Interview with Pendle co-founder TN LEE: V2's stability and Boros' launch – building the "Apple" of the DeFi market.

Compiled by: JAE

From Kyber to Pendle, TN LEE's entrepreneurial journey over a decade in the DeFi market has spanned almost every key cycle. As an early participant in the DeFi ecosystem, he not only accumulated rich business experience but also keenly recognized the enormous potential of the interest rate market during the DeFi Summer. In the DeFi world, interest rates have always been the core variable driving fund flows and user decisions. Based on his deep understanding and practical experience in the interest rate market, he assembled a team and founded Pendle, gradually building a complex and innovative product system around the central theme of "interest rates."

Recently, Pendle co-founder TN Lee gave an exclusive interview to PANews, stating that Pendle will not offer any spot or perpetual contract trading, but will focus more on interest rates, creating the best interest rate products for DeFi and the broader field. Regarding the future, he believes that RWA (Real World Assets) and Bitcoin yields will be key directions for Pendle and the entire DeFi ecosystem. He also shared his thoughts on product portfolio, user experience, ecosystem growth, and industry collaborations.

The following is the full text of the dialogue:

Strategic Evolution: From Locking in Extremely High APY to Opening Up the Stablecoin Market, and Then to Leveraged Interest Rate Trading

PANews: It's an honor to have the opportunity to interview you. Please introduce yourself and review the development history of Pendle.

TN LEE: I'm TN, co-founder and CEO of Pendle. I entered the cryptocurrency space about 10 years ago, starting my career at KyberSwap. As one of the founding team members, I stayed at Kyber until the end of 2018.

After that, I started a business with my current co-founders and tried out many product ideas in the crypto field, and also dabbled in the AI field, until finally deciding to build Pendle in 2020.

The idea for Pendle originated during the DeFi Summer of 2020, as we wanted to lock in yields as high as 10,000% to 20,000% APY. Our core motivation for building Pendle was "locking in interest rates," because users quickly realized the value of certainty.

Fast forward to mid-2021, we launched our product, which didn't garner much attention due to its complexity. It was also the beginning of a bull market, and people probably didn't have time to learn about new products. However, when we supported some high APY assets, particularly Wonderland's wMEMO, our trading volume grew from approximately $50,000 per day to nearly $5 million in a short period.

Throughout 2022, we have been optimizing the product and launching the current features.

In 2023, we focused on building use cases and establishing the Pendle brand around core trends and narratives, starting with the early LST (Liquidity Staking Token) and then working closely with the Arbitrum ecosystem in Q3 and Q4 to try to expand our appeal.

A more significant breakthrough occurred in Q1 2024, when Pendle became more involved in the Eigenlayer and LRT (Liquidity Restaking Token) ecosystem. At that time, the protocol began tokenizing points, allowing users to earn attractive fixed interest rates by purchasing PT (Principal Token). Simultaneously, if users wanted to trade points, they could purchase YT (Yield Token). These features were continued, and Pendle slightly shifted its narrative in the process. During the same period, we continued to focus on the Ethena market and launched several BTC markets at the end of Q3 and throughout Q4, bringing Pendle a considerable TVL, at one point reaching approximately 25%.

PANews: There is already a lot of information about the mechanism and principles of Pendle, so we will not go into too much detail. Next, we will focus on the current situation and future of Pendle. Please share Pendle's strategic path.

TN LEE: From a strategic perspective, earlier this year we realized that stablecoins would be a particularly important part of Pendle's growth plan. Therefore, we adjusted our positioning, focusing more on stablecoins, and opened up the protocol, allowing any issuer to launch their market on Pendle without permission. We also seamlessly facilitated market creation through the UI (User Interface). In this process, benefiting from the growth of stablecoins, Pendle's TVL peaked at approximately $13.5 billion in September.

PANews: You recently launched a new product called Boros. Could you please introduce it as well?

TN LEE: By the end of 2023, we realized the market needed a product that could generate leveraged returns because most sustainable returns, such as ETH staking returns or SOL staking returns, are mean-reverting. They may be high on some days and low on others. But over a longer period, they typically revert to a certain mean, for example, around 4% for ETH and around 6-7% for SOL; their volatility is usually within a very small range.

This means that if users want to profit from small fluctuations in interest rates, they need a large amount of underlying assets. For example, if a user wants to earn a 3% to 4% interest rate spread on $10, it would take a long time to earn a meaningful amount. Users would need $1 million in notional principal to earn a meaningful amount when interest rates fluctuate from 3% to 4%, which is why we developed Boros.

