How Pendle splits yield in two

@pendle_fi takes a yield-bearing token and breaks it into two independently tradable assets. One is the Principal Token (PT), which redeems the underlying at a fixed maturity date. The other is the Yield Token (YT), which collects all the yield the asset generates until that date arrives.

The bond-stripping analogy

The mechanics are deliberately close to a concept from traditional fixed income. As Pendle's own documentation states, the PT is essentially a zero-coupon bond on the underlying asset, while the YT functions like the detached coupon payments on a stripped bond. In traditional markets, bond stripping is a technique used by institutional investors to create synthetic fixed-income instruments. Pendle brings that same logic on-chain.

The split creates two distinct trade ideas. A buyer of the PT locks in a known return by purchasing the principal at a discount and redeeming it at par on maturity. A buyer of the YT gets pure, leveraged exposure to the underlying variable yield, but accepts that the token expires worthless once the pool closes. Every Pendle pool carries a fixed expiry, typically three, six, nine, or twelve months from launch, after which PTs redeem one-for-one for the underlying and YTs become permanently worthless.

Scale and market position

Pendle has grown into the dominant venue for on-chain yield trading. According to DefiLlama, Pendle ranks first among yield protocols by total value locked, accounting for roughly 27.5 percent of the entire yield-protocol category tracked on the platform. The protocol supports assets including stETH, sUSDe, weETH, and USDC deployed in Aave, with pools active across more than a dozen chains. The $PENDLE token was trading around $1.38 on a market cap of approximately $239M at the time of writing, per CoinMarketCap.

The protocol's custom automated market maker handles PT and YT trades through a single liquidity pool per asset, with pricing governed by the mathematical relationship that PT value plus YT value must always equal the value of the underlying yield-bearing token. That constraint is enforced by the AMM and by arbitrageurs who close any deviations.

For DeFi users, the practical appeal is straightforward: rather than holding a yield-bearing asset and passively accepting whatever variable rate the market delivers, Pendle lets participants separate the fixed-value side of a position from the yield side and manage each independently.

Sources:
Pendle Finance official documentation: Yield Tokenization and Minting
DefiLlama: Pendle TVL, Fees, Revenue and Volume
Coin Bureau: Pendle Finance Review 2026