Pendle Permissionless Market Creation Attacks

introduction

MALICIOUS YIELD-BEARING TOKEN VECTORS

The Permissionless Market Creation Attack Surface

How Pendle's permissionless market creation enables attackers to deploy malicious yield-bearing tokens and manipulate PT/YT pricing or drain liquidity from unsuspecting pools.

Pendle's architecture allows any user to create a market for any yield-bearing token without governance approval. While this permissionless design is a core feature for rapid ecosystem expansion, it introduces a critical attack surface: maliciously designed yield-bearing tokens. An attacker can deploy a token that conforms to the ERC-20 interface but contains logic designed to manipulate Pendle's AMM, such as rebasing mechanisms, fee-on-transfer hooks, or balance-modifying callbacks that trigger during swapExactTokensForTokens or addLiquidity execution paths.

The primary attack vector exploits the interaction between Pendle's PendleMarket contract and the underlying yield-bearing token's transfer and balanceOf functions. A malicious token can report a false balance to the AMM, causing PT/YT to be minted or swapped at a manipulated rate. This can drain legitimate assets (e.g., ETH, USDC) from pools paired with the malicious PT/YT. Detection is difficult because the token's contract code is often unverified or obfuscated, and the attack can be executed within a single atomic transaction, bypassing front-running protections. The impact cascades to any integrator—yield aggregators, wallets, or lending protocols—that automatically indexes or interacts with newly created Pendle markets without a token acceptance allowlist.

Operators and integrators must move beyond simple ERC-20 interface checks. A robust defense requires simulating market interactions against a local fork before integrating, analyzing token bytecode for known malicious patterns (hidden balance modifiers, delegatecall to untrusted addresses), and maintaining a strict allowlist of verified yield-bearing tokens. Chainscore Labs helps teams harden their token acceptance logic, audit their Pendle market integration points for composability risks, and implement real-time monitoring for anomalous PT/YT pricing deviations that signal an active manipulation attempt.

PERMISSIONLESS MARKET CREATION ATTACKS

Attack Vector Snapshot

A structured breakdown of the attack lifecycle, affected components, and required actions for teams exposed to maliciously designed yield-bearing tokens used to manipulate Pendle's PT/YT pricing or drain liquidity.

