Why Pendle

Pendle is a yield generation platform allowing users to separate the principle of an asset (PT) with its interest bearing component (YT). Let's dive in.

  • PT (Principal Token): Represents the original asset. Holding the PT means you own the underlying asset at maturity.
  • YT (Yield Token): Represents the yield of the asset over time. Buying the YT means you're speculating on all yield accrued over a given time period.

Pendle Bearing Asset

How It Works

  • If you believe the yield is undervalued (too cheap), you can buy the YT and lock in a future yield at the current price, betting that the actual yield will be higher.
  • If you believe the yield is overvalued (too expensive), you avoid buying or sell the YT, as you expect the future yield won't justify the current cost.

Airdrops and Leveraging

  • The introduction of restaking protocols (like Etherfi, Renzo, Kelp etc.) built on Eigenlayer has enhanced Pendle's use case. YTs are valued less than the principal, (around 3-10% currently) allowing for leveraged positions.
  • For instance, you might buy the yield from 20 Ether with just 1 Ether. This would allow you to lever the amount of yield (and points) you accrue from Eigenlater and the restaking protocol of your choice.

Balancing Mechanisms

  • The PT token offers a balance by providing a more predictable return. When you sell the yield of your asset (via YT), you still hold the PT, which will have a fixed return based on the yield sale. For example, selling 3 months of yield from 30 ETH for $6,500 means the PT holder will get that $6,500 after three months, foregoing the variable staking returns for a guaranteed payout. Not bad at roughly a 23% APY

APY Calculation for PT Token Holding

Given:

  • Fixed Yield in 3 Months: $6500
  • Value of Underlying Position: $110,000
  • Time Period: 3 Months

The Annual Percentage Yield (APY) can be calculated using the formula:

APY = (Fixed Yield / Underlying PT Value) * (12 / # Months Yield) * 100

Substituting the given values:

APY = ($6500 / $110000) * (12 / 3) * 100
APY = 23.64%

This generates an annualized return of 23.64% based on a three-month fixed yield period. This number is based on predicted average in March 2024, before the final numbers can be determined.

PT-eETH Outlook May 2024

PT-eETH Yield and TVL over Time Per the data pulled (via DefiLLama API) as of 6 May 2024, the maximum APY is 48%.

APY Calculation for YT Token Holding

(Using YT-eETH as an example)

Given:

  • Cost of YT-eETH Token: $2600
  • Airdrop Values: 1500 $ETHFI, ~ $4 per $ETHFI, $5000 of $EIGEN, and 3.5% native ETH yield
  • Purchase Date: January 10th
  • Expiration Date: June 29th

The value received from airdrops and yield:

Total $ETHFI Value = 1500 $ETHFI * $4/$ETHFI = $6000
Total Value from Airdrops = $6000 (from $ETHFI) + $5000 (from $EIGEN) = $11000

Including the 3.5% native ETH yield generated from January 10th through June 29th, the adjusted APY calculation considering the specific time frame and airdrop values:

APY = ((Total Value from Airdrops + Actual Native ETH Yield / Cost of YT-eETH Token) * (12 / # Months Until Expiration)) * 100
APY = 963.5%

This calculation suggests an annualized return of 963.5%, including the airdrop value and native restaking yield.

Key Points

  • YT Tokens: Ideal for speculative investments on the yield of an asset. You're betting on the future yield being higher than what's currently priced in. (Long Live Airdrop Farming)
  • PT Tokens: Offer a stable, predictable return. You know exactly how much you'll get after a certain period, making it a safer but potentially less lucrative option.

This innovative approach allows investors to separate the risk and reward profiles of yield generation from asset ownership, enabling a more precise strategy alignment with their risk tolerance and market predictions.