:

So what we'll do is we will have a KYC implementation of Pendle to service this liquidity pool. ⁓ Not too different from Aave Arc because it would be a very similar kind of approach.

<< Jason Kam (24:32)>>:

and the buyer of that iUSDe PT would be similarly institutions.

<< TN (24:40)>>:

As simulatly as what? Sorry?

<< Jason Kam (24:42)>>:

Institutions, institutions, there are KYC AML institutions. On chain or are you gonna put like an SPV like wrapper so somebody on your team or some other team can kind of just start marketing to like panel of individuals or something so they can start buying PTs directly through hedge fund structure.

<< TN (24:46)>>:

Yes, yes.

Yeah, so how we're thinking about it, and this is not the final form, but how we're thinking about it is to have KYC entities, whether individuals or funds to be the, ⁓ to target or focus more on the YT purchases. But basically, yeah, YT. ⁓ Because if we have a KYC implementation and we have a

<< Jason Kam (25:20)>>:

the YT.

<< TN (25:29)>>:

like a DeFi implementation, right? Like there could be arbitrage opportunities that exist between these two implementations. And then someone in between can up the markets and make the offerings more competitive.

<< Jason Kam (25:46)>>:

Interesting. Okay, so do you expect this thing to be big at all? Or is this kind of, know, second to all the other things that are, that's happening?

<< TN (25:56)>>:

I think initially the traction might be slow because people are just too used to DeFi and then without having to do any kind of KYC and then participate in markets. So until we find, I think to be fair, there is a lot of potential for a product like this, but it will have to go through a PMF search period. So the initial traction is likely going to be

relatively modest and once we are able to find like a specific use case for this particular product then the growth can accelerate.

<< Jason Kam (26:36)>>:

Okay, well in a sense you're relying on Ethena sort of program the iUSDe and the institutional adoption and sales. So the ball might not be in your court. Okay, I understand. I wonder which one I should ask first, but maybe let's do it this way. Why don't you walk me through how Boros works and not, I kind of know how it works. You pay fix, you get floating, you pay floating, you get fixed.

But would it be like the centralized exchange kind of order opening kind of way or would it be like a like if I'm an institutional user, right? What would I? What would it look like? Do I have to deposit TVL as a notion as like a collateral and then I have notional attack like how that look like in terms of operation flow?

<< TN (27:15)>>:

Mmm.

Yeah, yeah, sure. So

yeah, I would think of Boros not too dissimilar to a perp. So if you want to set up a position on Boros you would have to deposit collateral. And then with the collateral in place, you can long or short the rates. So the first use case for Boros is going to be the trading of funding rates. And we'll start with very vanilla markets on Binance. So the BTC USDT, ETH USDT markets.

the rates will have to be published on chain by an oracle. For example, like Chainlink or Pith. at the end of every funding cycle, when the rates are made available, then the settlement will take place. Now, so just to give an example, right, using Ethena on their specific use case. So currently they would long spot short perp and then their subjective funding rates exposure. This funding rate at this point in time is very volatile.

Now, so when there is boros and let's say the funding rate is good, 10%, 15%, they can deposit collateral on boros ⁓ and then they can short the yield on boros for, let's say, until maturity. And then what that means is whoever takes the long side will have to ensure that Ethena continues to receive the fixed amount of funding rate.

let's say 10 % ⁓ between the point of entry until maturity.

<< Jason Kam (28:56)>>:

⁓ And the payment happens based on when the funding rate is calculated.

<< TN (29:03)>>:

Correct. So the settlement, let's say the market settles every eight hour. It will also be the case on Pendle.

<< Jason Kam (29:07)>>:

Yeah.

How much leverage would one be able to implement?

<< TN (29:15)>>:

So we initially will start with something that is a lot more modest, like say two times, but eventually we will definitely increase it. But it largely depends on how comfortable we feel about the system and then we scale gradually. So to give some examples, ⁓ we estimate in order to hedge out the funding rate exposure of a million dollar worth of position.

whether it's like BTC USDT or ETH USDT, the amount, and let's say three months maturity at 10 % APY, the amount required is approximately $15,000 because we're considering just the rates alone, independent of the underlying. So the capital efficiency, I think is one of the more important propositions we have with Boros. And then if we couple that with higher margin factor,

<< Jason Kam (29:57)>>:

Yeah.

