Ideas for improving the mPENDLE peg

Penpie 3. Community Ideas
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I’m creating this thread for the Pendpie community and team to discuss ideas for restoring the mPENDLE peg which is currently at 27%.

In the current structure, there is no reason for anyone to lock away their PENDLE forever in exchange for mPENDLE. Doing so carries significant depeg risk and offers no utility other than:

  • Earn staking yield (currently at 13% APY, was ~20% APY before the hack) or
  • LP in the mPENDLE/PENDLE pool on Pancake for less than 10% APY or ~40% APY with a veCAKE boost

While with PENDLE, you carry no depeg risk and can:

  • LP in much higher yielding pools and with varying pairs such as PENDLE/ETH or PENDLE/USDT on Uniswap for 100%+ APR
  • Use as collateral to borrow against
  • Lock vePENDLE on Pendle for 100%+ APR on voting, plus get a boost on your Pendle LP positions

Penpie team’s strategy for improving the peg is using 50% of the locked vePENDLE revenue to increase liquidity in the PENDLE/mPENDLE pool on Pancake (the other 50% of vePENDLE revenue is distributed to vlPNP voters). This doesn’t solve the problem as it just lets people dump with less slippage. Also, adding more liquidity to the pool doesn’t generates more fees. What generates more fees is more trades - if the pool grows bigger but volume of trades stays the same, the APY decreases.

The best proposal I’ve seen to address this issue is from @gab1992 in Penpie’s Discord, which is to transform mPENDLE into an LRT-like token as follows:

1 - Transform mPENDLE into a wrapped contract that receives PENDLE rewards from the protocol’s revenue, just like weETH receives ETH rewards and accumulates it. As PENDLE will start to accumulate in the contract, mPENDLE will start to accrue real yield against PENDLE.

Why a wrapped contract instead of just allocating the tokens to mPENDLE holders as it is today? Because if you distribute the tokens, people are more inclined to claim and sell. If you wrap them in the contract, mPENDLE increases in value vs PENDLE, just as weETH increases in value vs ETH. The rewards are embedded in the token itself.

2 - Allow mPENDLE to be used as collateral to borrow PENDLE and loop in DeFi. If mPENDLE has real yield against PENDLE, you’ll be able to loop with lower risk of liquidation (or even net positive yield)

3 - Allow mPENDLE to be redeemed back into PENDLE, using the PENDLE wrapped in the contract. Then burn mPENDLE proportional to PENDLE redeemed. This must be done after a relevant amount of PENDLE are accumulated, and with a cooldown period to maintain a sustainable amount in the contract to support the protocol.

If mPENDLE holders know they will be able to redeem, they will be reluctant to sell at a discount, which in itself helps maintain the peg. Since that’s not currently the case, people sell at whatever price the market is, further driving down the peg, particularly since there’s very little buy demand for mPENDLE.

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This is an absolutely excellent idea. As pointed out, adding liquidity to the LP does nothing to improve the peg, it just makes the price move less for the same buy/sell pressure. Adding liquidity stabilizes the price but this is needed when the peg is >90% not when its at ~25% as it also makes it harder for the price to ever regain peg.

The current approach does nothing for the users who sacrificed their pendle so this protocol could even exist. Adding protocol owned liquidity just bolsters the protocols treasury and does nothing for mPendle price. Penpie already has all of our Pendle and it seems there is very little reason for them to even care about regaining the peg. The team has a duty to not just take our Pendle in exchange for a token that they just let go to zero so something has to be done.

How can we make a proposal for this to be implemented? Do any of the mPendle owners also own a bunch of PNP as you need this to even create a proposal…

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Thanks for the feedback. Yes based on the team’s inaction and lack of communication, they seem to have little motivation for improving the peg, or even engaging with the community on ways to do so. Case in point, I asked two different admins in Discord if they would post a link to this discussion thread (since I’m not allowed to) and pin a message to raise awareness, but they didn’t even bother to respond. Furthermore, there have been many peg improvement ideas posted by community members in Discord over the past several months, but the Penpie team never engages, other than an occasional “stay tuned, we’re working on it” type of response.

So my hope in creating this thread is for the community to come together to rally around some solid ideas for improving the peg. If enough of us PNP and mPENDLE holders do so, it will put pressure on the team to take this seriously and engage with us, to help determine a workable solution. From there, it’d be up to the team to create and promote a Snapshot proposal to be voted on.

