Summary During its peak, Pendle's TVL was heavily reliant on USDe and its derivatives. Despite Pendle’s grand narrative, its P/F ratio (Market Cap / Annualized Fees) stands at a staggering 26.52x, far exceeding that of Aave (3.37x) and Ethena (4.2x). By benchmarking against the traditional finance interest rate trading giant, Tradeweb, we find that interest rate swaps are inherently a 'high-volume, razor-thin margin' business. In horizontal comparisons, Pendle’s current valuation is already at a high level, suggesting the market has prematurely priced in its narrative premium. Our deep dive into Pendle’s "grand narrative" reveals a disconnect: in mature markets, trillion-dollar IRS platforms struggle with unattractive business models due to the bargaining power of institutional players. A high valuation premium based on current "points-driven" volume is, therefore, difficult to sustain. When Airdrop Farming Exits In January 2026, Pendle's TVL stood at $3.44B, marking a 74.2% decline from its peak of $13.38B in September 2025. During the same period, its token price retreated from an August 2025 high of $6.85 to $2.13, representing a 68.9% drop. This shift was driven by several factors, including the expiration of liquidity incentives, broader market cyclicality, and internal protocol adjustments. To understand this decline, we must first look at the unprecedented rally that preceded it. Between May and August 2025, Pendle’s TVL skyrocketed from $3B to $10B. Adding $7B in liquidity within such a short window is an extraordinary feat, even by crypto standards. This explosive growth signaled the rise of a new yield strategy, perfectly coinciding with the surge of yield-bearing stablecoins like Ethena. By integrating with Pendle, these protocols created a novel mechanism that allowed investors to leverage stablecoins to capture double-digit APRs. At that time, 70% of the stablecoins on Pendle consisted of USDe and its derivatives; even now, these assets still account for 50% of its locked capital. The primary driver was Ethena’s USDe, which offered yields consistently higher than LSTs like Lido, while Pendle provided the mechanism to achieve high-leverage returns. For instance, users could stake PT (Principal Tokens) as collateral for loans, convert those funds back into USDe, and create a looping leverage strategy. Meanwhile, YT (Yield Tokens) were either held to earn future rewards or sold at market value before maturity. Back then, the fixed yields for USDe and sUSDe on PT were 13% and 12%, respectively, while stablecoin borrowing rates on Aave hovered between 5% and 7%. This allowed investors to capture a net spread of approximately 5% to 6% per loop. In September 2025, the conclusion of Ethena’s Season 4 airdrop, which incentivized users to stake USDe for sUSDe, triggered a massive exodus of mercenary capital from Pendle. Simultaneously, thirty-three Ethena-related pools with a combined value of $1.35B matured, requiring users to redeem their PT/YT. When considering a rollover, users found that the sUSDe APY had plummeted from 12%–13% to just 4.7%, falling below the ~5% USDC borrowing rate on Aave. This inversion forced users to repay their Aave loans, liquidate PT/YT positions, and redeem their USDe, sparking a cascading outflow. The interconnected loop between Pendle, Ethena, and Aave significantly inflated the TVL for all three protocols. It was a textbook example of mechanism design in the airdrop space, known in the industry as the "Mega Points Airdrop." However, when the Mega Points momentum stalled, the market realized that Pendle’s growth was heavily reliant on aggressive economic incentives and yield-sensitive, short-term capital. The Undervaluation Myth At its peak, Pendle’s TVL reached $13.38B, ranking it among the top five DeFi protocols globally. With its Market Cap and FDV exceeding $1 billion at its zenith, the public consensus viewed Pendle, with its solid fundamentals, narrative innovation, and growth potential, as significantly undervalued compared to its peers. However, from our perspective, a $1B valuation actually aligned perfectly with its comprehensive fundamentals at that time. Narrative vs. Efficiency Pendle introduced on-chain Yield Trading, a novel derivative tool analogous to Interest Rate Swaps in traditional finance. While nearly 100% of yields are tradable in TradFi, only 3%–5% of crypto yields are currently utilized this way. As the undisputed leader in this sector, Pendle is also positioned to dominate future on-chain RWA rate swaps, further strengthening its narrative. This "sector narrative" is the primary reason many analysts deem Pendle undervalued, citing its immense growth potential as the market matures. Analyzing Valuation Metrics: MC/TVL and P/F However, a look at the data paints a more nuanced picture: MC/TVL: With a current TVL of $3.44B and a Market Cap of roughly $548.8M, Pendle’s MC/TVL ratio sits between 0.07 and 0.19. This metric reflects the valuation attributed to every dollar managed. Generally, the "fancier" the business model, the higher the premium the market pays; for "bread-and-butter" services like lending, this ratio tends to be lower. P/F: This metric highlights the discrepancy in how markets price business models. While fees don't represent net protocol revenue, they indicate earning efficiency. For example, Aave has a high revenue efficiency but an MC/TVL of only 0.07. Ethena has a P/F of 4.2x with an MC/TVL of 0.19. The Efficiency Trap Pendle’s business model reveals a significant bottleneck: its P/F ratio is a