A Deep Dive into Pendle (xPendle) Index

The decentralized finance (DeFi) realm consists of many revolutionary platforms designed to provide investors with the most lucrative returns possible. At the forefront of these innovative solutions stands Rivo, a platform dedicated to democratizing DeFi opportunities for everyone.

Since its market debut, the project has helped simplify the complex world of DeFi, making it accessible for everyday investors seeking financial freedom. Rivo’s mission is rooted in the belief that financial well-being is a fundamental building block for human development.

Therefore, by developing an accessible on-ramp, it empowers individuals with seamless, secure, and self-custodial access to the best wealth-building opportunities, including those related to crypto indexes such as the Pendle Index.

What is Pendle Index?

Imagine wanting to invest in the world of Ethereum liquid restaking, but due to the many complexities involved, it is only natural that an investor feels overwhelmed — especially when dealing with the technicalities associated with the underlying protocols and strategies.

Pendle Index solves this problem by offering a carefully curated and managed basket of ETH-denominated LP (Liquidity Provider) positions on Pendle, a protocol enabling the trading of future yields for DeFi products.

One can also think of this index as a mutual fund where instead of buying individual assets or managing complex yield farming strategies, investors can simply invest in the index — which then pools money from investors and uses it to maintain a diversified portfolio of Pendle LP positions, leveraging the power of ETH liquid restaking protocols.

In DeFi, users can provide liquidity to pools that facilitate trading. By depositing assets into these pools, liquidity providers receive LP tokens in return. These LP tokens represent a claim on a portion of the trading fees generated by the pool, as well as the principal investment.

In the context of Pendle Index, these LP positions are specifically focused on Pendle’s innovative yield trading market. Investors can own a diversified portfolio of these LP positions, similar to having ownership stakes in multiple specialized currency exchange booths (each dealing with different aspects of ETH liquid restaking and yield trading).

Key components of the Pendle Index include:

1. Pendle LP tokens: These are staked via Penpie, a PENDLE-based rewards protocol, to receive a vePENDLE APY boost.
2. Multiple yield sources: The index accrues incentives in the form of PENDLE and ARB.
3. Points generation: Eigenlayer and liquid restaking protocol points are accumulated, potentially leading to future airdrops.

Why Pendle Index?

Straight off the bat, the index is designed to be a one-stop shop for ETH liquid restaking investments. Instead of navigating through various liquid restaking providersmanaging multiple positions investors can simply invest in it and gain exposure to a wide range of carefully selected Pendle LP positions.

Secondly, Pendle Index offers optimized yield farming opportunities. Yield farming in DeFi is akin to planting seeds (your assets) in a field (a DeFi protocol) and harvesting the crops (the returns). With Pendle Index, investors don’t need to be farming experts. The index managers take care of all the required processes, allowing investors to enjoy the fruits of their labor.

However, the question then arises: “How are the assets included chosen?” In this regard, the index managers carefully consider a slew of factors, such as:

• Protocol performance and stability
• User base size
• Tokenomics design
• Growth potential
• Audit status and security track record

For instance, Pendle Finance currently possesses an impeccable security track record, having operated for almost three years without any security incidents. The protocol has been audited by top-tier firms such as Dedaub, Ackee, and Watchpug, as well as multiple independent auditors.

Furthermore, the index capitalizes on Eigenlayer and Pendle’s recent surge in popularity, with the former’s TVL skyrocketing to an all-time high of $20 billion (during Q2 2024). Similarly, over the first six months of 2024, Pendle’s TVL increased by a staggering 2,750%, reaching a cumulative valuation of $6.7 billion in June.

Pros and Cons of Using Pendle Index

Like any financial instrument, the Pendle Index comes with its own set of advantages and considerations:

Pros of Using Pendle Index:

1. Easy access to ETH liquid restaking: Investing in the index gives users access to all leading yield farming strategies involving liquid restaking
2. Curated strategies: The Pendle Index is not static in nature; its strategies are regularly updated to ensure high returns.
3. No lockups or complex withdrawal mechanics: With the Pendle Index, funds aren’t locked away for a set period. Investors can withdraw their assets whenever they want.
4. Diversified exposure: The index provides exposure to multiple major liquid restaking tokens, offering a diversified portfolio within the ETH liquid restaking ecosystem.

Cons of Using Pendle Index:

1. Fees: The Pendle Index charges a 10% reward fee and a 0.5% streaming fee. While these fees support the ongoing optimization and management of the fund, they do reduce one’s overall returns.
2. Potential risks during extreme market conditions: In extreme market conditions, the index can face certain challenges. Moreover, large withdrawals can also cause high costs due to liquidity constraints in Pendle PT/YT tokens.
3. Smart contract risks: The index leverages liquid restaking protocols, which are relatively new and lack a long performance track record. And even though only audited protocols with active bug bounties have been included, the newness of these offerings introduces an element of risk.
4. Impermanent loss: Like other LP positions, Pendle liquidity pools can also experience impermanent loss due to price divergence. However, in ETH staking strategies, this is typically minimal due to very high correlation between the prices of underlying assets

What’s inside?

The deposit token for the index is WETH (on Arbitrum). Also, by considering the specific strategies included in the index, users can better understand the assets it invests in as well as the yield it generates.

Renzo (ezETH)

Renzo is a Liquid Restaking Token (LRT) and Strategy Manager for EigenLayer. It serves as a doorway to the ecosystem, securing Actively Validated Services (AVSs) while offering a higher yield than traditional Ether staking. Moreover, Renzo’s ezETH token abstracts all the complexity from the end-user, enabling easy collaboration between them and EigenLayer’s node operators.

KelpDAO (rsETH)

Kelp is a major liquid restaking service provider with its restaking solution, rsETH, designed with DeFi composability in mind. rsETH offers instant redemptions and functions as a single liquid restaked token for all accepted ETH Liquid Staking Tokens (LSTs).

Etherfi (eETH)

Etherfi is a staking protocol where stakers retain control of their keys, which means that in the event of an attack or issues with node operators, users can retrieve their Ether easily. The protocol also offers flexibility in node operator selection, including a trustless option through an auction mechanism.

How to Get Started with Pendle Index

Investing in the index via Rivo is simple and straightforward, even for those new to the DeFi realm.

1. Connect wallet: The first step is to connect a wallet that supports Ethereum, such as MetaMask, to Rivo.
2. Choose an investment amount: Users then need to decide the amount of money they want to part with. Given the inherent risks involved with DeFi investments, it is important to invest an amount one can afford to lose.
3. Invest in the Pendle Index: Once the amount has been agreed upon, investors need to transfer the sum into the Index.
4. Monitor investment: After investing, the principal amount and its rewards can be monitored via Rivo. Users can see their returns and assess any changes in the value of their investment.
5. Withdraw: One of the benefits of the Pendle Index is that investments can be withdrawn at any time. There are no lockups or complex withdrawal mechanics involved.

Conclusion

From the outside looking in, Pendle Index can serve as the ideal gateway for ETH investors to enter the world of DeFi. By offering the best risk-adjusted strategies, the index aims to deliver consistent returns, provide excellent market exposure, and bridge the gap currently permeating traditional finance (trad-fi) and crypto — making the latter more accessible to everyday investors.