Key Takeaways
- Pendle Finance has launched tokenized yields for Sushi LP Positions.
- Users can now split their LP position into derivative tokens, allowing for speculation on future market movements.
- Derivatives like Pendle’s yield tokens are a growing part of the DeFi ecosystem.
Pendle Finance has launched support for Sushi LP (SLP) tokens, allowing users to trade and hedge swap fees, and speculate on the risk of impermanent loss (IL).
Pendle’s LP Derivatives
Pendle Finance is giving users the ability to create derivatives of their Sushi liquidity provider (SLP) tokens. The announcement comes after Pendle successfully raised $3.5 million to launch the new feature back in April.
SLP tokens can now be split into two components: ownership tokens (OT) and yield tokens (YT). By buying and holding these tokens, users can gain exposure to LP positions without providing liquidity themselves, similar to how derivatives function in traditional finance.
Ownership tokens (OT) represent the underlying assets used to provide liquidity to the LP position. As such, users holding OT tokens are exposed to the impermanent loss that the position may incur through future price movements. On the other hand, yield tokens (YT) give the holder access to the fees generated by the LP position without the risk of IL.
Pendle co-founder and CEO TN Lee has commented on the launch of the protocol’s new feature, stating:
“By introducing SLP as a supported asset, we bring a new utility to the DeFi ecosystem. Users are now able to trade and hedge swap fees with minimal exposure to impermanent loss, which is something that has not been possible before.”
The ability to split LP positions opens up new opportunities to speculate on future market movements. For example, if a trader has a conviction that the yield on an LP position will increase in the future, she could buy YT tokens to gain exposure to the potential increase without risking IL. Conversely, a trader could hedge against the risk of IL by opting to sell his OT tokens when he expects increased market volatility while retaining the yield generating YT tokens.
Currently, Pendle supports PENDLE/ETH and ETH/USDC SLP tokens, with more liquidity pairs planned for the future.
The DeFi ecosystem on Ethereum has continued to grow despite the market-wide pullback earlier this year. Derivatives are seeing increased interest, with the leading provider of crypto-based perpetual contracts, Perpetual Protocol, launching a $47 million fund to boost DeFi derivatives. With the launch of tokenized yields, Pendle will be well-positioned as the market for DeFi derivatives expands.
Disclaimer: At the time of writing this feature, the author owned BTC and ETH. One or more members of Crypto Briefing’s management team has invested in Pendle Finance.