Yes.

<< TN (30:12)>>:

it can go even more efficient, but it's not going to be available immediately. We will have to use a couple of months to try to scale the system. And once we hit a sweet spot, then I think we can be more aggressive with the offerings.

<< Jason Kam (30:25)>>:

Sorry, just so I understand, like a million dollar notion of position over three months, it's 5%, right? So it's like $50,000. You're saying that I can get the same level of interest rate exposure on bars for $15,000 effectively for the whole million. Okay, because the rates just doesn't move. Okay. And that will be enough to kind of hedge, but if it really moves violently on top of more collateral, but it could get blown up very quickly.

<< TN (30:43)>>:

Correct. Yeah, for the whole million.

<< Jason Kam (30:55)>>:

Interesting. Okay. And what kind of collateral would you accept? Would you accept, yeah.

<< TN (30:56)>>:

Yes, yes.

It will be very highly related to the market. Let's say if it's a BTC USDT market, the collateral, the preferred collateral would actually be say, wrapped BTC.

<< Jason Kam (31:20)>>:

It'll be a wrapped BTC Okay. Would you?

<< TN (31:22)>>:

Yeah. Or, or let's say if

the market is ETH, then like it will be ETH.

<< Jason Kam (31:28)>>:

Got it. Okay. But would you also accept, you know, things like sUSDes collateral or, you know, or PT es collateral? Yeah. Okay.

<< TN (31:36)>>:

Eventually, Yeah,

eventually I think like we can also definitely consider like more, a broader variety of assets, especially if they are like USD denominated, then I think there is a potential for us to consider those. ⁓ But again, like it's not going to happen day one. ⁓ We try to make the collateral to be as closely related as the market that's getting traded. ⁓

stable coins will also be considered but the long tail stable coins I think like it will be something after.

<< Jason Kam (32:14)>>:

Yeah, and how do you charge for something like this? The users who open up a position.

<< TN (32:22)>>:

Yeah, so there will be maker taker fees, ⁓ exact details to be decided, but that would be the primary, yeah, that would be the primary source of revenue stream for, for Boros. And then on top of that, there will also be a component where you'll get, ⁓ charge as well. similar to the YT fee that we talked about of the fees that are sorry, of the yield that gets treated, like a percentage of that will be extracted.

Bye, bye, Boros.

<< Jason Kam (32:54)>>:

I see. And just to understand, because there is Oracle rates of the funding rate that exists. and that's the rate that gets traded here. It can deviate versus the Oracle rate that is live because of the just bid ask position. And that difference that Delta creates the funding in that period of time between the sort of the buyers. Okay. Okay. and

<< TN (32:59)>>:

Yes.

Yes.

Yes.

Yes.

<< Jason Kam (33:22)>>:

And you make your own markets or would everybody be treating against like a pool of LP caps?

<< TN (33:27)>>:

So it will be an order book. we will have actually multiple ⁓ ways to bootstrap liquidity. So firstly, we will be running a bot just to make sure that we have sufficient liquidity, baseline liquidity to get started. And then we'll also be engaging a market maker at least one to launch this product with us. ⁓

We don't have a lot of experience writing an order book. We have some experience with V2 limit order order book, but with something that is as new as Boros, we require external help. So that's why we need the market maker to come on board with us. And then the last aspect is actually to have an automated market maker that distribute

<< Jason Kam (34:08)>>:

Yeah.

<< TN (34:20)>>:

liquidity across the book. So let's say if you're someone who might not be too sophisticated and you don't know how to place order, whether long or short, but you can just put your money with this vault and this vault will automatically distribute the setup positions across the book. ⁓ So yeah, hopefully it generates like positive return.

<< Jason Kam (34:40)>>:

Mmm.

Yeah,

and on day one when you launched this, I guess in your mind, what kind of a notional position size should one expect to be able to open to hedge or to speculate?

<< TN (34:57)>>:

Bleh.

I would think at the range of let's say like 400k to 600k for a start. Yeah. Notional. Notional. Yeah. Yeah.

<< Jason Kam (35:08)>>:

Notional notional or collateral notional. Okay, that's not that big Okay, but what's your goal in

mind like ha ha because I mean some of these guys have you know Five ten twenty eight million dollar position open on like block. They probably want to hedge the funding with a similar notional Like when do you think can get there?

