Rule number one, and the prerequisite for understanding Pendle later: a yield never appears by magic. Someone is always paying, and you need to know who.
The five sources of yield
- Lending interest. The borrower pays, out of their own interest. Solid, as long as they repay.
- Trading fees (LP). The people swapping in your pool pay. Solid, but it moves with volume.
- Staking. The chain itself pays you for securing it. Very stable.
- Token emissions. The protocol pays by printing its own token. Fragile: it dilutes, and it stops.
- Points. Nobody pays. It is a promise, not an income.
Real yield versus subsidized yield
The first three are real yield: someone earns money and hands you a share. The last two are subsidized yield: the protocol is buying your presence with its token or with a promise. That is not shameful, it is the normal way to bootstrap a protocol. But you must know which of the two you are holding, because the second kind can stop overnight.
The token that produces yield on its own
A yield-bearing token grows without you doing anything. Deposit ETH, get stETH back, and the amount of ETH your stETH represents increases every day because the chain pays staking rewards. That is an LST, a liquid staking token. The same idea exists for interest-bearing stablecoins: deposit USDC somewhere, receive a token that quietly gains value.
Remember this one
The problem nobody had solved
That yield is variable. 12% one day, 4% the next month. Impossible to plan around, impossible to borrow against, impossible to sell to someone who wants it. All of DeFi ran on rates that danced permanently. That is exactly the problem Pendle solved, and why it gets an entire chapter of this course.