Leverage the properties of YT assets to speculate on the potential return rate of Point.

First, let’s briefly introduce this profit strategy. In fact, at the beginning of 2024, as LRT projects represented by Eigenlayer began to use 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 when the distribution occurs.

The reason for purchasing YT assets is the effect of increasing capital leverage, which lies in the mechanism of Pendle. We know that Pendle transforms income-generating token certificates into Principal Tokens (PT) and Yield Tokens (YT) through synthetic assets. An income-generating token can be converted into one PT and one YT, where PT is a zero-coupon bond that can be exchanged 1:1 for the native asset upon maturity. Its fixed interest rate is determined by the discount ratio of PT relative to the native asset in the secondary market created by the current Pendle AMM, as well as the remaining duration. YT, on the other hand, represents the ability to accumulate returns on a locked income-generating asset during its duration. Holding one YT is equivalent to having the right to the future income from a native asset for a certain period.

Since holding YT only grants the right to receive profits, but not the ability to redeem the principal (this part is carried by PT). Therefore, as the maturity date approaches, the remaining value of YT will decrease, eventually reaching zero at maturity. Of course, this does not mean a loss of value; it simply means that a part of the value has already been realized as rewards and distributed to the holders of YT. In other words, after holding YT for a period of time, you will notice two phenomena:

1. The value of the YT you hold is decreasing.
2. On the Pendle Dashboard page, you have a portion of claimable rewards.

The leverage capacity of YT funds originates from this. Since there is only the right to income, the price of YT is far below 1 income-generating asset. Therefore, purchasing YT means you can use a small amount of capital to leverage a larger scale of income-generating assets to capture returns. Taking the example of YT sUSDe Jul 25, the market price of YT is 0.0161 USDe, which means that without considering trading slippage, assuming your capital is 1 USDe, you can purchase 62 YT. This means that in the next 66 days, you will obtain the right to income for 62 USDe, which is the essence of financial leverage.

Of course, since there is no ability to redeem the principal, this strategy can only be established if future returns are at least higher than the principal invested in YT. Let’s do a simple calculation first. As shown in the figure above, the current official annual interest rate for sUSDe is about 7% (capital fee rate dividend). Assuming that the fee rate level remains unchanged for a period of time, the interest rate for users holding for 66 days is about 1.26%. However, the capital leverage for purchasing YT is only 62 times. Doesn’t this mean that investing in YT can only yield about 78% return at maturity, calculated as 62 * 1.26%? This basically 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 interest rates are showing a convergence trend. However, for most of the time before this, the interest rate spread was still quite large, which means that during that period, the price of YT might be lower, indicating that this strategy is in a losing 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 income, which is Points, and in fact, this is the core purpose for YT holders to purchase YT and the source of excess returns.

How to quantify the expected returns of Points

On the Point Market page of Pendle, we can see that holding YT can earn some project point rewards. Taking sUSDe YT as an example, holding 1 YT allows you to receive 30 Sats point rewards issued by Ethena daily. Therefore, how to effectively quantify the expected returns of Point will determine the profitability of this strategy.

To understand how to correctly calculate the potential point yield, it is crucial to clarify the point distribution mechanism of each project. Taking Ethena as an example, as of now, Ethena has conducted a total of 3 rounds of point activities and has already launched the fourth season of point incentives on March 25, 2025, lasting for 6 months, with a total ENA reward allocation of no less than 3.5%. In Ethena, different sats point incentive speeds have been designed for many USDe use cases, and the specific mechanism will allocate points daily based on the fiat currency equivalent amount of the participating scenarios, using different “multipliers.”

In order to calculate the potential return on investment for earning points through YT, we need to consider the following key parameters: the total amount of points generated daily, the points that have been distributed, the expected airdrop ratio after the season ends, and the price of ENA at the time of distribution. Next, let’s do a trial calculation:

1. 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.A total of 10.1159 trillion sats points have been distributed so far, over a period of 2 months.
2. Next, we can record the changes in the total amount of points every 24 hours and use this to estimate how many points may be generated in the remaining time if the same point release rate is maintained. Here, we assume that the current point release rate remains constant each day, which means an average of 168.6 billion points are added daily.
3. Based on your position, calculate the total amount of points that may be generated in the remaining time, assuming we hold YTsUSDe assets worth $10,000, which means we can earn 10,000 daily. 62 30, approximately 18.6M points.
4. Considering the current ENA price of $0.359, and estimating the total ENA rewards at 3.5% by the end of the season, the following calculation is made:

In other words, assuming you purchase YT now to participate in the points competition, in the future, under the assumption that all conditions remain unchanged, you will receive an additional 415.8% APY yield on the airdrop rewards corresponding to points, totaling $13861 ENA rewards. Considering the -22% loss in the sUSDe rate dividends, the total APY can reach 393%. Of course, by staking ENA, you can boost this yield by 20% to 100%. However, we will not elaborate on this here; interested friends can discuss it with me.

How to reduce the risk of yield volatility

Next, let’s briefly analyze the risks of this strategy. As mentioned above, there are mainly five parameters that affect the yield: the dividend yield of sUSDe, the price of YT sUSDe, the price of ENA, the total reward allocation percentage expected by the project party for the season, and the daily new point addition. We can use the following formula to represent the impact of each parameter on the total annualized yield:

So how can we reduce the yield volatility risk of this strategy? We can roughly have three hedging strategies:

1. When the price of ENA is high, you can lock in the expected distribution price of ENA by shorting ENA in advance, avoiding the risk of price fluctuations. Of course, it is necessary to consider the margin for shorting ENA, which occupies the principal and thus affects the rate of return.
2. In some third-party Point OTC exchanges, such as Whales Market, when the Point acceptance price is higher, the airdrop value of some points can be redeemed in advance.
3. For the yield rate of sUSDe’s rate dividends, it can only achieve partial hedging effects by shorting major assets such as BTC and ETH, as we know that the funding rate of sUSDe is usually higher during bull markets, because bullish investors are willing to pay a higher funding rate when a bull market arrives. However, with the reversal of market sentiment, currently, the only way is to short major assets to indirectly hedge against the risk of declining rates. 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 returns and risks of the YT leverage points strategy. For other assets, friends can research on their own based on this methodology, and everyone is welcome to discuss with the author.

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