Pendle Finance launches support for LP derivatives

Users can now trade and hedge swap fees with Pendle

Pendle Finance has launched tokenized returns for LP Sushi Positions. Users can now split their LP position into derivative tokens, allowing speculation on future market movements. Derivatives such as Pendle’s yield tokens are a growing part of the DeFi ecosystem.

Pendle Finance has launched support for Sushi LP (SLP) tokens, allowing users to trade and hedge swap fees, and speculate on the risk of impermanent loss (IL).

Pendle Finance is giving users the ability to create derivatives of their Sushi liquidity provider (SLP) tokens. The announcement comes after Pendle successfully raised $3.5 million to launch the new feature in April.

SLP tokens can now be divided into two components: ownership tokens (OT) and yield tokens (YT). By purchasing and holding these tokens, users can gain exposure to LP positions without providing liquidity themselves, similar to how derivatives work in traditional finance.

Ownership (OT) tokens represent the underlying assets used to provide liquidity to the LP position. As such, users holding OT tokens are exposed to the impermanent loss that the position may suffer through future price movements. On the other hand, Yield (YT) tokens give the holder access to the fees generated by the LP position without the risk of IL.

Pendle co-founder and CEO TN Lee commented on the launch of the new protocol feature, stating:

By introducing SLP as a supported asset, we bring a new utility to the DeFi ecosystem. Users are now able to trade and hedge swap fees with minimal exposure to impermanent losses, which is something that has not been possible before

The ability to split LP positions opens up new opportunities to speculate on future market movements. For example, if a trader is convinced that the yield on an LP position will increase in the future, he could purchase YT tokens to gain exposure to the potential increase without risking IL. Conversely, a trader could hedge against IL risk by choosing to sell his OT tokens when he expects market volatility to increase, while keeping the yield-generating YT tokens.

Currently, Pendle supports PENDLE/ETH and ETH/USDC SLP tokens, with other liquidity pairs planned for the future.

The DeFi ecosystem on Ethereum has continued to grow despite the market decline earlier this year. Derivatives are seeing increased interest, with the leading provider of cryptocurrency-based perpetual contracts, Perpetual Protocol, launching a $47 million fund to promote DeFi derivatives. With the launch of tokenized returns, Pendle will be well positioned as the DeFi derivatives market expands. The PENDLE token jumped more than 80% on news of the protocol news.

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