Attack Phase	Mechanism of Action	Affected Systems and Actors	Detection Signal	Recommended Action
Malicious Token Deployment	Attacker deploys a custom yield-bearing token with a manipulable or backdoored accrual function, designed to interact deceptively with Pendle's standardized token wrapping logic.	PendleYieldContractFactory; Market operators reviewing new asset listings; Off-chain indexers and subgraphs.	Unverified or recently deployed token contract interacting with the factory; Unusual or unaudited yield accrual logic in the underlying asset.	Integrators must enforce a strict token acceptance checklist. Commission a token logic audit from Chainscore Labs before integrating any new, unvetted yield-bearing asset.
Market Creation and Initial Liquidity	Attacker creates a Pendle market for the malicious token and seeds it with initial liquidity, establishing a legitimate-looking PT/YT pool for the exploit target.	PendleMarket contract; AMM liquidity pools; DEX aggregators and portfolio trackers that auto-list new markets.	New market creation event for an unrecognized or unaudited underlying asset; Low initial liquidity paired with high implied APY.	Market operators should monitor factory events for markets with unverified underlying tokens. Implement a time-delay and liquidity threshold before markets are displayed in front-end interfaces.
Oracle and Pricing Manipulation	The malicious yield-bearing token's exchange rate is manipulated (e.g., via a large donation, flash loan, or admin function) to artificially inflate the value of PT or YT.	Pendle's internal TWAP oracle; Any external DeFi protocol using PT as collateral; Yield aggregators and structured products holding the token.	Sudden, large deviation in the underlying token's exchange rate; PT/YT price dislocation from the implied APY of legitimate markets.	Risk teams must stress-test oracle dependency for any PT used as collateral. Schedule a TWAP manipulation resilience review with Chainscore Labs to model attack costs and circuit-breaker thresholds.
Liquidity Drain or Value Extraction	Attacker swaps the manipulated PT/YT into the pool's paired asset (e.g., a stablecoin or ETH) at a fraudulent rate, draining real value from LPs.	Pendle AMM pools; Liquidity providers in the malicious market; Arbitrage bots and MEV searchers.	Large, imbalanced swap against the malicious PT/YT; Rapid depletion of the paired asset in the pool; Abnormal trading volume in a newly created market.	LPs should avoid providing liquidity for markets with unverified underlying tokens. Implement slippage and pool composition monitoring to trigger automated circuit breakers on suspicious pools.
Redemption and Exit Scam	At maturity, the malicious yield-bearing token's redemption logic fails, reverts, or returns zero value, causing PT holders to lose their principal.	PT holders and fixed-income integrators; Custodians and institutional users holding PT to maturity; Any protocol treating PT as a zero-coupon bond.	PT redemption transaction reverting or returning less than face value; Underlying token contract paused or self-destructed near maturity.	Custodians must verify the redemption flow for every new market's underlying asset. Commission a redemption flow audit from Chainscore Labs to simulate maturity settlement for any asset before holding PT to maturity.
Governance and Gauge Exploitation	Attacker uses the manipulated PT/YT to influence vePENDLE gauge voting, directing real PENDLE incentives to the malicious pool to attract more victim liquidity.	vePENDLE governance system; Gauge weight allocation; PENDLE reward distribution contracts.	Sudden spike in votes for a market with an unverified underlying token; Concentration of vePENDLE power directing rewards to a suspicious pool.	Governance delegates should scrutinize the underlying asset of any pool receiving significant gauge weight. Schedule a veTokenomics security review with Chainscore Labs to assess vote-buying and incentive manipulation risks.

technical-context

MALICIOUS MARKET CREATION VECTORS

Attack Mechanics and Exploit Patterns

A technical breakdown of how Pendle's permissionless market creation is weaponized to manipulate PT/YT pricing and drain liquidity.

The core attack vector exploits Pendle's permissionless market creation, which allows any user to deploy a new market for a custom yield-bearing token (YBT) without governance approval. An attacker creates a malicious YBT whose balanceOf or exchange rate can be manipulated, often through a hidden mint function, a rebasing mechanism, or an externally controlled oracle. This malicious YBT is then deposited into a newly created Pendle market to mint Principal Tokens (PT) and Yield Tokens (YT). Because Pendle's AMM and pricing oracles derive value from the underlying YBT's reported exchange rate, the attacker can artificially inflate the YBT's value, making the PT appear to represent a claim on a large amount of a legitimate base asset.

Once the malicious market is seeded with real liquidity—often by pairing the manipulated PT with a legitimate stablecoin or ETH in the AMM pool—the attacker uses the inflated PT to drain the paired assets. The attack typically follows a two-step pattern: first, the attacker manipulates the YBT's exchange rate to a highly inflated value; second, they swap the overvalued PT for the real assets in the pool before the market can correct. In some variants, the attacker uses a flash loan to temporarily boost the YBT's apparent value, executes the swap, and repays the loan in a single atomic transaction, leaving the pool with worthless PT. The permissionless nature of market creation means there is no human gatekeeper to review the YBT's code before it is integrated, making the AMM's liquidity the primary target.

For integrators and market operators, the primary defense is not in the core Pendle contracts but in the off-chain and UI-level token acceptance logic. Front-ends, portfolio trackers, and institutional trading systems must implement strict allowlists for verified YBTs and their corresponding markets, rather than blindly indexing all on-chain markets. On-chain, the risk is mitigated by the isolated nature of each market's AMM pool; a malicious market cannot directly drain liquidity from a legitimate one. However, the reputational risk and the potential for users to be phished into interacting with a malicious market through a spoofed interface remain significant. Chainscore Labs can assist teams in hardening their market parameter review process, implementing automated YBT verification checks, and designing monitoring systems that detect anomalous exchange rate deviations in newly created markets before liquidity is deployed.