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The issue is that the benefits we get compared to simply staking vePendle is very little since it’s split between vePendle & PNP

Also the increase in price makes everyone want to liquidate their mPendle for Pendle

Weird thing I’ve observed :
As mPendle price goes down, the mPendle pool yield should increase.
A drop of mPendle of 50% should double the yield of the mPendle Pendle pool, but it hasn’t.

Yet, its yield has been going down overtime.
So we basically trade the vePendle revenue for pool rewards, but that results in trading a 100% yield from revenue, to a 15% from incentives?

At some point it makes one wonder how we even got to this point.
Yield stay constant, stake value goes down, yet yield % stays the same?
It should be impossible.
The theory would be as mPendle price goes down, yield increase stabilizing mPendle price - in our case yield didn’t move as mPendle price went down.

The idea of wrapping the revenue in the token isn’t too bad to be honest.

For the unstaking of the token, at this point I wouldn’t even mind paying a 5-10% fee to the team to unstake.

They can pay the people who lost money with this or whatever, but simply allowing withdrawal with a loss after 2 years, would instantly bump up the price of mPendle.

Team is paid, we get back our token, maybe we can even pay back some to the people who lost money in the hack, but at this point everyone just want out honestly.

Allowing a withdrawal with a fee would instantly improve the situation, and worst case sunset whatever this has been.

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Penpie currently has ~12.67M vePENDLE ($53M) accumulated from mPENDLE lockers.

Penpie generates around $600K/month in revenue from the vePENDLE according to the posted comp plan.

  • vePendle Rewards: 193 ETH ≈ $443,900 (using current ETH price of $2,300)
  • Pendle Emission Revenue: 52,260 PENDLE ≈ $156,780 (assuming 1 PENDLE = $3)

The latest comp plan draft calls for allocating “20% of Penpie’s vePendle revenue to buying back SRT tokens from the market and burning them to mint SAFU, reducing the outstanding balance over time” which is $120K per month.

If the project were to wind down, with mPENDLE holders agreeing to take a 10% haircut in exchange for being able to redeem their PENDLE at a later date, that’d free up $5.3M to pay the hack victims or approx. 4 years worth of the above $120K per month in compensation.

Of course the locked vePENDLE couldn’t be liquidated immediately due to the 2-year lock on Pendle. Penpie would essentially stop the perpetual 2-year lock renewals of it’s existing vePENDLE and allow it to decay over time, using the decayed unlocked PENDLE to be redeemed by mPENDLE holders, with 10% of it being paid to the hack victims.

There’s also the consideration of PNP holders which could be bought out with a portion of the $5.3M worth of unlocked PENDLE over 2 years + Penpie’s treasury holdings.

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Alternatively to a plan to wind down the protocol, mPENDLE holders who wish to redeem for PENDLE at a later date, could still agree to the 10% haircut which would be used to pay the hack victims as their PENDLE is redeemed over time. The protocol would remain as is, with those mPENDLE holders who wish to keep their lock in place. This modification in itself would likely increase the peg since mPENDLE holders know they’d have a redemption option.

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Agree with this guys about redemption with a 10% haircut. It was my idea too. It solves 2 problems at one time.
Frees cashflow from the need to retore peg.
Restores peg and generates positive cashback for mPENDLE from the haircut.

10% could be 15-20%, depends on:
Current peg (<50% = 10% haircut, 50-80% = 15% haircut, >80% = 20% haircut).

Also good idea about LST token because look at staked CRV versions - sdCRV peg. Its 99% because auto compouding version asdCRV on Concentrator buys sdCRV from the market every week to compound it from the yield. mPENDLE could have such version too. Maybe Concentrator will help us? Liquid staked version of mPENDLE could be used in DeFi and generate yield at once.

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+1 for Liquid Staking of mPendle

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Best proposal to date, fully support it. It’s wild that such a huge portion of Pendle supply is kinda frozen due to the no-withdrawal mechanics of mPendle. There’s basically zero interest to buy mPendle now, besides re-peg speculation, which I doubt might happen given the current situation. The ability to use it as collateral would potentially improve the demand nicely, as well.

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I’m quite worried about the development and auditing costs derived from changing the contract.
At the same time, the pendle team will also need to change the design of the SY pool.
Currently, the pendle team is developing v3 and there should be no extra manpower.

In addition, the circulation of VEPENDLE does not conform to the core interests of PNP holders.
I think VEPENDLE should not be unlocked. 1mPENDLE is not equal to 1vePENDLE. Only 1mPENDLE+xPNP equals 1vePENDLE.

In addition, the 2-year unlocking period is too dangerous for this mechanism. ETH can play like this because the unlocking period is now quite short. The performance of peg was also quite bad when stETH could not be unlocked.