Background of Penpie’s Emergence

In previous Gate articles, Pendle Finance, a yield tokenization protocol built on Ethereum and Arbitrum, was extensively introduced. This protocol incorporates veToken’s tokenomics. Users who stake PENDLE tokens receive vePENDLE tokens, with the amount obtained being directly proportional to the staked amount and duration, with a maximum stake period of 2 years. Holders of vePENDLE tokens can vote to determine the parameters of liquidity incentive plans. If vePENDLE holders act as liquidity providers (LPs), they earn substantial rewards.

Throughout the participation process, users encounter three challenges:

1. Uncertainty stemming from long-term staking
2. Liquidity concerns related to staking
3. Inability to promptly engage in voting to maximize personal gains

Penpie will transform PENDLE into mPendle, a freely convertible form, to address issues 1 and 2. When users stake PENDLE tokens with Penpie, their tokens are staked within Pendle, allowing Penpie to exercise voting rights on their behalf. Users earn staking rewards, and they simply hold Penpie’s PNP token to determine voting power over the staked Pendle tokens. Users can migrate their LP/GLP/tokens initially staked with Pendle to Penpie for increased Pendle rewards. Simultaneously, assets placed in Penpie also accrue PNP rewards, effectively tackling issue 3.

For those less familiar with Pendle, it is recommended to consult the article Understanding Pendle Finance (PENDLE) in One Read.

Team Background

Penpie is a sub-project (subDAO) crafted by Magpie specifically for Pendle. Magpie is a cross-chain DeFi platform that offers Yield and veTokenomics-enhanced yield services, initially incubated by the Wombat trading platform.

Magpie is currently undertaking an innovative initiative called subDAO. This endeavor aims to incubate new protocols that enhance the standing of veTokenomics-based protocols within the expanding DeFi ecosystem. The cornerstone of the SubDAO model lies in the symbiotic relationship between Magpie and the supported protocols. This relationship fosters an environment in which both entities can flourish, collectively contributing to the overall growth of the DeFi sector.

Penpie stands as Magpie’s inaugural subDAO. Recently, Magpie also announced the launch of the Radpie project, a collective governance initiative based on RNDT. With the increasing number of subDAOs, network effects will gradually become evident, further promoting the development of individual subDAOs. Notably, Penpie has recently unveiled the deployment of the $mPENDLE pool on Arbitrum through Wombat.

Magpie’s Eco (source: official website)

Penpie has undergone an audit by WATCHPUG, and the audit report has been published on GitHub.

Mechanisms of Penpie

In response to the various issues mentioned in the background of Penpie, the following approaches have been adopted:

1. Users are allowed to convert $PENDLE into $mPendle without the need to lock $PENDLE into vePendle.
2. $mPendle is a circulating ERC20 token that users can easily convert back to Pendle with fast transactions.
3. Upon possessing a significant amount of Pendle, Penpie gains a certain level of governance power.
4. Penpie obtains additional $PENDLE rewards by participating in Pendle’s governance and voting for LPs related to itself.
5. Users have the option to transfer LPs, which would initially be staked in Pendle, into Penpie. Through governance, Penpie enables users to achieve higher yields.

Through these actions, holders of PENDLE can capture actual $vePENDLE returns without needing long-term token locking. Similarly, LPs can enhance their yield without locking veTokens, directly harnessing the yield amplification supported by the protocol’s locked $vePENDLE.

Product Page of Penpie (Source: Official Website)

Both mPENDLE and the Penpie token $PNP now support layerZero OFT V2, enabling seamless cross-chain functionality through the Penpie website. The features of Penpie are also accessible on both the Ethereum and Arbitrum blockchains.

Bridge Function Page of Penpie (Source: Official Website)

Token Economics

$PNP is the native token of Penpie, with a total supply of 10,000,000.

Token distribution and unlocking are as follows:

Token Allocation and Unlocking Diagram of Penpie (Source: Official Documentation)

The utility of PNP involves governance and real revenue sharing. Users have the option to lock $PNP into $vlPNP. Stakers participating in the protocol can engage in Penpie’s governance, and those who lock $vePENDLE through the protocol can participate in Pendle’s governance. Furthermore, aside from protocol dividends, $vlPNP will also receive bribes from individuals seeking to enhance specific LP emissions on Pendle. However, the income from Ethereum and Arbitrum will be independently allocated to mPENDLE and vlPNP staked on each respective chain.

Regarding vlPNP

1. It can be fully unlocked within a maximum of 60 days.
2. Early unlocking is also possible at a rate less than 100%: 20% can be claimed on the first day, followed by linear increments.
3. During the “unfreezing period,” voting is not allowed, but protocol income can be claimed.