IMPACTED ACTORS AND ENVIRONMENTS

Affected Systems and Stakeholders

Market Operators and Liquidity Providers

Liquidity providers in permissionless Pendle markets are the primary victims. Malicious yield-bearing tokens can be designed to manipulate the getExchangeRate function, causing the AMM to misprice PT/YT. This allows an attacker to drain the pool by swapping mispriced assets.

Action Items:

Review the token acceptance logic in your deployment scripts.
Do not seed liquidity into a market until the underlying yield-bearing token's contract has been verified and its exchange rate logic audited.
Monitor for markets with abnormally high implied APYs that deviate significantly from the underlying protocol's advertised rate.
Implement circuit breakers that pause LP deposits if the exchange rate deviates by more than a predefined threshold within a single block.

Chainscore Labs can perform a targeted review of your market parameterization and token acceptance checklist to prevent interaction with maliciously designed yield-bearing assets.

implementation-impact

HARDENING AGAINST MALICIOUS MARKET CREATION

Operational and Integration Impact

Permissionless market creation attacks exploit the trust assumptions in user-supplied yield-bearing tokens. The following areas require immediate operational review to prevent pricing manipulation and liquidity draining.

Token Acceptance Logic

Integrators must not automatically trust any token supplied to the factory. Implement a strict allowlist for Standardized Yield (SY) tokens, verifying the underlying asset's legitimacy, liquidity depth, and oracle support. A malicious SY token can be programmed to manipulate its own exchange rate, directly corrupting PT/YT pricing. Review your off-chain indexing and on-chain routing logic to ensure only vetted markets are surfaced to users.

Oracle Integrity and TWAP Resilience

An attacker can deploy a market with a token that reports a manipulated TWAP or exploits a stale oracle. Operators must ensure that pricing oracles for the underlying asset are robust and manipulation-resistant before a market is considered safe. For integrators, do not rely solely on Pendle's internal PT/YT oracle for critical functions like liquidations without independent validation of the underlying rate. A review of TWAP duration and observation cardinality is essential.

Liquidity Pool and AMM Parameter Review

Malicious markets can be paired with minimal but attractive initial liquidity to lure LPs. Review the AMM's swap curve behavior and fee tier configuration for newly created markets. An attacker might exploit a lack of slippage controls or a mispriced initial exchange rate to drain paired assets. Operators should monitor for anomalous trading volumes and large, unbacked liquidity events in permissionless markets immediately after creation.

Indexer and Subgraph Filtering

Off-chain services must not blindly index all events from the Pendle factory. Implement a verification layer in your subgraph or indexer to filter out markets created with unverified or suspicious SY tokens. Displaying a malicious market in a frontend gives it legitimacy and can trick users into buying worthless PT/YT. Ensure your data pipeline has a circuit breaker to delist markets that exhibit anomalous on-chain behavior.

Composability Risk in Lending Markets

If your protocol accepts PT tokens as collateral, a permissionless market attack can lead to the creation of a malicious PT that passes initial checks. This can be used to borrow real assets against a worthless collateral token. Implement a governance-gated market allowlist for any PT accepted as collateral, and never rely solely on the token contract's compliance with the PT standard. A composability risk assessment is critical.

Incident Response and Monitoring Playbook

Develop a specific monitoring playbook for permissionless market creation events. Key signals include: a new market with a previously unseen SY token, a sudden spike in implied APY to extreme levels, and a rapid concentration of liquidity from a single source. Integrators should have a pre-defined process for pausing interactions with a suspect market, including frontend delisting and disabling any smart-contract integrations that route through it.

