The Pendle-Lending Ecosystem: A dependency on Asset Innovation The Yield Hierarchy Principal Tokens (PTs) have become vital assets in lending markets. Their high fixed APY allows for looping strategies, which in turn drives activity on platforms like Morpho. Interestingly, the high yield on PTs (e.g., 30% on USDai) is driven purely by market speculation on the corresponding Yield Tokens (YTs) usually due to points farming or airdrops. This creates a symbiotic relationship: High PT yields make borrowers insensitive to borrowing rates. A borrower looping PTs is comfortable paying 15-20% interest, which generates massive real yield for lenders who don't own PTs. We saw this clearly in September, where PT-USDe markets drove double-digit yields across the board. The Structural Weakness: Expiration and Liquidity However, this system has a flaw: PTs expire. If you look at the TVL charts, they form a "hump" shape—rising during the speculation phase and crashing as maturity approaches. This creates instability for Morpho and Pendle; their ability to generate continuing profit is entirely dependent on the lifespan of the listed asset. Furthermore, capacity trickles down. The amount of PTs that can be used as collateral is capped by Pendle’s liquidity, which is capped by the asset issuer’s liquidity. Morpho’s TVL is essentially a loose function of the underlying asset's capacity. The Macro View: Assets as the Engine The problem we face today is that we cannot create new primitives (like USDe) indefinitely. Consequently, the market has pivoted to creating obfuscated "Vault tokens" to fill the void, which introduces opacity and toxic risk. Current Outlook If you follow DeFi trends, it is obvious we are in an "asset issuance winter." The meta has shifted toward Neobanks and FinTech. If you stare at the markets today looking for yield, you will find very little other than recycled vault tokens. Without new asset primitives to spark YT speculation, the lending flywheel slows down.

Of course, this is Twitter, so there is a lot of fine print that I didn't cover above (e.g., not all listed Pendle assets are related to points; there are other assets where people use Morpho to borrow and lend). This is mainly from a "I am starved for high yields" perspective as I try to uncover the source. I am well aware of other tokens maintaining Morpho's TVL, such as staked tokens, but I find them rather dull but they are quite sticky. This is usually where people assume that they are "blue chip" and therefore have lower yields. They are staked and wrapped more than a beef wellington. Furthermore, they carry price risk that some users may prefer to avoid (e.g., I don't want to speculate on ETH just for yields). 1) HyperEVM with kHype and wHype 2) Base with its endless wrapped staked related eth (cbBTC removed so you can see something lol) 3) Same Base pic as 2) with labels

I actually started wanting to model Pendle but it's tight symbiotic nature with lending protocols is what led me to morpho.

Btw out of all bear thesis on Pendle, the only thesis I buy is that you do not believe pendle’s ability to have enduring profits due to the reasons above. Morpho is relatively safer only if it can monetize as V2 expands the addressable market share

Personally, I choose to believe that Pendle can solve this. I was analyzing TN’s transcript and the team is fully aware of this problem. I think the market isn’t thinking far ahead. Would get in Pendle slowly tbh