Boros is fundamentally a leveraged interest rate trading product. Structurally and conceptually, it is very similar to Pendle V2. However, the use cases differ. V2 focuses more on tokenization and trading of credits.

Boros is suitable for all mean-reverting interest rates. Starting with funding rates, taking the funding rate of BTC perpetual contracts on Binance as an example, the average annualized rate is likely around 10%, sometimes negative, and sometimes as high as 20% or more, but over a longer period, it's likely around 10%. The same applies to staking yields; some days it's 2%, some days it's 4%, but it usually fluctuates within the range of 2% to 4%. These interest rates don't fluctuate much, so they require leverage to amplify the volatility. If users trade properly, they can earn meaningful wealth.

PANews: Boros is a product that's going from scratch, and going from scratch is usually a difficult process. Besides Boros, Pendle also has V2. How will you manage the progress between the two products?

TN LEE: These are both important products, but because they are at different stages, the skill sets involved are also different. V2 is much more mature, handling billions of dollars in value and having been around for many years, so it needs to focus more on increasing the number of use cases and distribution. Boros, on the other hand, should focus more on product stability and PMF (Product-Market-Fit).

I think it's important to recognize that these are different operating models. If Pendle had two products, both starting from scratch, the management complexity would increase significantly. But now that one product is more mature, we can assign the right team to focus on its expansion. For Boros, we will allocate members who are more adaptable to uncertainty and adept at extensive experimentation to expand it.

Apple-style product architecture: V2 focuses on large-scale expansion, Boros explores PMF (Product-Market Fit).

PANews: Pendle currently has two main product lines: V2 and Boros. What kind of product structure do you hope to build?

TN LEE: I think you can think of Pendle as the main brand, with a product portfolio that resembles an "arch." Pendle is at the top, and there are currently at least two pillar products: V2 and Boros. They serve different use cases and may target different users, but ultimately all fees or revenue generated should go to the PENDLE token.

This is the core concept of a "main brand," and I actually want to use Apple as an analogy. Apple is at the top, the main brand, but it has product lines such as iPhone and AirPods.

This is also how we pursue sustainable development; Pendle will not offer any spot or perpetual contract trading. We will focus more on interest rates, creating the best interest rate products for DeFi and beyond.

PANews: What are Pendle's plans for V3 or other new products? What designs or features are you planning to include?

TN LEE: Yes, it's in progress. We've started some research projects, but it's too early to share them now. I can only outline a general direction for the future.

I believe Pendle has now become a significant part of any DeFi ecosystem. We firmly believe that interest rates are the most important consideration in investing, lending, and many other financial decisions. The difference between a 3% and 5% interest rate is substantial when a user wants to borrow money, and the same applies to investment decisions.

Our core mission is to make all interest rates tradable and easily manageable. So far, we've primarily focused on building V2, which has become a crucial tool for many protocols to funnel liquidity over the long term. This year, in particular, it has focused on supporting stablecoins and the funneling of liquidity for L1 and L2.

Looking ahead, I believe it's crucial to target real-world yield opportunities, such as private lending APY, money market APY, or various instruments that are increasingly entering DeFi, like corporate bonds. These can be related to both V2 and Boros, and we will gradually expand our product portfolio to support a wider range of assets, not just stablecoins or other L1 and L2 pre-deposit activities.

We envision that both V2 and Boros could have relevant use cases. In particular, I think Boros makes more sense for interest rates that are fairly stable and typically fluctuate within a small range, such as corporate bonds, which usually trade between 7% and 10%, with very little volatility, thus making the amplification effect even more necessary.

PANews: What are your expectations for Boros' growth?

TN LEE: Regarding the strategy we're currently exploring, because Boros is a very early product, only two and a half months old, we've been gradually raising the ceiling. Initially, we were quite conservative, mainly wanting to ensure the product was safe and robust since we didn't have any data. But now we have more data points, and we know what to relax and what to tighten up on. These are important changes we will implement over time.

Currently, Boros only offers BTC and ETH markets from Binance and Hyperliquid. In the future, we hope to support more channels, such as OKX, Coinbase, Bybit, and many other exchanges. Similarly, we hope to support more assets and markets on these channels, such as XRP, SOL, and WLFI. Therefore, from a growth perspective, the ideal scenario is to increase channels, expand markets, and shorten timelines.

PANews: You've emphasized that Boros won't issue tokens, and all revenue will go to Pendle tokens. How will Pendle's token economics evolve to better capture protocol value and incentivize long-term holders?

