DeFi

Let's dig into Pendle. They are a yield trading platform that has gotten a lot of traction with the current "points meta". If you were around in 21-22, there were a boat load of these yield stripping protocols. I believe it was Pendle's innovative DEX that led them to win.

The first generation of these protocols solved the trading of the PT tokens. They all more-or-less followed Yield Protocol's "YieldSpace" algorithm where liquidity gets more and more concentrated as you get closer to the expiration.
None of them let you trade the more volatile YT token

Pendle's AMM fixed this UX problem. By pairing the SY token with the PT token, "flash swaps" can be utilized to allow trading of the YT tokens without needing a dedicated YT pool. Let's walk thought this.

In order to buy a YT token, you:

* send SY tokens to the AMM
* flash loan more SY tokens
* split all the SY into PT and YT
* sell the PT to the AMM for SY
* use that SY to repay the flash loan
* keep the YT

By taking advantage of the fact you can split / join SY for PT/YT and that the price of the PT is inversely correlated to the price of the YT, all three can trade in the same AMM. Big brained stuff.

have fun!

First, what's yield stripping? Pendle wraps a yield generating position into three tokens:

SY - a wrapper that standardizes the position into an ERC-20
PT - the deposit tokens of the SY
YT - the yield generated by the SY

an SY can be split into a PT+YT and a PT+YT can be combined to get an SY