一、Introduction

With the advancement of technology and market adaptation, Decentralized Finance is expected to further change the traditional financial market structure and provide market participants with more efficient, safer, and transparent trading options. This Bing Ventures research outlook looks at the potential impact of Decentralized Finance technology in the future, particularly in improving market inclusiveness, dropping transaction costs, and enhancing market efficiency, with a focus on examples such as following PENDLE and pre-market trading.

Pendle introduces traditional Intrerest Rate trading and financial Derivatives to the blockchain through Tokenization, innovating financial products that separate principal and income, such as PT and YT. In this way, Pendle not only provides flexible Intrerest Rate trading methods, but also promotes liquidity and efficiency in the Decentralized Finance market. Pendle’s technical practice separates principal tokens and income tokens, allowing investors to independently manage assets based on their risk preferences and market forecasts.

In the traditional stock market, premarket trading is usually limited to large institutional investors and high-net-worth individuals. In the context of Web3, Premarket has transformed this model, allowing a broader group of investors to participate in pre-market trading through trading platforms such as AEVO and Whales Market, which utilize Smart Contracts and Decentralization. This reform not only increases market transparency and security, but also improves the efficiency of capital utilization and overall market Liquidity.

2. Pendle’s Innovation Practice: The Revolution of Interest Rate Trading

In the TradFi market, Intrerest Rate trading has always been one of the important financial instruments, which not only affects the money supply and market liquidity, but also directly affects the formation of the Intrerest Rate curve. In Web3, with the development of blockchain technology and the rise of the Decentralized Finance ecosystem, Intrerest Rate trading is undergoing a thorough transformation. Decentralized Finance Intrerest Rate trading is no longer restricted to the cumbersome procedures and geographical limitations of traditional Financial Institutions, but is conducted on Decentralization platforms through Smart Contracts, bringing users more efficient and flexible Financial Services.

And in 2024, Pendle is undoubtedly one of the pioneers leading the trend in the emerging field of Decentralized Finance Interest Rate trading. Pendle tokenizes income-generating assets into SY Tokens, such as wrapping stETH into SY-stETH. SY is then divided into principal and yield components, which are PT (Principal Token) and YT (Yield Token) respectively, achieving flexible management and optimization of Interest Rate returns.

With the rise of the Restaking concept and the increasing scale of synthetic Stable Coin, the Interest Rate exchange market has also ushered in a longer new play, and has expanded the potential rise space of the Interest Rate exchange market. Taking Pendle as an example, we will explore these derivative PT/YT new plays, and their impact on the Decentralized Finance Interest Rate trading ecosystem and the prospects for future development.

Intrerest Rate market space

Using the largest Intrerest Rate market Pendle as an example, Pendle briefly became popular in the Intrerest Rate market in 21, and at that time, people didn’t quite understand how Pendle’s Intrerest Rate swap could be applied in the Block market. Today, in 2024, with the flourishing of LRT and the emergence of ETHENA, Pendle seems to have found the most suitable path for itself.

According to defillama data, the current TVL of Pendle has reached $86.884B, ranking 7th in Defiprotocol. In the past month, Pendle’s TVL has risen by 91.62%.

Source: defillama

And according to the products within the protocol, the majority of the rise in TVL comes from the Token of the LRT protocol and the synthetic dollars of Ethena, Pendle integrates well with them, amplifying users’ earnings. Behind the rise in TVL is the top narrative of this round’s Bull Market, the Eigenlayer’s point bonus for the Restaking track, the PT/YT gameplay, and the high returns of Ethena.

Source: Pendle

And according to the above content, it can be found that the key factor for whether the Pendle interest rate market can continue to rise is whether LRT and ETHENA can obtain more long-term market capital in the future, thereby promoting the rise of Pendle.

The new gameplay of YT/PT

In the past, Pendle’s main business was to serve users who own interest-bearing assets, such as users who have staked ETH on Lido to obtain stETH, enabling them to achieve satisfactory returns through the features of PT/YT.

And now, Pendle can generate a new gameplay of PT/YT through Eigenlayer Points+ income and the high-yield production of synthetic dollar protocol Ethena:

