Deciphering Pendle Finance’s surge and the pop up of Notcoin

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Forecast

The altcoin market has recently gained momentum following the approval of the spot Ether (ETH) exchange-traded funds (ETFs) in the United States. In May, the total altcoin market capitalization surged by around 20%, with ETH responsible for half of this growth.

Upcoming airdrops, which will distribute project tokens worth billions of dollars to decentralized finance (DeFi) users, have the potential to fuel further excitement in the altcoin market. Major airdrop events from projects with multibillion valuations, such as LayerZero, Etherfi, Blast and zkSync, are anticipated by the end of Q2 2024.

Analysis

The growing hype around liquid restaking benefitted Pendle Finance in May. Pendle is an interest derivatives multichain protocol that lets users separate yield-bearing token assets into principal and yield components.

PENDLE’s price and total value locked (TVL) grew by 58.6% and 50.5%, respectively, thus outperforming other large-cap DeFi projects. As of June 3, Pendle had a TVL of $6.28 billion. It surpassed Uniswap’s TVL of 6.12 billion and now ranks as the sixth-largest DeFi protocol.

Liquid staking tokens are currently the most commonly deposited asset on Pendle and make up the top five pools with the highest TVL. Etherfi’s weETH pool alone accounted for $1.4 billion in TVL.

Users can split yield-bearing assets such as Renzo’s ezETH on Pendle to generate a yield token (in this case, YT ezETH) and principal token (PT ezETH). The PT token represents the principal of the underlying asset, while the YT is an entitlement to future yields.

Every PT and YT has a maturity date. PTs, which usually trade at a discount, can be redeemed for the underlying asset after this date. As for YTs, they keep generating proceeds until the maturity date, after which the YT has no value. On top of this, holders of YT ezETH are eligible for airdrop allocations from the underlying asset.

PT holders, on the other hand, will receive no airdropped tokens. Both YTs and PTs are tradeable and liquid.

Airdrop farmers have been incentivized to deposit their LRTs into Pendle since the introduction of point multipliers by liquid restaking protocols. These multipliers increase airdrop allocations when an asset is held in a DeFi protocol, compared to when it is sitting in a wallet.

For example, Renzo Protocol is currently giving out a 4x multiplier on its Pendle pool — on top of the already amplified airdrop exposure from YT tokens. By buying YT tokens, one can thus achieve 117x the number of Renzo airdrop points than from buying the underlying asset.

This process of maximizing future airdrop allocations is called leveraged point farming. The multiplier incentivization aims to expand the utility and adoption of LRT tokens within DeFi. All major LRT protocols have incorporated a point multiplier for Pendle ranging from 2x to 4.5x. This multiplier is applied to both liquidity providers and YT holders.

It is worth noting that Pendle’s dependence on the LRTs for its locked value means a high single-risk exposure. Pendle’s TVL saw a sharp $1-billion outflow in late April. This 25% drop in TVL was mainly due to the arrival of airdrop allocations from Etherfi, Ethena and Renzo.

Once a highly anticipated airdrop has been distributed, the incentive to use a restaking protocol diminishes, and many users withdraw their funds. However, the aforementioned projects have already announced second seasons of their airdrops to maintain their TVL.

Another outlier in the current market environment is Notcoin (NOT), the native token of a Telegram Mini decentralized application (DApp) called Notcoin created by the Open Builders. NOT has seen a substantial price increase of over 400% from May 27 to June 3.

A mini DApp is a lightweight application embedded within major social media platforms. Notcoin can be played within Telegram without downloading additional software, which significantly lowers the entry barrier. Players can earn in-game tokens NOT just by tapping the screen.

With a simple earning model and mini DApp design, Notcoin had already attracted over 35 million users on May 16, with 6 million daily active users before the token listing. Notcoin distributed 78% of the NOT to users at the launch, and the rest was allocated for the strategic development of the Notcoin ecosystem.

This wide distribution makes the community treat NOT as a The Open Network ecosystem memecoin. As of May 30, there are 1.6 million onchain NOT holders, which is more than other large-cap memecoin such as Shiba Inu (SHIB) (1.4 million), Bonk (BONK) (721,000) and Pepe (PEPE) (235,000).

The recent price surge of NOT remains speculative. It could be partly due to the advent of more applications in the TON ecosystem, which has increased community awareness of NOT. There is a collaboration between Notcoin and a cat-raising game named Catizen, which supports NOT for in-game purchases.

Catizen became a top-ranking application during The Open League Season 3, which is an event organized by the TON Foundation to incentivize TON users. With nearly 2 million daily active users, Catizen earned 50 million Notcoin in three days and burned 10% of its NOT on May 22. Furthermore, Notcoin also burned 6.9 million NOT on May 30.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.



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