The cryptocurrency sector has become increasingly complex, with various metrics gaining distinct importance. Monitoring data for altcoins has become more challenging, and understanding which metrics impact prices is becoming more intricate. Recently, a crucial metric for the altcoin Pendle has been reported: a significant decline in its Total Value Locked (TVL).
What Caused the TVL Decline?
Recent events have stirred the cryptocurrency community, revealing a dramatic drop in Pendle’s TVL. According to DeFiLlama, Pendle’s TVL plummeted by 45%, falling from $6.2 billion to $3.32 billion within a week. This decline coincided with the maturation of several liquid restaking markets, including Ether.Fi’s eETH and Renzo’s ezETH, on June 27. As these markets matured, users withdrew their principal investments, resulting in substantial capital outflows.
Why Did Yields Decline?
Pendle’s CEO TN Lee provided insights into the underlying dynamics of this decline. He explained that around $4 billion in large liquid restaking token (LRT) pools matured on June 27. On Pendle’s platform, LRTs are split into Principal Tokens (PTs) and Yield Tokens (YTs). When users stake assets like ETH, they receive PT-ETH, which can be converted back to ETH at the end of the staking period, while YTs represent the interest earned. As these tokens reached maturity, users claimed their PTs and liquidity provider tokens, causing significant fund outflows from Pendle.
Implications for Investors
The decreased demand for YTs significantly contributed to the TVL drop. As LRTs matured, many users exited Pendle, reducing demand for YTs and causing PT yields to dip below 10%. This prompted users to transfer their ETH to other platforms, exacerbating the TVL decline. Consequently, according to CoinGecko data, the price of the PENDLE token dropped by 60%, from $7 to $3.2 within a week.
Strategies for Recovery
Pendle is actively collaborating with other protocols to recover its TVL. CEO Lee mentioned ongoing discussions with protocols offering higher multipliers. For instance, EtherFi provided a 4x multiplier, and some pools on the Arbitrum network are incentivized with ARB tokens for liquidity providers. These measures present opportunities in the Pendle pool on Arbitrum. However, it’s important to note that these efforts have yet to reflect in Pendle’s price.