1. Points Exchange: Both Eigenlayer and the synthetic USD protocol Ethena have high Airdrop yield expectations, with stake assets (such as ETH) being the core criteria for Airdrop. The collaboration of various projects that issue points through Pendle can achieve points exchange, enabling large funds to provide Liquidity by seeing reliable PT and allowing small funds to gamble for greater returns. This ‘trap’ gameplay of points exchange has also enabled Pendle to reap huge TVL in this Bull Market. a) For example, by staking ETH in Eigenlayer, you can receive eETH+ rewards. Pendle splits eETH into PT (Principal Token) and YT (Yield Token). Buying YT means buying all the reward points to get potential future Airdrops. b) Taking Ethena’s current Intrerest Rate on Pendle as an example: when participating in Pendle using sUSDe. i) If you swap sUSDe for YT sUSDe, you can get 466x Pendle points. ii) If you exchange sUSDe for LP sUSDe, you can get an APY of 46.15% (floating Interest Rate) and accumulate points for holding sUSDe. iii) If you swap sUSDe for PT sUSDe, you can earn a yield of 54.09% APY. c) Large capital sees reliable PT providing Liquidity, while small capital can gamble for greater returns. As the scale of Ethena rises, it will drive the rise of Pendle. d) The collaboration between Ethena and Pendle can also be used in the LRT protocol, allowing users to have a longer choice to increase their earnings, while the development of the Restaking ecosystem will also promote the rise of Pendle.
2. Funding Swap: Assuming that the future scale of the Synthetic Stable Coin protocol can continue to expand in a Bull Market, for example, with the continuous increase of users using ETHENA, there will be a very long sUSDe in the market, which will then be split into YT sUSDe and PT sUSDe through the Interest Rate exchange protocol. When judging the overall market direction, users can predict the trend of future funding fees to make profits. For example, if the market is expected to transition from a bear market to a bull market, users can purchase YT-sUSDe at a lower APY during the bear market (as the APY of the Bear Market Stable Coin is relatively low) and sell at a premium during the bull market to realize gains, thus increasing the opportunities for longer-term speculation.
3. Rich strategies: In the PT/YT exchange, investors with different risk preferences can use different investment strategies. You can achieve bullish returns, risk hedging, and discounted long positions through Pendle operations. a) If it is speculated that the market returns will increase, traders can buy YT to gain exposure to returns. When the returns rise, Long YT traders will benefit. b) On the other hand, if the market speculates that the yield will decrease, traders can hedge risk by selling YT and receiving prepayments.

Three, on-chainPremarket trading platform

Premarket often refers to the “pre-market trading” in the stock market, which means trading activities that start before the official opening of the market. This kind of trading mainly occurs in electronic trading systems, rather than in traditional securities exchange. In pre-market trading, investors can buy and sell stocks, but the volume is relatively small, and the price fluctuation may also be significant. The purpose of this type of trading includes taking advantage of the impact of important news or events released by the company to obtain better trading prices before the official trading begins.

When the Premarke approach is applied to Web3, investors use it to seek investment opportunities in high-profile projects before TokenTGE through Over-the-counter Trading. The main objects of these trades are mostly AirdropTokens that have been confirmed by the project parties and are traded in the form of shares or points.

Source: **

Iteration of Trading Methods in Web3 in Premarket

Source: **

1. In the early days of OTC Trading, mainstream social platforms such as Discord, Telegram, and WeChat were common places for matching trades. At that time, the trading method mainly relied on a middleman to match orders and find buyers and sellers. The trades were conducted through Margin and completed at Delivery, with the middleman taking varying fees.
2. However, this method obviously has a lot of issues, the most common of which is the misconduct of the middleman. Because all transactions are matched by the middleman, the actual buying and selling prices are determined in a black box, which may deviate significantly from the actual seller’s price. There is also a possibility of the middleman taking Margin and causing RUG incidents.
3. And in the second stage, after everyone understands the possibility of middleman’s malfeasance, KOLs and bloggers with a certain fan base start to endorse the role of ‘middleman’ with their own credibility, continuing to match, and bringing together the buyer, seller, and middleman into the same group chat to ensure price transparency. This stage is also the most common OTC Trading method before the appearance of on-chain Pre-marketplace.
4. The second phase of trading lasted for a long time, but many problems still arose, such as low trading efficiency, potential risks of purely manual issues, and the potential risk of the ‘middleman’ role, so two most representative on-chain Pre-marketplaces emerged: AEVO and Whales Market.

