Risk Analysis of PT Leverage Yield Strategy

Recently, a highly discussed strategy has emerged in the DeFi space, which involves utilizing Ethena's staking yield certificate sUSDe as a source of income through the fixed yield certificate PT-sUSDe in Pendle, and obtaining funds via the AAVE lending protocol to conduct interest rate arbitrage for leveraged returns. Although this strategy has sparked widespread discussion within the DeFi community, the market seems to overlook the potential risks involved.

Introduction to PT Leverage Profit Mechanism

This strategy involves three main DeFi protocols: Ethena, Pendle, and AAVE. Ethena is a yield-based stablecoin protocol that captures the short fee rates in the perpetual contract market through hedging strategies. Pendle is a fixed-rate protocol that breaks down floating yield tokens into Principal Tokens (PT) and Yield Tokens (YT). AAVE, on the other hand, is a decentralized lending protocol that allows users to collateralize cryptocurrencies to borrow other assets.

The strategy flow is as follows:

1. Get sUSDe on Ethena
2. Convert sUSDe to PT-sUSDe fixed interest rate through Pendle
3. Deposit PT-sUSDe into AAVE as collateral.
4. Lend USDe or other stablecoins
5. Repeat the above steps to increase leverage.

The yield is mainly determined by the base yield rate of PT-sUSDe, the leverage multiple, and the interest rate spread in AAVE.

Market Status and Participation

Since AAVE supports PT assets as collateral, this strategy has quickly gained popularity. The total supply of the two PT assets currently supported by AAVE (PTsUSDe July and PTeUSDe May) has reached approximately $1 billion. Theoretically, through circular loans, the maximum leverage ratio can reach around 9 times, and the annualized yield can exceed 60%.

The actual distribution of participants shows that most are high-leverage whale users. For instance, the leverage ratios of the top four addresses are 9x, 6.6x, 6.5x, and 8.35x, with principal amounts ranging from $3.29 million to $10 million.

Discount Rate Risk Analysis

Although many DeFi analysts emphasize the low-risk characteristics of this strategy, even calling it risk-free arbitrage, there are actually significant risks that cannot be ignored, especially discount rate risk.

The uniqueness of PT assets lies in their existence period, and early redemption requires discount trading through Pendle's AMM, which will affect the price of PT assets. AAVE employs an off-chain pricing oracle solution for PT assets, allowing oracle prices to follow structural changes in PT interest rates while avoiding short-term market manipulation risks.

This means that when there is a structural adjustment in PT asset interest rates or when the market has a consistent expectation of interest rate changes, the AAVE Oracle will follow this change. Therefore, if PT interest rates increase for some reason, the price of PT assets will decrease accordingly, and high-leverage strategies may face liquidation risks.

Risk Control Recommendations

1. Understand the pricing mechanism of AAVE Oracle for PT assets and adjust the leverage ratio accordingly.

2. As the expiration date approaches, the impact of market trading pairs on prices will gradually diminish, and the discount rate risk will correspondingly decrease.

3. Closely monitor interest rate changes. AAVE Oracle has a 1% interest rate change as a trigger condition for price updates. Adjust leverage in a timely manner to avoid liquidation.

4. Control the leverage ratio to seek a balance between risk and return, and avoid overly aggressive strategies.

In summary, the PT leveraged mining strategy of AAVE+Pendle+Ethena is not without risks; participants must objectively assess the risks and reasonably control the leverage ratio to prevent potential liquidation risks.