Annualized 393%: An In-Depth Analysis of the True Yield and Risks of Pendle YT Leveraged Points Strategy
Overall, taking Ethena as an example, the potential return rate of the Pendle YT leveraged points strategy can reach 393%, but it is important to be aware of the investment risks involved.Author: @Web3Mario（https://x.com/web3_mario）
Abstract: In the previous article, we discussed the interest 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 point strategy. Overall, taking Ethena as an example, the potential return rate of the Pendle YT leverage point strategy can currently reach 393%, but it is still important to be aware of the investment risks involved.
Leveraging the Properties of YT Assets for Potential Returns
First, let me briefly introduce this yield strategy. In fact, at the beginning of 2024, as LRT projects represented by Eigenlayer began to choose the point mechanism to determine the distribution of subsequent airdrop rewards, this strategy gained market attention. Users can leverage their funds by purchasing Pendle YT to acquire more points, thereby obtaining a larger share of rewards during the distribution.
The reason why purchasing YT assets increases financial leverage is due to Pendle's mechanism. We know that Pendle converts interest-bearing token receipts into Principal Tokens (PT) and Yield Tokens (YT) through synthetic assets. An interest-bearing token can be converted into one PT and one YT, where PT is a zero-coupon bond that can be redeemed 1:1 for the underlying asset upon maturity. Its fixed interest rate is determined by the discount ratio of PT relative to the underlying asset in the secondary market created by the current Pendle AMM, as well as the remaining duration. YT represents the ability to accumulate returns from a locked interest-bearing asset during its duration. Holding one YT is equivalent to owning the right to the returns of an underlying asset for a certain period in the future.
Since holding YT only grants the right to returns without the ability to redeem the principal (this part is carried by PT), the remaining value of YT will decrease as the maturity date approaches, eventually reaching zero at maturity. However, this does not mean a loss of value; rather, part of the value has been realized as rewards distributed to YT holders. In other words, after holding YT for a period, you will notice two phenomena:
The value of the YT you hold is decreasing;
On the Pendle Dashboard page, you see a portion of claimable rewards;
The ability of YT to leverage funds stems from this. Since it only grants the right to returns, the price of YT is far below that of one interest-bearing asset. Therefore, purchasing YT means you can use a small amount of capital to leverage a larger scale of interest-bearing assets to capture returns. Taking the YT sUSDe on July 25 as an example, the market price of YT is 0.0161 USDe, which means that assuming your capital is 1 USDe and ignoring trading slippage, you can purchase 62 YT. This means that over the next 66 days, you will gain the right to 62 USDe in returns, which is the essence of financial leverage.
Of course, since there is no ability to redeem the principal, this strategy can only be valid if future returns are at least higher than the principal invested in YT. Here, we can make a simple calculation. As shown in the figure, the current official annual interest rate for sUSDe is around 7% (funding rate dividends). Assuming that the rate level remains unchanged for a period, the interest rate for holding for 66 days is approximately 1.26%. However, the financial leverage of purchasing YT is only 62 times, which means that investing in YT can only yield about 62 * 1.26% ≈ 78% at maturity. This essentially means that investing in YT does not provide additional returns and may even incur some losses. From the chart, we can see that the recent implied interest rates and actual rates are converging, but for most of the time before that, the interest rate spread was still significant, indicating that during that period, the price of YT might be lower, putting the strategy in a loss state. This is also the reason why I did not choose to focus on this strategy a year ago.
However, this is not the case, because in our rough calculation above, we overlooked another source of returns, which is the Point. In fact, this is the core purpose and source of excess returns for YT holders when purchasing YT.
How to Quantify Expected Returns from Points
On the Pendle Point Market page, we can see that holding YT can earn some project point rewards. Taking sUSDe YT as an example, holding 1 YT can earn 30 Sats point rewards issued by Ethena daily. Therefore, effectively quantifying the expected returns from Points will determine the profitability of this strategy.
To understand how to correctly calculate the potential point yield, it is essential to clarify the point distribution mechanisms of various projects. Taking Ethena as an example, as of now, Ethena has conducted three rounds of point activities and has launched the fourth season of point incentives on March 25, 2025, lasting for six months, with a total distribution of ENA rewards not less than 3.5%. In Ethena, different sats point incentive speeds are designed for many USDe usage scenarios, with specific mechanisms distributing points daily based on the fiat currency amount of the participating scenarios, multiplied by different "factors."
To calculate the potential yield from investing in YT to earn points, we need to consider the following key parameters: the current total daily point generation, the points already distributed, the expected airdrop ratio after the season ends, and the price of ENA at distribution. Next, let's do a trial calculation:
First, we can use Ethena's official API to obtain the total number of points distributed in the current season, https://app.ethena.fi/api/airdrop/stats. As of now, a total of 10.1159 T Sats points have been distributed over a period of 2 months.
Next, we can record the changes in total points every 24 hours and estimate how many points might be generated in the remaining time if the point release rate remains the same. Here, we assume that the current point release rate remains unchanged, which means an average daily increase of 168.6 B points.
Based on our position, we calculate the total points that may be generated in the remaining time. Assuming we hold YT sUSDe assets worth $10,000, it means we can earn 10000 * 62 * 30, approximately 18.6M points daily.
Combining the current ENA price of $0.359 and estimating that the total rewards for the season will be 3.5%, we can perform the following calculation:
In other words, assuming you purchase YT now to participate in the point competition, if all conditions remain unchanged, you will receive an additional 415.8% APY return from the point corresponding to the airdrop rewards, totaling $13,861 in ENA rewards. Considering the -22% loss in sUSDe funding rate dividends, the total APY can reach 393%. Of course, by staking ENA, this yield can be boosted by 20% to 100%, but we will not elaborate on this here. Interested friends can discuss this with me.
How to Reduce Yield Volatility Risk
Next, let's briefly analyze the risks of this strategy. As mentioned above, the parameters affecting the yield mainly include five: the dividend yield of sUSDe, the price of YT sUSDe, the price of ENA, the total reward ratio expected to be distributed by the project party in this season, and the daily increase in points. We can express the impact of each parameter on the total annualized yield using the following formula:
So how can we reduce the yield volatility risk of this strategy? We can roughly have three hedging strategies:
When the price of ENA is high, shorting ENA to lock in the expected ENA price at the time of reward distribution, avoiding the risk of ENA price fluctuations. Of course, we need to consider the margin for shorting ENA and its impact on the principal, which in turn affects the yield.
In some third-party Point OTC exchanges, such as whales market, when the Point acceptance price is high, cashing out part of the point's airdrop value in advance.
For the dividend yield of sUSDe, we can only hedge by shorting major assets like BTC and ETH, as we know that the funding rate for sUSDe is usually higher during bull markets, since bullish investors are willing to pay a higher funding rate when a bull market arrives. However, as market sentiment reverses, we can currently only hedge the risk of declining rates by shorting major assets. However, 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 yield and risk of the YT leverage point strategy. For other targets, friends can research based on this methodology, and you are also welcome to discuss with me.
