Exploring PT Leverage Yield Strategies and Potential Risks in the Decentralized Finance Field

Recently, there has been a heated discussion in the DeFi community about an interesting yield strategy: using Ethena's sUSDe as the source of income through Pendle's fixed income certificate PT-sUSDe, and obtaining funds through a lending platform to conduct interest rate arbitrage for leveraged returns. Although many industry insiders are optimistic about this, I believe the market may overlook some of the risks involved, so I would like to share some personal insights.

Overall, this PT leveraged mining strategy is not a risk-free arbitrage; the discount rate risk of PT assets still exists, and participants need to objectively assess and control their leverage to avoid liquidation risk.

Analysis of the Mechanism of PT Leverage Yield Strategy

The strategy involves three DeFi protocols: Ethena, Pendle, and a certain lending platform. Ethena is a yield-generating stablecoin protocol that captures the short-sell fees of the perpetual contract market with low risk through hedging strategies. Pendle is a fixed-rate protocol that breaks down the tokens of floating yields into PTs, which are similar to zero-coupon bonds, and YTs, which are yield certificates. A certain lending platform allows users to collateralize cryptocurrencies to borrow other currencies.

The strategy process is as follows: users acquire sUSDe, exchange it for PT-sUSDe to lock in the interest rate through Pendle, deposit PT-sUSDe into a lending platform as collateral, and borrow USDe or other stablecoins, repeating the above steps to increase leverage. The returns are mainly determined by the base yield of PT-sUSDe, the leverage multiplier, and the lending interest spread.

Current Market Status and Participation of Strategies

Since a lending platform supports PT assets as collateral, this strategy has quickly gained popularity. Currently, the platform supports two types of PT assets, with a total supply of approximately $1 billion. The maximum leverage can reach around 9 times, with a theoretical highest yield exceeding 60%( excluding additional rewards).

Taking a certain PT-sUSDe liquidity pool as an example, a supply of 450 million USD is provided by 78 investors, with a high proportion of whales generally using higher leverage. The leverage ratios of the top four addresses are 9x, 6.6x, 6.5x, and 8.35x, with principal amounts ranging from 3.3 million to 10 million USD.

The Risk of Discount Rate Should Not Be Ignored

Many analyses consider this strategy to be low-risk or even risk-free arbitrage, but in reality, there are still risks, mainly including:

1. Exchange rate risk: A decline in the exchange rate of collateral and the loan target may lead to liquidation.
2. Interest Rate Risk: An increase in borrowing rates may result in negative overall returns for the strategy.

Although USDe has a lower exchange rate risk as a mature stablecoin, the uniqueness of PT assets is often overlooked. PT assets have a duration, and early redemption must be done through secondary market trading, so prices will fluctuate with trading.

A certain lending platform adopts an off-chain pricing scheme, allowing the oracle prices to follow the structural changes in PT interest rates while avoiding short-term market manipulation risks. This means that when the PT asset interest rates undergo adjustments or the market has a consistent expectation for interest rate changes, the oracle will follow the changes, thereby introducing discount rate risks.

Therefore, when using this strategy, it is important to understand the pricing mechanism of lending platforms for PT assets and to reasonably adjust leverage to balance risk and return. Some key features include:

1. As the expiration date approaches, the impact of market trading on prices diminishes, the frequency of oracle updates decreases, and the discount rate risk also lowers.

2. The oracle has a 1% interest rate change threshold as a price update factor, providing a time window to adjust leverage and avoid liquidation.

In summary, participants should closely monitor interest rate changes and adjust leverage in a timely manner to reduce liquidation risk.