What To Know:
- Pendle will launch its Algorithmic Incentive Model on January 29, replacing manual vePENDLE voting with automated emissions based on measurable on-chain contribution.
- The new system allocates rewards using total value locked and swap fees, cutting overall emissions by around 30 percent while prioritizing sustained liquidity and trading activity.
- AIM also introduces enhanced co-incentives and prepares the ground for Pendle v2.
Pendle is preparing to replace manual emissions with an automated framework designed to reward measurable on-chain contribution, as a part of its liquidity incentive system.
The new structure, known as the Algorithmic Incentive Model, or AIM, is scheduled to go live on January 29 at 00:00 UTC, immediately after the conclusion of the final vePENDLE voting period. Once active, liquidity pools will begin receiving emissions automatically, without governance votes, based on their real economic impact on the protocol.
Pendle Algorithmic Incentive Model Update
According to Pendle, the update addresses long-standing inefficiencies within its previous incentive model.
Under the earlier system, PENDLE emissions were distributed through manual voting by vePENDLE holders. While the approach allowed community participation, internal analysis revealed significant capital misallocation. More than half of all emissions were concentrated in ten of the least profitable pools, where incentives generated limited trading activity or protocol revenue.
— Pendle (@pendle_fi) January 27, 2026
As a result, large portions of emissions were consumed without delivering proportional value to users or the platform.
The introduction of AIM is expected to reduce total emissions by roughly 30 percent, while directing rewards toward pools that demonstrate liquidity depth and sustained usage.
At the center of the new model is a contribution-based formula. Instead of uniform incentive schedules, emissions will be allocated according to two measurable factors: total value locked and swap fees generated.
Pendle said this approach reflects the reality that liquidity pools serve different purposes at different stages of their lifecycle.
In the early phase, newly launched pools face a liquidity shortage. AIM addresses this through a bootstrapping period lasting up to 21 days. During this window, emissions are weighted heavily toward TVL, allowing pools to earn higher rewards per dollar of deposited capital.
This front-loaded structure is intended to accelerate initial liquidity formation and reduce friction for new markets entering the protocol.
As pools age and liquidity stabilizes, incentives become increasingly tied to fee generation rather than idle deposits. The model assumes that mature pools should demonstrate ongoing demand through trading volume rather than passive capital accumulation.
Under AIM, fee-based rewards are not restricted by lifecycle stage. At any point, whether a pool is newly launched or well established, it can earn up to the maximum weekly limit of 7,500 PENDLE through swap fees alone. This ensures that consistently active pools remain competitive regardless of age.
Once pools move beyond the initial 21-day period, additional constraints apply. Fee-based emissions are capped at four times a pool’s historical swap fees, weighted toward recent activity. The mechanism limits short-lived volume spikes while favoring steady participation over time.
Pendle said this structure is designed to align incentives with durable usage rather than temporary farming behavior.
The new framework also expands support for co-incentives through the protocol’s External Incentive Campaign system.
Through this mechanism, external protocols can deploy their own rewards directly to Pendle liquidity providers or yield token holders. In return, Pendle supplements those incentives with additional PENDLE, subject to predefined ratios.
For every one dollar of incentives provided as PENDLE, Pendle contributes an additional forty cents. For incentives offered in other tokens, the protocol contributes thirty cents. This structure allows partner protocols to generate up to $1.40 in combined rewards for every dollar deployed, significantly improving capital efficiency.
Weekly co-incentive emissions are capped at 9,000 PENDLE across all pools. If total demand exceeds the limit, allocations are distributed proportionally.
Pendle said the system gives protocols greater control over their market development, allowing them to boost liquidity at launch, support trading during growth periods, or reinforce mature pools when activity slows.
Pendle noted that the model has been built using historical backtesting but remains subject to adjustment as real-world data emerges. Parameters and weighting may change as usage patterns develop and inefficiencies are identified.
The protocol is already preparing a second phase focused on Pendle v2’s infrastructure.
Limit orders played a central role in Pendle’s activity last year, facilitating approximately $23 billion in trading volume. That figure accounted for 45 percent of total protocol volume and exceeded 90 percent for high-usage pools such as Ethena’s USDe and sUSDe markets.
Pendle said future incentive mechanics will be built specifically to this infrastructure, with internal modeling indicating the potential for efficiency improvements of up to 130 times by leveraging limit-order-driven execution.
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