<< TN (35:24)>>:

Yeah.

Yeah,

so hopefully by the end of the year we can service 40 to 18 billion dollars of daily trading volume. Notional.

<< Jason Kam (35:39)>>:

OI open at one time at the end of the day. Okay.

<< TN (35:41)>>:

Yeah.

<< Jason Kam (35:48)>>:

By the end of the year, how would that, let's say if you get there, right, by the end of the year, every day there's like a 50, 40 to 80 million of OI being opened. Or just opening, it's just there. I'm guessing you'll be charging fees on that OI that's outstanding. How would that translate to revenue or fees to the Pendle Protocol? Like if you can just bridge that for me.

<< TN (36:04)>>:

Yes, yes.

Yeah, by our very early estimation, it could probably translate to about like $2 million in fees. ⁓

<< Jason Kam (36:20)>>:

Okay,

so if a $40-80 million OI is maintained throughout the entire year, it would translate to about a $2 in revenue.

<< TN (36:30)>>:

Yes. Yeah.

<< Jason Kam (36:31)>>:

Okay. And

this would be on a much smaller collateral base, like 40 to 80 million. Based on your math, it would be like, I don't know, a couple hundred K of collateral being put down.

<< TN (36:43)>>:

Yeah.

<< Jason Kam (36:45)>>:

Okay. Interesting. Yeah. In your mind, this like a, cause this is just this year, but like, what would the kind of metrics this have to do to make you happy? Cause you spent all the effort here. is this, do you start this effort because you feel like the TVL for Panda would self hit the plateau?

<< TN (36:46)>>:

Yeah, not too big. Yeah.

Yeah.

<< Jason Kam (37:10)>>:

Or do you feel like this is the next leg of growth that really catapult the revenue? Like in your mind, how are you thinking about the revenue potential here over time?

<< TN (37:19)>>:

think the revenue potential for Boros is very substantial because the amount of products that can be traded on Boros is not confined to just funding rates. And we start with funding rates because it is a concept that is quite like that, that, that, is quite native to CeFI and DeFi and people who are already like who forbid in crypto space long enough with no funding rates quite well. So I think from our very

early days when we were deciding between the different markets to focus on. Funding rates appeal to us because every day there's probably two, $300 billion of debt, ⁓ like per volume, and every single one has funding rate exposure. And funding rate also powers protocols like Ethena and Resolve and many others. So we think there's an opportunity for us to service this category of products.

⁓ But on top of that, there's also opportunity for us to use the same instrument to enable the trading of rates for POS staking yield. For example, like ETH staking yield, those are fairly essential, but they are not very meaningful if you were to trade the rates on V2. Like we've had stETH market, but because the band of fluctuation is so small, typically in the range of 3 and 4%, you need a big, big underlying

in order to make meaningful return for something that fluctuates between 3 and 4%. So the capital efficiency is actually very important for rates of that kind. And we think Boros can serve this ⁓ product category. Similarly, the same product can also be extended to borrowing rates. Because right now, I don't think there's a very scalable way to trade fixed borrowing rate.

Um, or yeah, there are markets there, but they're typically more P2P. Um, so, so I think Boros can also service that market and then eventually if possible, we'd like to see how we can use the same product to service use cases outside of DeFi and CeFi. So it could be a unique and niche rates, but I'm sure we can find something if like interest rate is, is, is a big market of six, $700 trillion.

<< Jason Kam (39:21)>>:

Hmm.

<< TN (39:48)>>:

Yeah, that's like I'd say like a slightly longer term goal, but we strive with something that we're familiar with native to crypto.

<< Jason Kam (39:49)>>:

Hmm.

Hmm This is still a At least because I have to really play with it to understand but this is a pretty complex instrument because it has to do with Because it has a maturity to any sort of tranche. There's a eight-hour settlement period You're not really just long the spot price. You're kind of long stripe strip of you know interest payments kind of over time I guess aside from people who are

speculating based on inside information like, oh, this is happening, like it's going to absolutely  Aside from those people, who are the natural participants for this market, you think, that will contribute to that $40 billion that will go away?

<< TN (40:35)>>:

Yeah.