TN LEE: We prefer to maintain the status quo; the PENDLE token will continue to be the vehicle for value accumulation across all mechanisms. However, once we have a clear direction on Boros, we will reconsider how we accumulate value.

The reason we want to maintain the status quo is that Boros, as a new product, has no precedent. Since Boros is a product built from scratch, we need to find Product-Market Fit (PMF). I believe it's naive to promise a value accumulation mechanism before the product achieves meaningful PMF and generates substantial revenue. Therefore, we prefer a more flexible approach: build the product on Boros, achieve PMF, generate healthy revenue, and then promise a more meaningful value accumulation mechanism.

Abstracting PT as "bank fixed deposit," I am optimistic about the profit opportunities of RWA and Bitcoin.

PANews: Pendle may have a high barrier to entry for ordinary users. How do you balance product complexity and user experience?

TN LEE: I think it will largely depend on packaging and distribution. Regarding distribution, we want to focus more on the fixed-rate portion and leave the speculative portion to the most mature users on the agreement.

From a fixed-rate perspective, it's not difficult to understand. Fixed-rate deposits are already a very common product, offered by almost every bank. Similarly, if we package a PT (Prepaid Transaction) product that allows users to obtain a fixed interest rate, we can structure it like a fixed-rate deposit product. If the goal is to lock in a 5% or 10% interest rate, users don't even need to know the PT/YT ratio; these are abstracted away. Users only need to know that if they deposit, they are guaranteed to receive these returns at the end of the term. For most fixed-rate products, the distribution channel is more important; it could be a wallet or a CEX (Central Exchange) investment product.

However, YT remains an important part, but its promotion may be more targeted at mature users, such as market makers or experienced DeFi players who have a good grasp of interest rate trends.

PANews: As Pendle's TVL and trading volume grow, the protocol's ecosystem comprises LPs and PT/YT holders, among others. How do you view the roles and interests of the different participants in this ecosystem? How can you ensure the long-term healthy operation of the "growth flywheel"?

TN LEE: LPs can be anyone, and the reason they are willing to become LPs is that when providing liquidity, if they hold YT, they may also benefit from the token's appreciation and receive some guarantee of returns. This is the user profile of YT holders, mainly smaller retail investors. Because of YT's capital efficiency, it requires much less initial capital but can generate meaningful returns for users, while PTs are mainly larger funds.

I believe that the PT and LP portions will become more accessible to retail investors, but this must be packaged through wallets or other protocols, so an additional layer of abstraction, such as wallets or other products, is needed to allow retail users to participate in these opportunities without them having to directly engage with Pendle.

PANews: As a DeFi builder, what advice do you have for new practitioners?

TN LEE: I'm still learning and can't call myself an expert, but I can share some experience. I've realized that as a builder, seeking help is beneficial. In my experience, most of the time when I ask for help, there are people who are very willing to offer assistance or guidance, from which we benefit greatly. If I were to list all the names, I couldn't even finish. Many people have helped or know Pendle, all because our team (not just me) is willing to proactively reach out and seek help.

I remember in the early days, when we weren't very good at marketing, we contacted teams like Chainlink and Binance Wallet. They were happy to share some things they had done—not confidential information, just best practices to observe and improve upon. Similarly, I think this is probably one of the most important things for new builders. It will be tough at first, but knowing there are peers who are genuinely willing to help and support you is incredibly helpful.

We are also happy to collaborate with other protocols. As a second-order derivative, we also need to help first-order derivatives grow, which in turn drives our own growth, just like our collaboration with Ethena. By allowing interest rates to be fixed and created, we provide value and utility to the Ethena community, enabling Ethena to grow more comfortably at their scale, and we ourselves benefit from it.

PANews: What do you think will be the most important innovations and trends in the DeFi market in the next three to five years?

TN LEE: Actually, I think there are two relatively certain trends, neither of which are groundbreaking technologies, but rather more from a market relevance perspective. First, we want to participate in yield opportunities in Real World Assets (RWAs). As the US begins to refine its cryptocurrency regulatory framework, we are likely to see traditional institutions participating more comfortably in the crypto industry and DeFi market. I believe this will create more opportunities in the crypto space, and Pendle will be dedicated to capturing these upcoming opportunities.

Secondly, I believe that sustainable returns on Bitcoin will become increasingly important. How easily users can access Bitcoin returns, whether through lending or some structured product, and in a way that generates meaningful and sustainable returns, will be crucial. I believe this is the holy grail; Bitcoin is the largest single asset in the entire crypto space. Therefore, generating returns from Bitcoin will have a tremendous impact from both a utility and value creation perspective.