I have recently noticed that Ethena's PT assets have gone live as collateral on Aave, and the limits are almost gone in seconds. Yes, many DeFi players should have discovered a secret:
Pendle + lending protocols can create a low-risk leverage structure. If operated properly, the annualized yield can reach 30%.
But this is not simple leverage; this is calculated to seek fixed returns + airdrop points + structural arbitrage, making Pendle's looping lending mechanism a new round of 'smart money games'.
Many people also privately messaged me about this point in my last article, so today I will specifically talk about Pendle's looping lending mechanism—
One, strategy principle: use PT as collateral to amplify fixed income through leverage.
Pendle separates the rights to income and principal, PT = principal certificate, YT = income certificate.
The logic of looping lending is very simple—
You buy Pendle's stablecoin PT, use it as collateral in Aave to borrow stablecoins; then go to Pendle to buy stablecoin PT—repeating the cycle to amplify returns.
This forms a closed loop of 'Buy PT → Collateralize → Borrow stablecoins → Buy more PT'.
So as long as the interest rate spread is positive (yield > borrowing cost), you can leverage to earn fixed returns.
Two, practical process: 5 steps to master Pendle PT looping lending.
Taking PT-sUSDe as an example, you initially have 1000u, assuming an annualized return of 7.5% and Aave borrowing cost of 5%.
1) Buy PT-sUSDe:
Go to Pendle to buy PT-sUSDe, and pay attention to the maturity time.
2) Deposit PT into Aave V3 as collateral:
Open Aave V3, deposit the corresponding PT-asset as collateral.
3) Borrow stablecoins (such as USDC, USDT):
Aave provides lending functionality, allowing you to borrow as many stablecoins as you can afford (e.g., LTV 70%, can borrow 700u).
4) Use the borrowed stablecoins to continue buying PT:
Return to Pendle to continue buying PT, collateralize again, lend again... forming a loop.
5) Set the number of loops according to personal risk preference:
It is generally recommended not to exceed 3 layers of looping (to prevent liquidation risk).
Three, income model: How much can you earn after leveraging in a loop?
The main sources of income for looping lending are:
✅ Fixed rate returns from PT.
✅ Compounding effect after multiple rounds of leverage.
✅ Potential airdrop points (Pendle + Ethena + Aave, if any).
Assume:
PT annualized = 7.5%, Aave borrowing cost = 5% for two rounds of looping, which means leverage multiple = 2.5x.
Therefore, net return = (7.5% × 2.5) - (5% × 1.5) ≈ 11.5% annualized.
Even in a low spread environment (7.5% vs 5%), leveraging loops can still elevate stablecoin yields to over 10%, making it very suitable for conservative players to use structured methods to enhance returns.
If you use other assets, PT interest rates may be higher and borrowing rates lower, allowing for even higher annualized returns, some even reaching 70%.
Four, risk warning: Is this risk-free arbitrage?
Any arbitrage comes with risks; there is no such thing as risk-free arbitrage. The main risks include:
❗️Price slippage and liquidity issues: Multiple rounds of buying PT may lead to larger slippage.
❗️Interest rate changes: Aave's borrowing rate is floating and may rise, which could compress your interest spread.
❗️LTV and liquidation risks: PT, as a non-mainstream collateral, has conservative liquidation parameters, and once PT fluctuates, it may be forced to liquidate.
❗️Depeg risk: Although PT is bought with stablecoins, the underlying asset (such as sUSDe) has a slight risk of depegging.
Among them, the most noteworthy is the liquidation risk of looping lending.
As the number of loops increases, both net returns and APR increase, but the liquidation risk factor also increases simultaneously.
Assuming the current market price of PT-sUSDe is $1.00, the first round of looping has almost no liquidation risk (the PT price can fall more than 12%);
After the third round, if the PT price falls by just 8.5%, it will trigger liquidation;
In the 4th round, the liquidation boundary compresses to only a 6% drop, which is extremely dangerous.
Increasing the number of looping lending rounds will narrow the risk boundary, especially under high leverage, each round's increase compresses the margin for error.
Therefore, I recommend a maximum of 1-2 rounds of looping; do not be greedy for full leverage, as this is a cost-effective safe zone.
Five, what kind of people are suitable for the Pendle looping lending strategy?
Looping lending has a certain operational threshold due to the added leverage, making it more suitable for certain groups of people:
✅ Players familiar with DeFi operations and on-chain lending liquidation logic.
✅ Interested in stable returns + airdrop incentives are cautious leverage parties.
✅ Willing to track collateral status daily or weekly and adjust leverage at any time.
❌ Not suitable for complete novices who do not understand the liquidation mechanism.
❌ Not suitable for those who cannot monitor their positions and manage leverage at any time.
Six, conclusion—
Pendle's stablecoin PT + lending = 'government bonds + leverage' in DeFi, and this looping lending strategy is very similar to 'bonds plus leverage to earn interest spreads' in the TradFi world, with the most attractive aspect being the stability of the interest spread; the reasoning is the same, just a change in form.
Right now is indeed a good window period, but it is also important to remember:
1) Any arbitrage is a trade-off between risk and return.
2) Although PT-sUSDe is pegged to a stablecoin, there are still risks of discount, liquidity, interest rate fluctuations, and liquidation.
3) When the market is greedy, leverage is often the last straw that breaks the position.
Understanding the structure, mastering the rhythm, and respecting the risks are essential lessons for Pendle players; controlling risks and maximizing returns is the core of survival!