Web3 Pre-marketplace Product Introduction

1. AEVO: AEVO is a decentralized options platform, focusing on options and perpetual trading, currently supporting Optimism, Arbitrum, and Ethereum. AEVO has often been used for on-chain perpetual trading in the past, and recently launched a zone for Pre-Launch Tokens, allowing users to trade before TokenTGE. a) Transaction Process: Users can choose relevant Tokens in the Pre-Launch Tokens zone for perpetual trading. Most Tokens support 1-2X leverage, and the actual operation process is the same as the normal perpetual trading process, allowing for different strategies such as shorting or longing. b) Platform Data: As can be seen from the chart, the current pricing of Restakeprotocol’s Token $SWELL on AEVO is $2.1, with a 24-hour volume of $973,762, which is also the highest among the 24-hour volume in the current Pre-Launch Tokens zone. c) Platform Features: i) Compared to the traditional over-the-counter trading method of social platforms, AEVO’s trading process is more formal, transparent, and secure. ii) Support users to go short or long by 1-2X to profit.
2. Whales.Market: Whales.Market is an Over-the-counter Trading platform built within the Solana ecosystem, using Smart Contract technology to provide a secure, trustless environment for the distribution of tokens and non-fungible tokens (NFTs) before TGE, as well as for trading tokens and non-fungible tokens (NFTs). Unlike AEVO, Whales.Market not only trades tokens, but also points, and will later open up trading for non-fungible token whitelists. a) Trading process: Users can choose different underlying assets to trade in the Whales Market, and can clearly see the purchase quantity, unit price, total price, and other related data on the purchase page. During the process, both buyers and sellers execute on-chain peer-to-peer transactions, with the Margin locked in the Smart Contract and released to the parties after successful Settlement. The process of determining whether the transaction is completed often requires manual review. It simplifies the trading process, transparentizes the price, and greatly reduces the financial loss risk caused by fraudulent behavior. b) Platform data: Taking $SWELL as an example, the Total Volume in Whales Market on the same day is $242,394. However, the underlying asset of Over-the-counter Trading supported by Whales Market is significantly longer than AEVO. c) Platform Features: i) Security: Ensure the security of user funds through the transparent matching of orders via Smart Contract. ii) Asset diversity: support for trading a variety of different targets, such as NFT, protocolPoints. iii) Better experience: When a user cannot purchase a large order, they can choose to buy a certain amount of shares and share the order with other buyers.

Current Dilemma

It is crucial for the entire premarket that the high-risk Over-the-counter Trading method, which was guaranteed by middlemen, has now evolved into transactions completed by platforms through Smart Contracts. However, we cannot ignore the existing challenges.

Source: People Matters

1. Liquidity Crisis: Currently, most Pre-Launch Tokens are facing the risk of inadequate liquidity. Even Swell, which has the largest volume on AEVO, has a volume of less than $1M in 24 hours. Low liquidity leads to large fluctuations in token prices and high risks. On the other hand, it also prevents cash-rich whales from participating in the token’s trading with large positions. In theory, the higher the total volume, the closer the price is to the fair value.
2. Risks brought by certain centralized mechanisms: Take Whales Market as an example, in a recent popular BTC Non-fungible Token ‘RuneStone’ transaction, risks brought by centralization emerged. Due to the huge volume of this Non-fungible Token and its transfer on the BTC chain, a large amount of manual verification is required to check whether the Non-fungible Token has been received, whether the GAS fee for the transfer is sufficient, and other issues. Additionally, the Airdrop arrival time of this Non-fungible Token varies, resulting in long users encountering problems during Delivery. Under the influence of these long factors, the process of completing orders becomes more complicated, and centralized review still has issues.
3. High Risk of Premarket: There are very long uncertainties in the trading process of the premarket, which may come from the seller, the platform, or the protocol’s changes to the Airdrop standards, all of which may cause your losses. Investors need to face challenges higher than those in the Secondary Market transactions, and they need to have a highly professional ability to price the Token, which is extremely risky.
4. Low capital utilization efficiency: In the process of off-exchange trading, it is often necessary to pledge Margin to lock the order. However, the actual Delivery date of most projects is some time after the order locking date. During this process, Margin needs to be locked all the time, which greatly affects the capital utilization efficiency.

Four, Technological Integration: The Interaction Impact of Decentralized Finance and Traditional Markets

Despite the countless doubts that Decentralized Finance has faced in the past Bear Market, we believe that this track still holds unlimited possibilities and opportunities in the future. With the emergence and innovation of new protocols such as Pendle, Ethena, and Eigenlayer, Decentralized Finance will further expand its boundaries and provide users with more diversified services and flexible asset management tools. At the same time, with continuous innovation, we will see more long-term plays based on PT/YT. The good collaboration with LRT this time has also opened up a higher ceiling for the Interest Rate exchange market.

We look forward to seeing more and more applications of Interest Rate swaps becoming long, reaching a future where everything can be exchanged with Interest Rate, bringing users more long innovative products and services. However, risks should still be taken into account. Behind the continuous gains in LRT, there are still risks, as there is a strong Liquidity correlation and huge volume among many protocols. The impact of Hacker attacks or malicious protocols can also be extremely frightening. DeFi’s continuous innovation in segmented tracks is a fertile land, and Interest Rate swaps are the precious seeds on this fertile land, full of possibilities.

Pendle’s Innovative Practice

Pendle’s model provides investors with a new way to flexibly manage and optimize Intrerest Rate returns in a Bull Market by separating principal and yield financial products (PT and YT). This innovative practice not only enhances market liquidity but also introduces a new way of asset management and trading through smart contracts. Although it provides an efficient trading mechanism, this model also requires higher expertise and risk management capabilities from market participants. For example, the separation of PT and YT may lead to speculative and unstable market conditions if investors invest without fully understanding its structure.