staggering 26.52x. This indicates that its "earning efficiency" is remarkably low. Much of its TVL consists of "heavy assets" that are not effectively monetized. In an increasingly mature crypto financial market, this will weigh heavily on token pricing—similar to how BlackRock manages $10 trillion in AUM but carries a market cap of only ~$180 billion. Despite this, the market still prices Pendle's MC/TVL at 0.1, placing it in the upper-middle tier of top DeFi protocols. To reach an unbiased judgment, we must move beyond looking at Pendle in isolation. If we compare it horizontally across the top DeFi landscape, several truths emerge: Systemic Undervaluation: The entire DeFi sector is currently undervalued. The community is easily excited by "shiny" innovations but tends to undervalue mature, foundational infrastructure like Aave or Morpho. Market Premium: Based on its P/F revenue efficiency, the market has already given Pendle a generous valuation. Maintaining an MC/TVL of 0.1 despite such low value-capture capability suggests a significant market premium is already baked in. Low Stickiness: The high TVL that impressed the community has been identified by the market as "airdrop-hunting" capital with very low stickiness. Furthermore, because the lending services powering the "Mega Points" loop happen on external platforms, Pendle loses out on crucial lending fee revenue. RWA Interest Rates: A Trillion-Dollar Narrative Meets Reality We have identified the core essence that requires the deepest investigation. Therefore, it is necessary to re-evaluate Pendle's business model and revenue potential—a task that is becoming increasingly critical as the crypto market continues to mature. We must confront the fundamental reality of Interest Rate Swaps: it is a high-volume, low-margin business. As a market leader with 55% market share, Tradeweb’s Q3 2025 data serves as a critical benchmark: Massive Volume: IRS Average Daily Volume ((ADV)) hit $1.456T, with annualized volume exceeding $372T. Revenue Dominance: The "Rates" segment (Cash + Derivatives) contributed $274.5M, or 54% of total revenue. The unit economics reveal the inherent difficulty of the IRS business model: Every $1M in trading volume generates a mere $2.17 in revenue compared to that generates $28 trading $1M in Equities. Life After Mega Points In contrast, Pendle's monetization model remains relatively efficient within the crypto industry: Yield Fees (YT Fees): This is one of Pendle’s most fundamental revenue streams. Pendle extracts a percentage of all yields generated by YT (Yield Tokens) as a protocol fee. Currently, this rate is typically set at 5%. Swap Fees: Pendle collects swap fees from all PT (Principal Token) trading pairs based on the time remaining until maturity. Taking the USDT - PT sUSDe pool as an example, a $10,000 trade generates approximately $2.70 in transaction fees. Based on September 2025 data, Pendle generated $6.09M in fees from $8.17B in trading volume. This translates to approximately $745.41 in revenue per $1M traded. This performance leads to a pivotal conclusion： Vanity Metrics & Liquidity Fragility Pendle’s TVL is largely driven by "point-farming" and high leverage, creating a facade of prosperity. This growth lacks organic stickiness. Once incentive programs (points) expire, we expect a massive capital flight. Without sustainable trading volume, Pendle’s fee generation remains decoupled from its TVL, leading to an alarmingly high P/F ratio. Valuation Disconnect From a vertical valuation perspective, Pendle’s revenue model is inefficient. High MC/TVL: Current market pricing has already aggressively "priced in" future growth expectations. Low Value Capture: Despite the high TVL, the actual value flowing to token holders is disproportionately low compared to its DeFi peers. Capital Never Sleeps The bull case often relies on the "TradFi On-chain" narrative. However, even if a trillion-dollar Interest Rate Swap market moves on-chain, the business model itself is flawed: Thin Margins: In traditional markets, Interest Rate Swaps are high-volume but low-margin products. Weak Monetization: Transitioning this to DeFi won’t magically fix the underlying profitability issues. Even with massive notional volume, the actual fee capture remains negligible. Airdrops, farming, and "Mega Points" fueled Pendle’s explosive growth, creating a deceptive TVL dominated by impatient, short-term capital. While current revenue efficiency appears high, it is a localized anomaly of an immature market. As Crypto finance matures, we expect a significant compression of revenue efficiency, mirroring the razor-thin margins of TradFi. Our deep dive into Pendle’s "grand narrative" reveals a disconnect: in mature markets, trillion-dollar IRS platforms struggle with unattractive business models due to the bargaining power of institutional players. A high valuation premium based on current "points-driven" volume is, therefore, difficult to sustain. The path forward for Pendle lies in organic stickiness. The launch of Boros marks a critical pivot toward building genuine TVL and moving away from the "mercenary capital" cycle. This transition acknowledges the ultimate market truth: "Capital never sleeps," and airdrop-driven liquidity can never serve as a permanent valuation anchor. Disclaimer: The information provided herein does not constitute investment advice, financial advice, trading advice, or any other sort of advice, and should not be treated as such. All content set out below is for informational purposes only. Original Post