Competition Landscape

According to the Penpie documentation, Penpie’s revenue primarily comes from Pendle Finance, with the amount of revenue depending on the amount of Pendle governance rights. Currently, the obtained revenue is distributed through two main methods:

Pendle Liquidity Mining enhances the Pendle reward yield

• 83% is allocated to liquidity providers
• 12% goes to mPENDLE
• 5% is distributed as mPendle to vlPNP holders

Pendle Liquidity Mining increases the SY reward yield

• 83% is allocated to liquidity providers
• 17% serves as automatic bribes for the bribe market

Therefore, the more Pendle is locked, the higher the returns for PNP holders and LPs staked in Penpie. According to DeFiWars’ statistics, the three main projects participating in Pendle governance are Equilibria, Penpie, and StakeDAO. Among these, StakeDAO is a multi-project veToken governance initiative deployed solely on Ethereum, while Equilibria, similar to Penpie, is deployed on Ethereum and Arbitrum.

Pendle Wars Update (Source: DeFi Wars)

StakeDAO, operating solely on the Ethereum network for its multi-project veToken governance initiative, exerts a limited influence on Penpie’s competitive landscape. Equilibria, positioned as the primary rival protocol to Penpie, demonstrates certain product similarities, yet their strategic trajectories diverge. This aspect becomes apparent from an examination of their respective Tokenomics structures.

Equilibria Token Distribution Overview (Source: Equilibria Doc)

The most significant distinction between the two lies in how Penpie allocates 35% of the tokens to liquidity mining and 20% to the Initial DEX Offering (IDO), whereas Equilibria designates 45% of the tokens to incentivize Pendle’s LP, with 10% allocated to liquidity mining. This disparity holds implications for beneficiaries of Pendle:

1. Pendle Holders: When opting to stake Pendle, priority should be given to Penpie as it offers superior staking rewards. (Note: Actual APY is contingent on the staking amount; Penpie’s current yield is approximately 28%, lower than Equilibria’s 36%.)
2. LP Holders: Given Equilibria’s use of EQB for subsidies, selecting Equilibria leads to greater rewards.

Due to the Magie Treasury, Penpie’s own PNP Token can’t fully realize all incentives. Yet, substantial liquidity staking has the potential to attract users to deposit Pendle Tokens. Equilibria’s substantial LP subsidies contribute to the rapid growth of TVL (Total Value Locked). Naturally, the future evolution of both products also hinges on the team’s business development and product innovations.

Market Outlook

Pendle caters to various investment needs and profit strategies of users through interest separation. Before the Shanghai upgrade, the team seized the opportunity to develop multiple products tailored for LSD. Pendle’s Total Value Locked (TVL) has continued to rise after the Shanghai upgrade, recently surpassing $150 million. However, there remains a substantial gap when compared to the scale of the LST market, indicating a vast market outlook.

Pendle TVL (Source: DeFillama, Date: 2023-07-04)

Penpie, as a governance aggregation product of Pendle, represents a potential avenue for evolving profits. Despite being introduced relatively recently, it exhibits competitive strength due to a similar volume of locked Pendle tokens compared to competing products.

Is Penpie (PNP) a Good Investment?

As with any investment, whether Penpie is a sound investment depends on one’s individual risk tolerance and investment goals. From a fundamental perspective, Penpie addresses the issues posed by veTokens and offers higher returns for PENDLE holders and LPs. The team also possesses experience in creating related products and is promoting a new subDAO, which could yield network effects in the future.

Of course, Penpie’s performance is tied to Pendle’s development. A positive trajectory for Pendle would lead to gradual increases in Penpie’s staking yield and attract a growing number of users, forming a positive growth cycle. Conversely, a death spiral could emerge if Pendle’s development falters. Overall, while we cannot guarantee a hundred percent success for any investment, Penpie’s launch performance and its appeal to those seeking high-yield positions favorably among those interested in investing in the DeFi sector.

Conclusion

Like Convex, Penpie relies on veToken to maximize yields, and the incentive from Penpie’s mPendle will further boost Pendle’s liquidity growth. The interest rate market within Pendle Finance is currently in its early development stage, holding vast prospects. The team’s ability to seize trends and promote growth has led to a dual increase in TVL and Token prices.

Although Penpie launched later than its competitors, its incentivization measures and collaborations have positioned PENDLE staking as the second highest. The gap to the first position is minimal. In this competitively advantaged race, Penpie’s achievements are undoubtedly commendable.