Utilizing Pendle YT Leverage to Earn Points: High Returns with Associated Risks

In this article, we will explore the actual yield and potential risks of the YT leverage point strategy in the Pendle ecosystem. Taking Ethena as an example, the current potential return rate of this strategy can reach 393%, but investors still need to carefully assess the risks involved.

Leverage Characteristics and Point Potential of YT Assets

The YT leverage point strategy has garnered attention in early 2024 as the LRT project adopts a point mechanism for distributing rewards. Users can increase their capital leverage by purchasing Pendle YT, thereby earning more points and ultimately securing a larger share during the reward distribution.

Pendle converts yield-bearing token certificates into Principal Tokens (PT) and Yield Tokens (YT). YT represents the cumulative earning capacity of the locked assets over a specific period. Since YT only has the right to yield and no principal redemption capability, its price is much lower than that of the native asset, allowing investors to leverage a larger scale of yield-bearing assets with less capital.

For example, the market price of YT sUSDe on Jul 25 is 0.0161 USDe, which means that 1 USDe can purchase approximately 62 YT, corresponding to the right to earn returns on 62 USDe over the next 66 days.

Expected Returns of Quantitative Integration

To accurately calculate the potential points yield rate, it is necessary to understand the point distribution mechanisms of each project. Taking Ethena as an example, its fourth quarter point incentive program will last for 6 months, with a total distribution of ENA rewards not less than 3.5%.

Calculating the potential return rate of investing in YT to earn points involves the following key parameters:

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

Based on the current data and assumptions, holding YT-sUSDe assets worth $10,000 can yield approximately 18.6 million points daily. Considering the current price of ENA at $0.359 and an estimated total reward of 3.5%, it can be concluded that for the airdrop rewards corresponding to the points, an expected APY return of 415.8% can be obtained, equivalent to approximately $13,861 in ENA rewards.

Considering the potential -22% loss from the sUSDe fee rate dividends, the total APY can reach 393%. By staking ENA, the yield can be further increased by 20% to 100%.

Strategies to Reduce Yield Volatility Risk

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

1. Short ENA when the price is high to lock in the expected ENA price during the distribution of profits.

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

3. For the rate dividend yield of sUSDe, it can achieve some hedging effect by shorting major assets like BTC and ETH. Additionally, Pendle's Boros product also offers rate risk hedging functionality.

This article uses sUSDe as an example to introduce the yield and risk assessment methods for the YT leveraged points strategy. Investors can study other targets based on this methodology, but they should always remain cautious and fully assess potential risks.