Every yield in DeFi is variable, which makes planning impossible and hedging expensive. Pendle fixed that by tokenising the two components separately: PT, the principal token, redeemable one-for-one at maturity, and YT, which receives all yield until then.
How to use it in practice
Buying PT at a discount and holding to maturity produces a known fixed return — the discount is your yield, locked in regardless of what rates do. Buying YT is a leveraged bet that yields rise. Providing liquidity to a PT/asset pool earns trading fees plus some yield exposure. Each is a distinct position with a distinct risk, and confusing them is the most common way users lose money here.
What can go wrong
Fixed means fixed to maturity. Exiting early sells into a pool whose depth thins on longer-dated maturities, so the fixed return applies only if you hold. The underlying asset's risk also passes through entirely — a PT on a yield-bearing stablecoin inherits that stablecoin's depeg risk, which several holders discovered when underlying protocols wobbled.
Record
No exploit through the extremely high volumes of the points-farming period, with thorough audits and a fee of around 3% of yield plus swap fees. Much of that volume was driven by points programmes, so the durable size of the market is still being established.
Who should use it
Users who want a predictable return on a yield-bearing asset and will hold to maturity, and sophisticated traders with a view on rates. Not a set-and-forget product.