Summary
This publication outlines a general risk framework for managing Pendle Finance’s Principal Token (PT) markets after maturity. In particular, it recommends setting the Collateral Factor to zero and pausing both supply and market entry operations once maturity is reached.
Motivation
From a quantitative standpoint, once a PT reaches maturity, all financial risk is effectively transferred to the underlying asset. At this stage, the PT functions purely as a wrapper, redeemable 1:1 for the underlying during liquidations. Since no new PTs can be issued after maturity—only redeemed—the asset loses its yield-bearing properties and its functionality becomes minimal. Consequently, the total supply is expected to decline toward zero over time. This underpins the rationale for designating the asset as non-borrowable post-maturity: borrowers who have sold PTs will be unable to source sufficient liquidity to repay their positions due to the absence of new issuance.
While financial risk is minimal, we recommend setting the Collateral Factor to zero and pausing both MINT and ENTER_MARKET operations post-maturity. This approach mitigates technical risks associated with a sharp contraction in vToken supply. Given the lack of demand and the strictly decreasing supply post-maturity, this proposal poses no downside to protocol growth. Instead, it serves as a prudent safeguard against potential edge-case risks.
In the BNB Core Pool, where there is no differentiation between Collateral Factor and Liquidation Threshold and thus outstanding positions would otherwise be effectively liquidated, we recommend simply pausing MINT and ENTER_MARKET operations while decreasing Collateral Factor to 0 once the change no longer creates liquidation eligibility for any market users.
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this recommendation.