So I think there are a group of hedgers and a group of speculators. In the beginning, I believe the more sophisticated retail who are speculators would be the primary target audience. But eventually, once we get to a certain scale, then the hedgers would most likely start to take interest in the product. with speculators, it's fairly, sorry, it's like speculators are speculators. If there's money making opportunities, then

they would be interested in the product. So how we need to appeal to this group of users, I think it would largely revolve around packaging and how we appeal to them. So one good thing about funding rate is that the feedback cycle is actually fairly short. So let's say if you have a view that the BTC USDT market funding rate would go up in the next...

eight hours, you can actually express a view using Boros. You don't necessarily have to stay on until the maturity, even if it's like five, five months, six months away. So as long as you have a view that is going to go up, long it. And then once you're, once you're in the money, you can realize the profit. So this is, think one of the main reasons why we wanted to support funding rates, because whether it goes up or it comes down, there are money making opportunities for speculators to take advantage of.

And then going to the hedger sites, I think the first category of users would be, yeah, like say the Ethena and Market Makers, they have Delta neutral positions, long spot short perp, and then they are subject to funding rates. If they short it, they can ensure the amount that they receive. And then on the other side, the natural longs, as far as we're concerned,

<< Jason Kam (42:05)>>:

Hmm.

<< TN (42:33)>>:

We think options desk could potentially be a very suitable group of users because when they sell options, would have to hedge by longing PERP. So they are typically the payer of funding rates. If they log in on Boros, they are basically logging in the amount that they pay. So they are less susceptible to the funding rate volatility. So with this product, we hope to bring about two types of hedgers.

alongside many, different speculators to find a consensus in the market.

<< Jason Kam (43:12)>>:

Hmm. It's a very interesting product. It's necessarily more complex actually than the perp that we're used to. So I would imagine in the first couple of months when I trade, it's like people are going to get fleeced, know, aping this way.

<< TN (43:25)>>:

I so. I think the first couple of months we don't have to focus too much on metrics. We will keep a score of our progress. But the core effort coming from us has to be on helping users overcome that learning curve. So a lot of educational efforts and a lot of one-on-one sessions with funds or hedge funds that could find usefulness in this product.

I think this is something that we learned when we were building V2 in the early days. We, because we're based in Singapore, and fortunately for us, there are quite a number of liquid shops and hedge funds in Singapore. We were able to reach out directly to these funds, schedule a one-on-one session, and then help them understand the proposition of Pendle V2. In the same way, I think we'll have to go back to that very, very basic stage of helping our potential

customers and users to understand the product. And then from there on, we hope to be able to accelerate our growth.

<< Jason Kam (44:30)>>:

Do you expect that sort of 1 to 20 to 1 to 40 type of fee ratio versus OI to maintain as you scale up the OI? Because like 40 to 80 million of OI maintained throughout the year translates to 2 million dollars of fees. But if it's like 400 to 800 million of OI, is it then 20 million dollars of fees? should it go up or down?

<< TN (44:55)>>:

At this stage, I think it will be fairly linear. I think we'll have to see if that happens. That will be a good problem to talk about.

<< Jason Kam (45:09)>>:

I guess eventually you're going to go into alts as well aside from the Bitcoin on buy-ins kind of thing and you also talked about staking and other sort of esoteric markets. How soon do you think you will be doing those things after the logic bars?

<< TN (45:16)>>:

Yep.

Hmm. I want to say it's fairly hard to give a timeline for the, so, so because a lot of it really depends on how, how the risk system is. Cause like when we're, when we're dealing with ⁓ a product that, that involves margin liquidation is typically a big risk consideration on top of that, like the entire product is going to be fully on chain.

<< Jason Kam (45:32)>>:

Okay.

<< TN (45:56)>>:

So there's also like contract considerations as well. We need to be able to manage these two components effectively before we feel comfortable scaling it up more aggressively. So we'll have to start with the very vanilla markets and then over time as we scale up, we can support more markets on let's say Binance and then at the same time, more different venues. once we, yeah, I don't know, like hopefully not too long.

<< Jason Kam (46:24)>>:

Yeah.

<< TN (46:25)>>:

Hopefully not too long.

<< Jason Kam (46:27)>>:

If the liquidation of, because there's so many ways to go wrong, right? That the funding rate could be manipulated. Not that it's pretty complex, but let's say if it does goes through, let's say if liquidation does happen and you're left with a hole with collateral, who, who puts the bill of hole?

