Annualized 393%: A Deep Dive into the Real Yield and Risks of Pendle YT Leverage Points Strategy

Author: @Web3Mario

Abstract: In the previous article, we elaborated on the rate risk of leveraging yield strategies using AAVE's Pendle PT, and many friends gave positive feedback; we thank everyone for their support. Due to the recent period of research into market opportunities within the Pendle ecosystem, this week we hope to continue sharing an observation on the Pendle ecosystem, namely the actual yield and risk of the YT leveraged points strategy. Overall, taking Ethena as an example, the current potential return rate of the Pendle YT leveraged points strategy can reach 393%, but it is still necessary to pay attention to the investment risks involved.

Utilize the leverage attributes of YT assets to speculate on the potential yield rate of Point.

First, it is necessary to briefly introduce this profit 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 gained market attention. Users can utilize the purchase of Pendle YT to increase capital leverage, obtain more points, and thus receive a larger share of rewards during the distribution.

The reason why buying YT assets has the effect of increasing capital leverage is because of Pendle's mechanism. We know that Pendle converts interest-bearing token credentials into Principal Token (PT) and Yield Token (YT) by synthesizing assets. One interest-bearing token can be converted into one PT and one YT, where PT is a zero-coupon bond that can be exchanged for the native asset 1:1 when the maturity date comes. The fixed interest rate is determined by the percentage of the PT's discount to the primary asset in the secondary market created by the current Pendle AMM, as well as the remaining duration. YT, on the other hand, represents the ability of a locked interest-bearing asset to accumulate returns over its lifetime. Holding one YT is equivalent to having the right to income from a native asset for a period of time in the future.

As holding YT only grants the right to receive profits, without the ability to redeem the principal (this part is borne by PT). Therefore, as the maturity date approaches, the remaining value of YT will decrease, reaching zero at maturity. This does not mean a loss of value; rather, a portion of the value has already 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 YT you hold is decreasing.

2. On the Pendle Dashboard page, you have a portion of 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. As an example, the market price of YT is 0.0161 USDe, which means that if you do not consider trading slippage, assuming your capital is 1 USDe, you can buy 62 YT, which means that in the next 66 days, you will get 62 USDe income rights, 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 will 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 does not mean that investing in YT can only get 62 \ * 1.26% about 78% of the 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 reality is not so, because in the above rough calculation, we ignored another source of income, which is Points. 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 Point

On Pendle's Point Market page, we can see that holding YT can earn some project point rewards. For example, with sUSDe YT, holding 1 YT can earn 30 Sats point rewards issued by Ethena daily. Therefore, how to effectively quantify the expected yield of Points will determine the profitability of this strategy.

If you want to understand how to correctly calculate the potential point yield rate, 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 already launched the fourth season of point incentives on March 25, 2025, lasting for 6 months, with a total ENA reward allocation of no less than 3.5%. In Ethena, different sats point incentive speeds have been designed for many use cases of USDe, and the specific mechanism will allocate points daily based on the fiat currency based amount of the participation scenario, using different "multipliers."

To calculate the potential yield rate of investing in YT to earn 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 issued in the current season, T sats points, over a period 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 could potentially be generated during the remaining time if the point release rate remains the same. Here, we assume that the current point release rate remains unchanged daily, which means an average of 168.6 B new points are added each day.

3. Based on your position, calculate the total amount of points that may be generated in the remaining time, assuming we hold YTsUSDe assets worth $10,000, which means we can earn approximately 18.6 million points daily from 10,000 * 62 * 30.

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 calculation is made:

In other words, assuming that you purchase YT now to participate in the points competition, in the future, assuming all conditions remain unchanged, you will receive an additional 415.8% APY return in the airdrop rewards corresponding to the points, totaling $13861 ENA rewards. Considering the -22% loss in the sUSDe rate dividend, the total APY can reach 393%. Of course, by staking ENA, you can boost this part of the yield by 20% to 100%, but we will not elaborate on that here. Interested friends 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 allocation ratio expected by the project team for the season, and the daily number of new points added. We can use the following formula to represent the impact of each parameter on the total annualized yield:

So how can we reduce the volatility risk of the returns of this strategy? We can generally 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 in advance, avoiding the risk of price fluctuations. Of course, it is necessary to consider the margin for shorting ENA, which occupies the principal and may affect the yield.

2. At some third-party Point OTC exchanges, such as whales market, when the Point's quoted price is relatively high, partially cash out the airdrop value of points in advance.

3. The yield from the fee distribution of sUSDe can only be partially hedged by shorting major assets such as BTC, ETH, etc., because we know that the funding rate of sUSDe is usually higher during bull markets, as bullish investors are willing to pay a higher funding rate when a bull market arrives. However, with the reversal of market sentiment, we can currently only hedge the risk of fee decline by shorting major assets. Nevertheless, Pendle's Boros product feature allows users to hedge against fee 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 returns and risks of the YT leverage point strategy. For other targets, friends can research on their own based on this methodology, and everyone is welcome to discuss with the author.