Premarket’s on-chain trading platform

Through Decentralization platforms like AEVO and Whales Market, Premarket Trading has brought pre-market trading from traditional stock markets to the Web3 world, allowing a wider range of investors to participate in token trading of high-demand projects. This trading method not only improves the accessibility and transparency of transactions but also reduces the intermediary risks in traditional Over-the-counter Trading. Although on-chain platforms reduce the risk of misconduct by middlemen, there are still new technological challenges and the possibility of operational errors. For example, vulnerabilities or operational mistakes in smart contracts may result in financial losses, especially in complex transaction logic and high-value capital cases.

In this Bull Market, we have seen very long projects taking advantage of the ample Liquidity in the market to issue coins, and this phenomenon will continue predictably. The trading process before TGE is also indispensable, and the gameplay of the premarket will be more familiar to more people. At the same time, we can also look forward to good developments in the subsequent premarket.

source:RISMedia

1. Higher Degree of Decentralization: With the continuous improvement of rules on the platform, Premarketplace may emphasize the characteristics of Decentralization in the future. This means that Premarketplace will continuously reduce the need for human involvement, increase transaction speed, and enhance Decentralization.
2. Wider asset coverage: In the future, Premarket may support a wider variety of asset trading, creating more diverse asset trading, just like Whales Market starting to support protocolPoints, NFT, and other asset trading. This will provide investors with a more diverse investment selection and promote the liquidity and trading activity of more assets.
3. Smarter Trading Experience: In the future, PremarketPlace may provide a more intelligent trading experience through Smart Contract+AI. For example, AI function can be used to evaluate the price range of projects, AIdrop user participation threshold, provide personalized trading advice, etc., thereby improving trading efficiency and user experience.

Based on the current Pendle and Premarket innovation trends, several interesting and innovative gameplay can be derived, which closely follow the existing trading mechanisms and market structure:

1. Dynamic Interest Rate Swap Protocols

Pendle’s PT and YT mechanisms can be further developed into dynamic Interest Rate swap protocol, allowing users to dynamically adjust their Interest Rate swap contracts according to market conditions. This protocol can combine real-time market data and AI prediction models to automatically adjust the Interest Rate levels, enabling users to obtain the optimal Interest Rate returns in market Fluctuation.

• Core Mechanism: By combining Smart Contract and AI models, it monitors market changes in real time and automatically adjusts the Intrerest Rate level.
• Advantages: Improve investment return flexibility and reduce the tedious operation of manually adjusting Interest Rate by users.
• Risk Management: Requires high-precision market prediction models and robust Smart Contract code to avoid prediction errors and contract vulnerabilities.

2. Decentralized Cross-Platform Arbitrage Tools

By using the on-chain trading platform of Premarket, Decentralization cross-platform Arbitrage tools can be developed. These tools allow users to conduct Arbitrage trading between different DeFi platforms, automatically identify and execute price difference trading through Smart Contracts, thus achieving risk-free Arbitrage.

• Core Mechanism: Use Smart Contracts to monitor price differences across multiple trading platforms and automatically execute Arbitrage trades.
• Advantages: Improve market efficiency, reduce price differences, and provide risk-free profit opportunities.
• Risk Management: Real-time data synchronization and low latency trading execution are necessary to prevent Arbitrage trade failures.

3. Smart Contract Insurance Mechanisms

Introducing Smart Contract insurance mechanism in Pendle and Premarket trading, providing users with trading insurance services. When Smart Contracts fail or market fluctuations occur, the insurance mechanism can automatically compensate for user losses, ensuring the security of user funds.

• Core Mechanism: Set insurance conditions through Smart Contract, and automatically execute compensation when specific events are triggered.
• Advantages: Increase user confidence and encourage more long-term users to participate in DeFi transactions.
• Risk Management: It requires an adequate insurance fund pool and clear compensation conditions to prevent abuse and insufficient funds.

4. Multi-Layer Staking of synthetic asset long (Multi-Layer Staking of Synthetic Assets)

Based on Pendle’s PT and YT mechanisms, a long-term stake mechanism can be developed, allowing users to stake income assets at long-term levels to obtain different levels of income and rewards. This mechanism can attract more long-term funds to participate in stake and enhance overall market Liquidity.

• Core Mechanism: Users can stake assets at different levels, each level corresponding to different returns and rewards.
• Advantages: Provides a diverse range of investment options, attracting investors with different risk preferences.
• Risk Management：Clear hierarchical division and profit calculation methods are required to prevent the management difficulty caused by complex stake levels.

These cases illustrate how new trading mechanisms in the Cryptocurrency Bull Market improve efficiency and transparency while also bringing new risks and challenges. The Pendle and Premarket cases demonstrate how the integration of Decentralized Finance technology with traditional markets is driving financial product innovation, such as AI-powered intelligent trading systems that can provide more personalized and efficient trading strategies.