<< TN (46:48)>>:

So we as much as possible have to prevent that from happening. So there are multiple different safety procedures that we have in place to basically prevent that from happening. We don't ever want to get to a place where there's a bet debt and we need to service the bet debt using our own resources. So like kill switch, that's like the baseline. And then we will have to have automated systems to detect when

there is a liquidation event that's happening. instead of like, so one of the things that we have in place is to have a maximum amount of, let's say rates movement. So it cannot go from, let's say 10 % to 1 % in a single block. has to go from say 10 to nine to eight in multiple different blocks. Just so that

our system has time to respond to these events. So these are, I'd say like, we have a couple of that. ⁓

mitigation and precaution measures that we will introduce with the launch of Boros. And then we'll also have new concepts like margin floor that will be very specific to Boros.

<< Jason Kam (48:10)>>:

But let's say if the worst case scenario were to happen, you'll be selling $pendle to pay.

<< TN (48:16)>>:

In the worst case, maybe yes.

<< Jason Kam (48:20)>>:

So we kind of talked about two efforts that could really drive, I mean, pair of pursue everything being the same. Four billion of TVL could transfer to 30 million of revenue now. It could be 50 to 60 if you lift the tick rate over time slowly, with two million in addition to borrowers if it all goes well. I guess there's something else I want to ask about, is Solana expansion and TradFi effort. Do you feel like that would be a good driver at all for you?

And if not, then is there anything else that really excites you?

<< TN (48:52)>>:

Sure. So with Solana, like it's an ecosystem that we've been looking at for quite some time now because Solana traction is very, very meaningful. And we're definitely very impressed by the growth of the ecosystem in the last two years. We will actually start with Bridge PT. So basically minting PT of ⁓

the likes of Ethena or specific assets on Ethereum and then bridge over to Solana and have it ⁓ available for purchase or sale on Solana natively. The full implementation will take place a bit further down. So that is actually part of the V2 expansion that we still haven't disclosed too much info, there are... So how we're thinking about expansion is... ⁓

Now we have V2 and then we're going to have Boros. So Boros is the new product that we're launching, but we also need to take time and effort to research and develop the like V2 and make it even more compelling a product. Like V2 is not going to be the end state. ⁓ The current implementation of V2 will have to undergo improvements and that will be something that we potentially look forward to next year.

⁓ So with Solana, that is part of that expansion plan.

<< Jason Kam (50:23)>>:

 so, so...

Got it. So like maybe some swap fees on PT, on Solana,  but not sure how big. Full Solana rollout with like, I don't know, like Cloud and, know, Penta, Huma and those things would only happen next year, basically.

<< TN (50:45)>>:

Yeah, with Huma, actually, we are exploring ways to enable the rates to be traded. So that is under work, but it's not going to be like a Pendle full deployment on Solana. First, we will have to maybe do some form of bridging to enable the markets to move across, ⁓ say, Ethereum and Solana.

<< Jason Kam (51:11)>>:

⁓ So then that leaves us with the Trashby Institution adoption. I guess you don't expect a lot to drive too much of your revenue. ⁓ What about TradFi Is that a big driver? And if not, then is there anything else we haven't covered that really excites you in the next couple of months, of course?

<< TN (51:28)>>:

Hmm.

Yeah. So, so again, I, I'm not so sure about the TradFi I think this, my sentiment was, something that I, that I also mentioned earlier. I think the growth would be relatively modest in the beginning, but it is an important vertical for us to, to, to start getting involved in because I, I just think in the future, maybe not too long from now.

There will be opportunities in the real world asset segment. And I'd say like quite a bit of real world assets like tokenization would involve some form of institutions, KYC. So those are the hurdles that we need to overcome in order for us to fully capitalize on opportunities with that particular segment. Right now, while we still have some time and resources, we need to start going in, but we might be very early for

these upcoming opportunities, but I think it's better to be prepared and be okay with low traction for maybe a year or so. ⁓ And hopefully they result in meaningful return subsequently.

<< Jason Kam (52:42)>>:

So not much from TradFi but important effort longer term. ⁓ Is there anything we haven't covered that really excites you?

<< TN (52:47)>>:

Yes.

