Proposal: Support Pendle’s LRT PT Tokens as collateral on Venus Protocol

Rationale Restaking narrative has gained tremendous traction over the past month with various LRT protocols capturing significant liquidity, of which Pendle currently contributes approx $600M liquidity across various LRT pools.

Through supporting Pendle’s Principal Tokens (PT) as collateral, Venus Protocol can tap into Pendle’s LRT liquidity and capture borrowing demand from the rising restaking narrative.

Proposal Summary Support Pendle’s LRT Principle Tokens (PT) as collateral on Venus’s ethereum mainnet Delegate full discretion for Venus’s risk managers to decide which LRT assets on Pendle to support, including decisions on whether to include PT tokens in existing pools or creating separate pools for restaking related assets, and also parameters such as collateral factors, borrow limit etc. Motivation Pendle currently contributes approx $600M of LRT’s overall TVL Principal Tokens (PT) held by users can be unlocked as liquidity if they are supported as collateral on money markets Current liquidity breakdown of floating PT-LRTs PT-weETH (27 Jun 2024): >100,000 ETH ($290M) PT-rsETH (27 Jun 2024): >22,000 ETH ($63M) PT-ezETH (25 Apr 2024): >21,000 ETH (~$60M) Venus Protocol can be one of the first money markets supporting PT-LRTs as collateral Borrowing demand from these floating PT tokens will create attractive deposit yield for Venus’s lenders What is Pendle The Pendle protocol enables permissionless tokenization and trading of yield. Pendle allows anyone to purchase assets at a discount, obtain fixed yield, or long DeFi yield. The protocol enables this by taking yield-bearing tokens and then splitting them into their principal and yield components, PT (principal token) and YT (yield token) respectively, which allows them to be traded via Pendle’s AMM.

Pendle brings the TradFi interest derivative market into DeFi. In traditional finance, interest rate swaps are the biggest market in the world at >$500T. PT is the equivalent of zero-coupon bonds while YT is the equivalent of coupon payments. Pendle is positioning itself to become a core infrastructure for on-chain yield trading.

Principal Tokens Mechanics PT is a non-rebasing token. PT represents the principal portion of the underlying asset and can be redeemed 1:1 for the underlying asset at maturity. Since the yield component (staking/restaking rewards and points accrual) has been separated, PT can be acquired at a discount compared to the underlying asset. The value of PT will approach and ultimately match the value of the underlying asset on maturity.

Due to its mechanics, the value of PT is tightly correlated with the value of its underlying asset. At maturity, the price of 1 PT is equivalent to 1 underlying asset.

Additional details in the below forum post.