PERMISSIONLESS MARKET CREATION ATTACK VECTORS

Risk Assessment Matrix

A structured breakdown of the failure modes, affected actors, and required actions stemming from malicious yield-bearing tokens used to exploit Pendle's permissionless market creation.

Risk	Failure mode	Severity	Mitigation
Malicious yield-bearing token	A fake token with a manipulated exchange rate is used to create a market, causing PT/YT to be mispriced and liquidity to be drained.	Critical	Implement a strict token acceptance allowlist and integrate a token risk oracle before market creation.
Rebasing/elastic supply token	A token with a rebasing mechanism causes the PendleMarket contract to miscalculate accrued yield, leading to incorrect PT/YT redemption values.	High	Block rebasing tokens at the factory level and verify the token's standard compliance before listing.
Fee-on-transfer token	A token that deducts a fee on transfer causes an accounting mismatch in the AMM, enabling value extraction by an attacker.	High	Simulate a swap and redemption flow for any new token to detect balance discrepancies before market activation.
Manipulated external oracle	An attacker manipulates the price feed for the underlying asset, causing a cascading mispricing of the PT/YT implied yield.	High	Require a TWAP or staleness check on the external oracle and set circuit breakers on PT/YT price deviation.
Phantom token with fake yield	A token that reports a yield accrual but does not actually hold the underlying value is used to create a market, stealing funds from YT buyers.	Critical	Verify the yield source contract's logic and the actual redeemable value against a reserve address before market creation.
Upgradeable proxy backdoor	A seemingly benign token is later upgraded via a proxy to include malicious logic that drains funds from the Pendle market.	Critical	Reject upgradeable tokens or require a timelock and multi-sig governance check before market creation.
Low-liquidity token manipulation	An attacker creates a market with a legitimate but low-liquidity token, manipulates the spot price, and exploits the AMM's pricing curve.	Medium	Set a minimum liquidity depth threshold for the underlying token's primary market before a Pendle market can be created.
Integration-level misconfiguration	A front-end or aggregator incorrectly displays a malicious market as legitimate, tricking users into buying worthless PT/YT.	Medium	Integrators must maintain their own token and market verification registry, independent of the Pendle UI, and conduct a Chainscore Labs integration review.

MARKET CREATION RISK CONTROLS

Detection and Prevention Checklist

A practical checklist for integrators, market operators, and risk teams to detect and prevent attacks stemming from maliciously designed yield-bearing tokens in Pendle's permissionless market creation system.

What to check: Verify whether your integration uses an allowlist for yield-bearing tokens (YBTs) or blindly trusts any token that can be used to create a Pendle market.

Why it matters: The core attack vector relies on a malicious or manipulated YBT being used to create a market, which then feeds false pricing into PT/YT pools. Without an allowlist, an attacker can deploy a custom token with a manipulated exchangeRate or a rebasing mechanism designed to drain liquidity.

Confirmation signal: Your system should reject markets created with YBTs that are not on a curated, governance-controlled list. The list should require a risk assessment for each token, including an audit of its exchange rate logic and upgradeability controls.

resource-links

PENDLE INCIDENT RESPONSE SOURCES

Canonical Resources and References

Use these sources to verify Pendle market configuration, contract behavior, disclosure status, and integration exposure when assessing permissionless market creation attack incidents.

Pendle Official Documentation

Start with Pendle’s official documentation to confirm how PT, YT, SY, market creation, maturity, redemption, and AMM interactions are intended to work. For permissionless market creation incidents, teams should map the documented flow against the suspected malicious asset path: underlying token acceptance, Standardized Yield wrapping, PT/YT minting, market deployment, liquidity addition, swap routing, oracle use, and redemption behavior. Treat the docs as the baseline for expected protocol behavior, then compare on-chain execution traces and market parameters against that baseline before concluding whether the issue is a core protocol bug, a malicious asset design, an integration failure, or an off-chain listing-control problem.