⁓ I think we've chatted quite a bit on aspects that excite me. I want to say, I don't know how to express this, but I feel pretty good about Boros. ⁓ But again,

<< Jason Kam (53:12)>>:

Hmm. there's

something, there's something in there because like, ⁓ there's a hurdle of nothing blows up and this is a very different product than Pendle itself. Exciting product. ⁓ there must be something in there that gives you the hunch that the optionality of this revenue potential, it's far bigger than the sort of $2 million guidance you kind of just gave. ⁓ what is that optionality you think like?

<< TN (53:37)>>:

Yes.

<< Jason Kam (53:40)>>:

Is there something that you talk to clients about that they're like, this makes you feel like this is really going to pop? Like what is that?

<< TN (53:48)>>:

So I think 40 to 80 million dollars. again, I don't know how to explain this, but I think there is a fair shot that it can do a couple of billion dollars in trading volume a day. So maybe in two years.

<< Jason Kam (53:55)>>:

Sure.

A couple billion dollars of

notional, unnotional.

<< TN (54:06)>>:

Yeah, yeah, yeah. So it's going to be a pretty big leap from the 40 to 80 that we estimate for this year. And I think the, yeah, the addressable market is what excites me first and foremost. And because of that, the revenue potential I think can be quite immense as well.

<< Jason Kam (54:29)>>:

I suppose it is because the per market is such a sizable market and the funding rate remains something that people just take but have no way to hedge out over extended period of time and by talking to all the traders who kind of Want to pay a small like they kind of want to just hedge it you feel like the opportunities there is going to create a tool for them interesting You ⁓

<< TN (54:41)>>:

Yes.

<< Jason Kam (54:55)>>:

I guess it's complex enough you don't feel like the hyperliquids of the world would just steal it.

<< TN (55:00)>>:

It's a very different product because like the system required is going to be very different. We're like, this is, this is, would say like the distinction is fundamentally similar to how we perceive rates to be traded on a Pendle AMM. And let's say like a spot asset on Uniswap because the, the, the underlying that we're dealing with are just different. So the AMM.

at least in the case of V2, is denominated very differently. So when we construct Boros, it's also like we have concepts that are inspired by futures and perp markets, but effectively we're dealing with very different products altogether, very different kind of asset altogether. So the construct would be very different from the current set of perp.

<< Jason Kam (55:55)>>:

Interesting. I know it's not a fair question, but how do you bridge the 40 to 80 million of OI throughout the year to like a $2 million revenue? Like, what's your mental math there?

<< TN (56:10)>>:

I'm just thinking, even if we don't have any, like, let's say like the trading activity. Okay, so the 2 million was largely based on the fees that we extract from just having that OI in place. No frequent trading activities. taking aside that swap fees.

<< Jason Kam (56:34)>>:

Got it.

⁓ Sorry, it's a tick rate on the taker or the maker plus the small tick rate on the yield of whatever percentage and then those combined maintain throughout the year. Okay. Well, it would be a good to bridge. think I'm sure investors will ask about it later on. You'll have to do a dashboard, I'm sure. Okay. Okay. And then how do you... ⁓

<< TN (56:49)>>:

Yes. Correct, correct.

Yeah.

Yeah, yeah.

<< Jason Kam (57:06)>>:

How do you fund your operations today? You have a big treasury, you sell tokens, how do you fund it?

<< TN (57:12)>>:

Yeah, so we've been fairly lean. have been, so we raised some money in 2021 and 2023 through OTC rounds. So we're still running on that. We will be turning on a fee switch for a Pendle V2 when Boros goes live. So that means instead of distributing a hundred percent of the fees back to vePENDLE holders, we will be extracting 10 % for team.

operation and at 10 % for ecosystem growth, that should allow us to be sustainable already.

<< Jason Kam (57:49)>>:

Got it.

Got it. Okay. Very cool. So, so, so whatever number I have projecting forward, you know, like 30 going to 50 to 60 plus two, I'll multiply it by 0.8 or something. That'll be what's going to be vePENDLE. Okay. Makes sense. Very good. Um, I don't have any other questions unless members who do let us give you three seconds.

<< TN (58:03)>>:

Yeah. Yeah, correct.

<< Jason Kam (58:18)>>:

I don't think there are any. ⁓ Well, TM, thank you so much for your time. This is really helpful. Pretty exciting.

<< TN (58:25)>>:

Yeah,

thanks for having me. Thank you.

<< Jason Kam (58:28)>>:

Thank you.