A Deep Dive into the Real Yield of Pendle YT Leveraged Yield Strategies

Author: @Web3Mario

Abstract: In the previous article, we discussed the realization rate risk of leveraging yield strategies using AAVE's Pendle PT, and we received a lot of positive feedback from everyone; thank you all for your support. Recently, I have been researching market opportunities within the Pendle ecosystem, so this week I would like to continue sharing an observation about the Pendle ecosystem, specifically the actual yield and risk of the YT leverage points strategy. Overall, using Ethena as an example, the current potential return rate of the Pendle YT leverage points strategy can reach 393%, but it is important to remain aware of the investment risks involved.

Utilize the leveraged properties of YT assets to speculate on the potential return rate of Point.

In fact, at the beginning of 2024, as LRT projects represented by Eigenlayer have chosen to use the point mechanism to determine the distribution of subsequent airdrop rewards, this strategy has attracted market attention. Users can use the purchase of Pendle YT to increase their capital leverage, obtain more points, and then obtain a larger share of rewards when the rewards are distributed.

The reason for purchasing YT assets has the effect of increasing capital leverage, which is due to the mechanism of Pendle. We know that Pendle transforms yield-bearing token certificates into Principal Tokens (PT) and Yield Tokens (YT) through the synthesis of assets. A yield-bearing token can be converted into one PT and one YT, where PT is a zero-coupon bond that can be exchanged 1:1 for the native asset upon maturity. 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 maturity period. YT represents the ability to accumulate returns of a locked yield-bearing asset during its maturity period. Holding a YT is equivalent to possessing the rights to the future returns of a native asset for a certain period.

Due to holding YT, you only obtain the rights to the earnings, without the ability to redeem the principal (this part is carried by PT). Therefore, as the maturity date approaches, the remaining value of YT will decrease, reaching zero at maturity. Of course, this does not mean a loss of value; it simply indicates that a portion of the value has been realized as rewards and distributed to YT holders. In other words, after holding YT for a period of time, you will notice two phenomena:

1 The value of the YT you hold is decreasing.

2 On the Pendle Dashboard page, you have some claimable rewards.

This is where YT's capital leverage comes from. Since there is only a right to income, the price of YT is much lower than 1 interest-bearing asset, so buying YT means that you can use a small amount of capital to leverage a larger scale of interest-bearing assets to capture income for you. In the above figure YT sUSDe Jul 25 as an example, the market price of YT is 0.0161 USDe, which means that without considering trading slippage, assuming your capital is 1USDe, you can buy 62 YT, which means that in the next 66 days, you will get 62 USDe of the right to earn, which is the essence of capital leverage.

Of course, due to the lack of principal redemption ability, this strategy can only be established when the future return is at least higher than the principal of investing in YT, here we first make a simple calculation, as shown in the figure above, the current official annual interest rate of sUSDe is about 7% (funding rate dividend), then assuming that the rate level remains unchanged for a period of time in the future, the interest rate of users holding for 66 days is about 1.26%. However, the leverage of the funds to buy YT is only 62 times, which doesn't mean that investing in YT can only get 62 * 1.26% about 78% yield at maturity, which basically means that there is no additional income from investing in YT, and even some losses, and we can see from the chart that the implied interest rate and the real interest rate have shown a convergence trend recently, but most of the time before that, the interest rate spread is still large, which means that during that time, the price of YT may be lower, This means that the strategy is in the red. That's why I didn't choose to work on this strategy a year ago.

However, the fact is not so, because in our rough estimate above, we ignored another source of income, which is Point. In fact, this is the core purpose for YT holders to purchase YT and the source of excess returns.

How to Quantify the Expected Returns of Points

On the Point Market page of Pendle, we can see that holding YT can earn point rewards for some projects. Taking sUSDe YT as an example, holding 1 YT can earn a daily reward of 30 Sats points issued by Ethena. Therefore, how to effectively quantify the expected returns of Points will determine the profitability of this strategy.

To understand how to correctly calculate the potential point yield, it is very important to clarify the point distribution mechanisms of each project. Taking Ethena as an example, as of now, Ethena has carried out a total of 3 rounds of points activities and has opened the fourth season of point incentives on March 25, 2025, lasting for 6 months, with a total ENA reward distribution of no less than 3.5%. In Ethena, different sats point incentive speeds have been designed for many USDe usage scenarios, and the specific mechanism will allocate points daily based on the fiat currency amount of the participating scenarios, using different "multiples."

To calculate the potential return on investment in YT for earning points, we need to consider the following key parameters: the total amount of points generated daily, the points already distributed, the expected airdrop ratio after the season ends, and the price of ENA at the time of distribution. Next, let's do a trial calculation:

1 First, we can use Ethena's official API to obtain the total number of points distributed in the current season, which is 10.1159 T sats, over a period of 2 months.

2 Next, we can record the changes in the total number of points every 24 hours, and use this to estimate how many points might be generated in the remaining time in the future, assuming the same rate of point release is maintained. Here, we assume that the current rate of point release remains constant at 168.6 B points added on average daily.

3 Based on your own position, calculate the possible total amount of points that may be generated in the remaining time. Assuming we hold YT sUSDe assets worth $10,000, it means we can earn approximately 10000 * 62 * 30 points daily, which is about 18.6M points.

4 Combining the current ENA price of $0.359 and estimating the total ENA rewards at 3.5% by the end of the season, the following calculations are made:

In other words, if you buy YT now to participate in the points competition, in the future, assuming that all conditions remain the same, you will get an additional 415.8% APY yield in the airdrop reward part of the point, a total of $13861 ENA rewards. Considering the -22% of the loss in the sUSDe rate dividend, the total APY can come to 393%. Of course, by staking ENA, you can increase the yield of this part by 20%~100%, but we will not introduce it here, and interested partners can discuss it with the author.

How to Reduce the Risk of Yield Volatility

Next, let’s briefly analyze the risks of this strategy. First, as mentioned above, there are five main parameters that affect the yield: the dividend yield of sUSDe, the price of YT sUSDe, the price of ENA, the total reward proportion expected to be allocated by the project party in this season, and the daily increase in points. We can use the following formula to represent the impact of each parameter on the total annualized yield:

So how can we reduce the yield volatility risk of this strategy? We can roughly have three hedging strategies:

1 When the price of ENA is high, shorting ENA can lock in the expected ENA price at the time of profit distribution, avoiding the risk of ENA price fluctuations. Of course, one must consider the margin for shorting ENA, which occupies capital and can subsequently affect the rate of return.

2 At some third-party Point OTC exchanges, such as whales market, when the Point approved price is relatively high, redeem part of the airdrop value of the points in advance.

3 The yield rate of the fee dividend for sUSDe can only be partially hedged by shorting major assets, such as BTC, ETH, etc., because we know that the funding rate for sUSDe is usually higher during a bull market, as bullish investors are willing to pay a higher funding rate when the bull market arrives. However, with the reversal of market sentiment, currently, the only way to hedge the risk of a decline in rates is through shorting major assets. Nonetheless, Pendle's Boros product functionality allows users to hedge rate risks, so this channel is also worth paying attention to.

Conclusion: This article mainly uses sUSDe as an example to introduce how to measure the returns and risks of the YT leverage points strategy. For other assets, friends can conduct their own research based on this methodology, and everyone is welcome to discuss it with the author.