EXPLORE

Pendle GitHub Organization

Use Pendle’s public repositories to review contract interfaces, deployment scripts, SDK behavior, and any public patches related to market creation or asset support. Security teams should inspect the relevant factory, market, router, oracle, and SY adapter code paths rather than relying only on UI state. For incident work, compare the deployed bytecode and verified source on the relevant chain with the repository version claimed by Pendle or the deployer. If an attack used a malicious yield-bearing token, pay particular attention to token hooks, exchange-rate reporting, transfer behavior, preview functions, and assumptions made by Pendle adapters or external integrations.

EXPLORE

Pendle App Market Registry and Live Market State

The Pendle application is useful for checking whether a market is visible to users, how it is labeled, which maturity it uses, what asset pair is displayed, and whether liquidity or implied APY appears abnormal. Do not treat UI visibility as proof of safety: permissionless creation means suspicious or newly created markets may exist on-chain before they are widely integrated. Operators should cross-check app data with block explorer calls, indexer output, and their own allowlists. Exchanges, wallets, and vaults should avoid automatically supporting a market only because it is discoverable through public routing or indexing infrastructure.

EXPLORE

Pendle Immunefi Bug Bounty

Pendle’s Immunefi program is the canonical place to review bounty scope, eligible assets, severity categories, and disclosure expectations when a suspected permissionless market creation issue may be responsibly reportable. Before escalating publicly, teams should determine whether the behavior affects Pendle core contracts, a supported adapter, a listed market, or only a third-party malicious token. The distinction matters for severity, remediation ownership, and user communications. If funds are at active risk, preserve transaction traces, contract addresses, reproduction steps, and affected market IDs, then coordinate disclosure through the official bounty or Pendle security contact path described there.

EXPLORE

On-Chain Verification and Incident Evidence

For each suspected incident, build an evidence pack from canonical chain data: factory creation events, market initialization parameters, SY/PT/YT contract addresses, maturity timestamp, liquidity events, swaps, oracle observations, and redemption or withdrawal calls. Verify whether the underlying yield-bearing token has non-standard behavior such as mutable exchange rates, fee-on-transfer mechanics, rebasing, blacklist controls, upgradeable logic, privileged minting, or manipulated preview functions. This evidence is what lets risk teams separate a market-creation abuse case from a pricing anomaly, router issue, UI mislabeling incident, or malicious third-party token exploit.

Integrator Control Checklist

Integrators should maintain an explicit allowlist for Pendle markets and underlying assets rather than accepting every permissionlessly created market. Minimum controls include verified contract source, known SY implementation, maturity sanity checks, liquidity-depth thresholds, oracle-window review, asset issuer review, upgrade-admin review, and simulation of mint, swap, redeem, and emergency-exit paths. Lending markets and vaults should add stricter controls before accepting PT or LP tokens as collateral. Chainscore Labs can help teams review token acceptance logic, monitor suspicious new markets, test oracle manipulation assumptions, and produce an incident-specific exposure report.

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PERMISSIONLESS MARKET CREATION ATTACKS

Frequently Asked Questions

Answers to the most critical operational and security questions for teams integrating with or operating on Pendle after a permissionless market creation attack.

A permissionless market creation attack exploits Pendle's open factory model, where anyone can deploy a new market for any yield-bearing token. An attacker creates a market using a maliciously designed token as the underlying asset. This token can have a custom logic—such as a rebasing mechanism, a hidden fee-on-transfer, or a manipulable exchange rate—that breaks Pendle's core accounting assumptions. The attacker then manipulates the token's properties to drain liquidity from the AMM pool or to mint PT/YT at incorrect ratios, profiting at the expense of LPs and other market participants.

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Permissionless Market Creation Attack Incidents

The Permissionless Market Creation Attack Surface

Attack Vector Snapshot

Attack Mechanics and Exploit Patterns

Affected Systems and Stakeholders

Market Operators and Liquidity Providers