Original author: @ Web3 Mario
In the previous article, we explained the risk of the Pendle PT leveraged income strategy using AAVE. Friends gave a lot of positive feedback. Thank you for your support. Since I have been studying the market opportunities of the Pendle ecosystem for some time, I hope to continue to share an observation on the Pendle ecosystem this week, that is, the real rate of return and risk of the YT leveraged points strategy. In general, taking Ethena as an example, the current potential return rate of the Pendle YT leveraged points strategy can reach 393%, but you still need to pay attention to the investment risks.
Utilize the leveraged properties of YT assets to gamble on the potential yield of Points
First of all, we need to briefly introduce this income strategy. In fact, at the beginning of 2024, as LRT projects represented by Eigenlayer chose to use the point mechanism to determine the distribution of subsequent airdrop rewards, this strategy has received market attention. Users can use the purchase of Pendle YT to increase capital leverage, obtain more points, and then obtain a larger share of rewards when the rewards are distributed.
The reason why buying YT assets has the effect of increasing capital leverage is still due to the mechanism of Pendle. We know that Pendle converts interest-bearing token certificates into Principal Token (PT) and Yield Token (YT) by means of synthetic assets. An interest-bearing token can be converted into a PT and a YT, where PT is a zero-interest bond, which can be exchanged for the native asset at a 1:1 ratio when the maturity date comes. Its fixed interest rate is determined by the discount ratio of PT relative to the native asset in the secondary market created by the current Pendle AMM, as well as the remaining duration. YT represents the ability of a locked interest-bearing asset to accumulate income during its duration. Holding a YT is equivalent to owning the right to income of a native asset in the future.
Since holding YT only gives you the right to income, but not the ability to redeem the principal (this part is carried by PT), as the expiration date approaches, the residual value of YT will become smaller and smaller until the value is zero at expiration. Of course, this does not mean that the value has been reduced, but part of the value has been redeemed as a reward and distributed to YT holders. That is to say, after you hold YT for a period of time, you will find two phenomena:
1. The value of the YT you hold is getting lower and lower;
2. On the Pendle Dashboard page, you will see a portion of the claimable rewards;
The capital leverage capability of YT is derived from this. Since there is only the right to income, the price of YT is much lower than 1 interest-bearing asset. Therefore, buying YT means that you can use a small amount of funds to leverage a larger scale of interest-bearing assets to capture income for you. Taking the above figure YT sUSDe Jul 25 as an example, the market price of YT is 0.0161 USDe, which means that without considering the transaction slippage, assuming that your capital is 1 USDe, you can buy 62 YT, which means that in the next 66 days, you will obtain the right to income of 62 USDe, which is the essence of capital leverage.
Of course, since there is no ability to redeem the principal, this strategy can only be established when the future income is at least higher than the principal of the investment in YT. Here we first do a simple calculation. As shown in the figure above, the current official annual interest rate of sUSDe is about 7% (funding rate dividend). Assuming that the rate level remains unchanged for a period of time in the future, the interest rate for users holding for 66 days is about 1.26%. However, the capital leverage for purchasing YT is only 62 times. Doesnt this mean that investing in YT can only get a yield of 62 * 1.26%, about 78%, at maturity? This basically means that investing in YT has no additional income, and there are even some losses. As we can see from the figure, the implied interest rate and the real interest rate have recently shown a trend of convergence. However, most of the time before that, the interest rate spread was still large, which means that during that period, the price of YT may be lower, which means that the strategy is in a loss state. This is also the reason why the author did not choose to work hard on this strategy a year ago.
However, this is not the case, because in the above rough calculation, we ignored another source of income, that is Point, and in fact this is the core purpose of YT holders buying YT and the source of excess returns.
How to quantify the expected benefits of Point
On Pendles Point Market page, we can see that holding YT can get point rewards for some projects. Taking sUSDe YT as an example, holding 1 YT can get 30 Sats points issued by Ethena every day. So how to effectively quantify the expected return of Point will determine the profitability of the strategy.
If you want to understand how to correctly calculate the potential point yield, it is very important to clarify the point distribution mechanism of each project. Taking Ethena as an example, as of now, Ethena has conducted a total of 3 rounds of points activities, and has launched the fourth quarter points incentive on March 25, 2025, which will last for 6 months, and the total ENA rewards allocated are not less than 3.5%. In Ethena, different sats point incentive speeds are designed for many USDe usage scenarios. The specific mechanism will distribute points on a daily basis according to the fiat currency amount of the participating scenarios, with different multiples.
In order to calculate the potential rate of return of earning points by investing in YT, we need to consider the following key parameters: the total amount of points generated daily, the points distributed, the expected airdrop ratio after the end of the season, and the price of ENA at the time of distribution. Lets try to calculate:
1. First, we can use Ethenas official API to obtain the total number of points issued in the current season, https://app.ethena.fi/api/airdrop/stats. So far, a total of 10.1159 T sats points have been distributed, a total of 2 months.
2. Next, we can record the change in the total amount of points every 24 hours, and use this to estimate how many points may be generated in the remaining time in the future if the same point release rate is maintained. Here we assume that the current point release rate remains unchanged every day, which means that an average of 168.6 B points will be added every day.
3. Calculate the total amount of points that may be generated in the remaining time in the future based on your own position. Assuming that we hold YT sUSDe assets worth $10,000, it means that we can obtain 10,000 * 62 * 30 points per day, which is about 18.6 million points.
4. Combined with the current ENA price of $0.359, and the estimated total ENA reward after the season ends at 3.5%, the calculation is as follows:
In other words, if you buy YT now to participate in the points competition, in the future, assuming that all conditions remain unchanged, you will get an additional 415.8% APY return on the airdrop reward corresponding to the point, a total of $13861 ENA reward. Considering the -22% loss in the sUSDe rate dividend, the total APY can reach 393%. Of course, by staking ENA, the yield of this part can be boosted by 20% to 100%, but we will not introduce it here. Interested friends can discuss with the author.
How to reduce the risk of yield fluctuations
Next, lets briefly analyze the risks of this strategy. First, as mentioned above, there are five main parameters that affect the rate of return: the dividend rate of sUSDe, the price of YT sUSDe, the price of ENA, the total reward ratio that the project party expects to distribute in this season, and the number of new points added per day. We can use the following public statement to represent the impact of each parameter on the total annualized rate of return:
So how do we reduce the risk of yield fluctuations in this strategy? We can roughly use three hedging strategies:
1. When the price of ENA is high, shorting ENA can lock in the ENA price when the expected profit is distributed in advance to avoid the risk of ENA price fluctuations. Of course, the margin for shorting ENA should be considered, which will affect the capital and thus the yield.
2. In some third-party Point OTC exchanges, such as whales market, when the Point promised price is high, part of the Point airdrop value will be redeemed in advance.
3. As for the rate dividend yield of sUSDe, it can only be partially hedged by shorting major asset classes, such as BTC, ETH, etc., because we know that the funding rate of sUSDe is usually higher in a bull market, because when the bull market comes, long investors are willing to pay higher funding rates. With the reversal of market sentiment, it is currently only possible to indirectly hedge the risk of falling rates by shorting major asset classes. However, Pendles Boros product function allows users to hedge rate risks, so this channel is also worth paying attention to.
Conclusion: This article mainly takes sUSDe as an example to introduce how to measure the benefits and risks of the YT leverage points strategy. For other targets, friends can conduct their own research based on this methodology, and everyone is also welcome to discuss with the author.
