Yield and Risk Analysis of Pendle YT Leverage Points Strategy

This article will explore the real yield rates and associated risks of the YT leveraged points strategy within the Pendle ecosystem. Taking Ethena as an example, the current potential annualized return rate of this strategy can reach 393%, but investors still need to carefully assess the risks involved.

Leverage Properties and Yield Mechanism of YT Assets

At the beginning of 2024, as more and more LRT projects adopt the point mechanism to distribute future airdrop rewards, the YT leverage points strategy has attracted market attention. Users can increase their capital leverage by purchasing Pendle YT, thereby acquiring more points and ultimately obtaining a larger share when rewards are distributed.

Pendle converts interest-bearing token certificates into Principal Token (PT) and Yield Token (YT). An interest-bearing token can be converted into one PT and one YT. PT is a zero-coupon bond, redeemable at maturity at a 1:1 ratio for the native asset. YT represents the cumulative earning potential of the locked interest-bearing assets during the duration.

Holding YT only grants the right to earn profits, without the ability to redeem the principal. As the maturity date approaches, the remaining value of YT will gradually decrease until it reaches zero at maturity. This does not mean a loss of value, but rather that part of the value has been distributed as rewards to YT holders.

The funding leverage capability of YT comes from its price being lower than the native asset. For example, the market price of YT sUSDe on Jul 25 is 0.0161 USDe, which means that 1 USDe can purchase 62 YT, obtaining the rights to earnings of 62 USDe over the next 66 days, thus achieving a leverage effect.

Quantitative Analysis of Point Earnings

To accurately calculate the potential point yield, it is necessary to understand the point distribution mechanism of each project. Taking Ethena as an example, the fourth season of point incentives is currently underway, lasting for 6 months, with a total distribution of ENA rewards not less than 3.5%.

Calculating the potential yield rate of YT earning points requires considering the following key parameters:

1. The total amount of points generated daily
2. Number of points that have been distributed
3. Expected airdrop ratio after the season ends
4. The price of ENA during distribution

According to the official Ethena API data, a total of 10.1159 trillion sats points have been distributed so far, over a period of 2 months. Assuming an addition of 168.6 billion points daily, holding assets worth $10,000 in YT-sUSDe, one can earn approximately 18.6 million points daily.

With the current ENA price of $0.359, the estimated total reward for ENA at the end of the season is 3.5%, which can be calculated as:

• The annualized yield for the airdrop rewards corresponding to the point is approximately 415.8%.
• Considering the loss of -22% in the sUSDe rate distribution, the total APY can reach 393%.

Risk Management Strategy

The main parameters affecting the yield rate include: sUSDe dividend yield, YT sUSDe price, ENA price, the total reward ratio expected to be distributed by the project party, and the daily increase in point quantity.

To reduce the risk of yield volatility, the following hedging strategies can be considered:

1. Short ENA when the price is high to lock in the expected ENA price at the time of distribution.

2. Cash out part of the point airdrop value in advance at third-party Point OTC exchanges (such as whales market) when the Point price is relatively high.

3. For the sUSDe rate dividend yield, partial hedging can be achieved by shorting major assets like BTC and ETH. Pendle's Boros product also offers a rate risk hedging feature, which is worth noting.

This article uses sUSDe as an example to introduce the yield and risk assessment methods of the YT leverage point strategy. Investors can study other underlying assets based on this methodology and carefully assess the associated risks.