Exploring Arbitrage Strategies in the DeFi Field: PT Asset Leverage Yield Mechanism and Potential Risks

Recently, a highly discussed arbitrage strategy has emerged in the DeFi space, involving three protocols: Ethena, Pendle, and a certain lending platform. This strategy utilizes Ethena's staking yield certificate sUSDe as the source of income through Pendle's fixed income certificate PT-sUSDe, and leverages funding from the lending platform to conduct interest rate arbitrage. Although many DeFi opinion leaders are optimistic about this, the author believes that the market may be underestimating the associated risks.

Analysis of PT Leverage Profit Strategy

This strategy integrates three popular Decentralized Finance projects:

1. Ethena: A yield-generating stablecoin protocol that captures the perpetual contract market's short fee rates with low-risk hedging strategies.

2. Pendle: Fixed-rate protocol that decomposes floating yield rate tokens into PT, similar to zero-coupon bonds, and yield certificates YT.

3. A lending platform: allows users to collateralize cryptocurrencies to borrow other coins, achieving effects such as leverage and hedging.

The specific operation process is: users obtain sUSDe and exchange it for PT-sUSDe to lock in the interest rate through Pendle, then deposit PT-sUSDe into a lending platform as collateral, borrowing stablecoins to increase leverage through a cycle of operations. The income is mainly determined by the base yield rate of PT-sUSDe, the leverage multiple, and the interest rate spread of the loan.

Market Status and Participation

The popularity of this strategy stems from a major lending platform's recognition of PT assets as collateral, which has released its financing capacity. Currently, the platform supports two types of PT assets, with a total supply of approximately $1 billion.

Taking PT sUSDe July as an example, the maximum borrowing limit under a specific model is 88.9%, theoretically allowing for 9 times leverage. Excluding other costs, the strategy yield can reach 60.79%.

From the actual participation situation, the proportion of whales in the liquidity pool is very high and they generally use high leverage. The leverage ratio of the top four addresses ranges from 6.5 to 9 times, with principal amounts varying from 3 million to 10 million USD.

The Discount Rate Risk That Cannot Be Ignored

Although most analyses suggest that this strategy carries very low risk, in reality, PT assets have their own particularities:

1. PT assets have a maturity period, and early redemption must be conducted through secondary market trading, with prices fluctuating according to trading.

2. A certain lending platform adopts an off-chain pricing scheme, and the oracle price will follow the structural changes in PT interest rates.

3. If the PT interest rate is adjusted, asset prices may decline, and high-leverage strategies face liquidation risks.

Therefore, investors need to pay attention to the following points:

• As the expiration date approaches, the impact of market trading pairs on prices diminishes, and the update frequency decreases.

• The Oracle has a 1% interest rate change threshold, and the price will only be updated if it exceeds and remains at this level for a certain period.

• Closely monitor interest rate changes and adjust leverage in a timely manner to avoid risks.

In summary, this is not a risk-free Arbitrage; investors need to objectively assess risks, reasonably control leverage, and avoid blindly chasing highs.