Pendle removes the "wall": from "locking" to "retaining" users

Recently, the “long-distance runner” in the DeFi space, Pendle, announced a major update: abolishing its veTokenomics (voting escrow economic model) that has been implemented for years, and shifting to a more liquid sPENDLE.

This news quickly sparked heated discussions in the community. Michael Egorov, founder of Curve, immediately questioned the move, stating outright that “canceling the ve model is a mistake.” On the other hand, the market responded with real money voting—PENDLE’s price surged by 11%.

As the absolute leader in the interest rate derivatives track, Pendle’s “self-destruction” style reform not only concerns the growth of its $3.5 billion TVL but also feels like a public trial of the core narrative of DeFi over the past three years: the model of “locking period” in exchange for “loyalty” seems to have lost its effectiveness.

The shackles of locking: 20% of “minority” governance

Although Pendle’s revenue has grown significantly over the past two years, its core governance asset vePENDLE has never fully kept pace with the protocol’s explosive growth.

The harsher truth is:

• The reward “wealth gap”: The complex weekly manual voting system is extremely unfriendly to ordinary users, leading to rewards being concentrated among a few professional players.
• The false prosperity of efficiency: Although Pendle’s annualized fee efficiency is excellent—about $13.99 million in annualized fees and approximately $13.83 million in annualized revenue—breaking down by specific pools reveals that over 60% of the pools are actually operating at a loss. The protocol has long relied on profits from a few core high-quality pools (such as Ethena) to subsidize less efficient pools.

This “lock-in and go offline” non-transferability means holders are completely insulated from one of DeFi’s most powerful features: composability.

Algorithms and buybacks: shifting from “manual” to “autonomous driving”

Pendle’s new plan, sPENDLE, essentially transforms the protocol from a “power struggle” into an “efficiency tool.”

The most notable change is liquidity release: users no longer need to face multi-year lockups; instead, there is a 14-day exit period. If urgent funds are needed, a 5% fee allows instant redemption. This “live” approach provides greater flexibility for the approximately $127 million (35.51% of market cap) of staked funds.

At the governance level, Pendle introduces two “killer” features:

1. Algorithm-driven emission: Previously, reward distribution was decided by manual voting. Now, it is managed by an algorithm that automatically adjusts based on the actual contribution of pools. This is expected to reduce overall emissions by about 30%.
2. Substantial buybacks: Up to 80% of the protocol’s revenue will be directly used to buy back PENDLE and distribute to stakers. Currently, the protocol’s annualized holder income has reached $11.06 million, with total accumulated fees surpassing $64.56 million. The buyback mechanism will make these earnings more directly impact the token’s value.

This transformation inevitably involves a reshuffling of interests. To appease those “old contributors” who had locked their tokens for years, Pendle set a snapshot date on January 29.

According to the plan, existing vePENDLE holders can receive up to a 4x bonus in sPENDLE upon conversion. This bonus will linearly decay based on the remaining lock period, ensuring that long-term supporters still have the strongest voice and benefits during the initial phase of the transition. This design cleverly alleviates concerns about “long-term consistency collapse” among old users.

This change instantly made PENDLE “come alive.” The market clearly prefers a liquid asset that can be withdrawn at any time but still shares in buyback dividends, rather than a distant “long-term ticket.”

Section 3, Controversy: Consistency or Liquidity?

However, many industry insiders are skeptical of this approach.

The “opposition” Curve founder Michael Egorov:

“Reversing the voting escrow token economy model is a mistake. Designing it as ‘degradable’ from the start was also a mistake. In the long run, Pendle’s move is very bad—more importantly, once such an operation becomes ‘mechanically possible,’ its occurrence becomes inevitable.”

Maple co-founder and CEO Sid Powell believes that long-term locking essentially amounts to “coercive capital retention,” which often masks the protocol’s true risks and leads to excessive power concentration. Pendle’s approach is “no longer forcing loyalty through locking, but attracting retention through yields.”

The core debate is: should a mature DeFi protocol’s moat be based on “locked-in scale” or “product attractiveness”?

In fact, Pendle is not an isolated case.

Over the past years of DeFi’s bull and bear cycles, a number of established protocols have realized that loyalty gained through “locking periods” is essentially overdrawing the protocol’s future.

PancakeSwap is one of the pioneers of this change. As early as late 2023, it began reforming its old system requiring users to lock CAKE for up to four years. By introducing veCAKE with flexible revenue sharing, PancakeSwap distributes 5% of protocol fees directly to stakers, no longer forcing multi-year immobility. By 2025, despite multi-chain competition, its TVL has remained steady at around $2.3 billion, successfully attracting many retail users unwilling to be locked long-term.

Balancer’s trajectory is similarly instructive. Its veBAL model has long faced difficulties, with nearly 80% of tokens in “inactive governance”—meaning most holders only lock and do not vote. In 2025, during the v3 upgrade, the team completely adjusted incentives: introducing short lock options and automated fee rate adjustments, turning governance from a “task” into a flexible participation tool. Within half a year, governance participation increased by about 40%.

More aggressive experiments come from stablecoin protocol Ethena. Last September, it launched a “fee switch,” directly distributing protocol income to sENA liquidity token holders, completely bypassing the complex voting escrow model.

These cases point to a new consensus: DeFi protocols are shifting from “forcing user binding” to “retaining users with real benefits.” Locking was once a shortcut to maintain data stability but also led to ecosystem false prosperity. Now, protocols prefer to lower participation barriers and improve capital efficiency to achieve genuine activity.

The effectiveness of Pendle’s reform will be tested after the official end of vePENDLE locking on January 29. But regardless of the outcome, it has sent a clear signal to the industry: in the future DeFi world, excellent products should not turn users into “staking prisoners.”

Author: Bootly