What would a Pendle principal token such as PT-RLP (USDC) actually return at maturity? Pendle's normal expectation is one USDC. To evaluate a discounted purchase, I'd check the exchange rate behind that figure before calculating the expected return.
Pendle's market page has a Watermark Rate view showing the underlying yield-bearing token's current exchange rate and its highest recorded rate. Both are measured against the accounting asset, USDC in this example. If the rate is still below that watermark at maturity, redemption can be worth less than one USDC. The PT's purchase price doesn't determine that redemption amount.
The wrinkle is how the high was set. Pendle's documentation says oracle mispricing or a temporary spike in the underlying token's share price can leave an artificially high watermark. It stays in place after the exchange rate returns to normal. That leaves two separate questions for the purchase: has the rate recovered to normal, and has it recovered to the high used for redemption?
Source: Pendle, Understanding Negative Yield Risk
https://docs.pendle.finance/pendle-v2/ProtocolMechanics/NegativeYield
#DeFi #Pendle
Pendle's market page has a Watermark Rate view showing the underlying yield-bearing token's current exchange rate and its highest recorded rate. Both are measured against the accounting asset, USDC in this example. If the rate is still below that watermark at maturity, redemption can be worth less than one USDC. The PT's purchase price doesn't determine that redemption amount.
The wrinkle is how the high was set. Pendle's documentation says oracle mispricing or a temporary spike in the underlying token's share price can leave an artificially high watermark. It stays in place after the exchange rate returns to normal. That leaves two separate questions for the purchase: has the rate recovered to normal, and has it recovered to the high used for redemption?
Source: Pendle, Understanding Negative Yield Risk
https://docs.pendle.finance/pendle-v2/ProtocolMechanics/NegativeYield
#DeFi #Pendle