✌✌✌ As decentralized finance (DeFi) continues to evolve, various innovative yield strategies are emerging. Recently, Blockworks analyst Shaunda Devens (@shaundadevens) detailed how Ethena's USDe stablecoin saw a supply surge of $3.7 billion in just 20 days, driven by the PT-USDe rotation strategy launched by Pendle and Aave. This strategy significantly amplifies yield potential by splitting principal and yield tokens and combining lending leverage. At the same time, its potential risks cannot be ignored. This article will summarize the core mechanisms, yield composition, and risk considerations of this strategy based on Devens' analysis.
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Surge in Supply and Mechanism Overview
Shaunda Devens tweeted on August 6, 2025, that Ethena's USDe supply increased by $3.7 billion in just 20 days, mainly driven by the PT-USDe rotation strategy based on Pendle and Aave. Currently, about $4.3 billion (60% of total USDe) is locked in Pendle, with another $3 billion deposited in Aave.
USDe is a decentralized stablecoin that maintains its peg to the dollar using a directional hedging algorithm with ETH perpetual contracts, while generating yield through spot staking and funding rates of perpetual contracts. However, this yield is highly dependent on funding rates, which fluctuate closely with the premium or discount of perpetual contract prices compared to ETH spot prices.
Devens pointed out that "when bullish sentiment rises, traders open leveraged long positions, causing perpetual prices to briefly exceed marked prices, and positive funding rates incentivize market makers to short perpetuals and hedge with spot," whereas negative funding rates may arise, leading to price inversions. She cited the extreme mismatch of AUCTION-USDT as an example, where spot buying and perpetual selling caused a spot premium, with an 8-hour funding rate reaching -2%, annualizing approximately 2195%.
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Pendle PT Rotation Strategy and Its Synergistic Effects
This volatility has created a demand for more predictable yield products: Pendle's PT-loop strategy, which separates principal and yield into token models: principal token (PT) and yield token (YT). The PT can be exchanged for 1 USDe at maturity, and its current price is at a discount to par, similar to a zero-coupon bond, with the discount's implied annualized yield calculated based on the remaining term.
This design provides USDe holders with tools to lock in fixed income and avoid risks from funding rate fluctuations. Historically, when funding rates were high, annualized yields exceeded 20%, currently around 10.4%. Additionally, PT token holders enjoy Pendle's 25x SAT token rewards.
Pendle's total locked value (TVL) reaches $6.6 billion, of which $4.01 billion (about 60%) comes from Ethena's USDe market. The two create a high degree of synergy, with Pendle addressing the yield volatility issue of USDe, but capital efficiency remains constrained. YT buyers efficiently gain exposure to yields, while PT holders, needing to lock $1 in collateral, have limited yield potential only to the interest spread.
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Leveraged Rotation Strategy and Risk Control
To enhance capital efficiency, users engage in leveraged rotation through money markets, repeatedly borrowing and staking to amplify yields. An example of the strategy operation is: deposit sUSDe, borrow USDC at a 93% collateral rate, then exchange USDC back to sUSDe, cycling the operation to achieve about 10x leverage. As long as the annualized yield of USDe exceeds the borrowing cost of USDC, the strategy continues to profit.
However, if yields suddenly drop or borrowing rates soar, profits will be quickly eroded. The main risks focus on price oracle design. A large number of positions rely on AMM oracles, which are susceptible to temporary price dislocations, triggering chain liquidations that force borrowers to sell collateral assets at steep discounts, even when assets are abundant. Devens alarmed with a similar event in the ezETH/ETH rotation.
To mitigate risks, Aave made two key architectural adjustments. First, given the risk team's indication of potential liquidation risks in sUSDe lending, Aave DAO directly pegged the USDe exchange rate to USDT, eliminating the primary risk factor, leaving only interest rate risk.
Secondly, Aave accepts PT-USDe tokens directly as collateral, allowing users to leverage fixed-rate positions, breaking the dual constraints of capital efficiency and yield volatility. Aave uses a linear discounting method to price PT collateral based on the implied annualized yield of PT tokens, pegged to USDT.
The PT price is like a zero-coupon bond, gradually returning to par as maturity approaches, making yields more predictable. Since last September, the leveraged rotation strategy has achieved an annualized yield of about 40%, equivalent to a return of $0.374 for every $1 invested.
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Risk Management and Systemic Protection Mechanisms
Devens pointed out that Pendle's yields have long been higher than borrowing costs, with an unleveraged spread averaging about 8.8%. The PT oracle designed by Aave includes price floors and emergency stop mechanisms. Once triggered, the loan-to-value (LTV) immediately drops to zero, freezing the market to avoid bad debts.
Taking the Pendle PT-USDe expiring in September as an example, the risk team set the initial discount rate for the oracle at 7.6% annualized, and under extreme market pressure, the maximum discount rate could reach 31.1%, triggering an emergency stop. The design of a safe LTV ensures that when the discount floor is reached, liquidation is nearly impossible, with the value of PT collateral always above the liquidation threshold.
By pegging USDe and its derivatives to be equivalent to USDT, Aave facilitated aggressive leveraged rotations. However, Devens emphasized that both rotators and protocols must bear corresponding risks. Asset supply limits are frequently filled rapidly, especially as USDC supply increasingly relies on PT-USDe collateral, with USDC in this structure resembling a senior priority share, allowing holders to enjoy increased interest rates due to high utilization, with risks only exposed when bad debts occur.
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Ecological Impact and Outlook
The scalability of future strategies depends on whether Aave continues to increase collateral limits. The risk team has proposed to increase the limit multiple times, with a recent proposal for $1.1 billion, but policy restrictions state that each increase cannot exceed twice the previous amount and must be spaced three days apart.
The earnings for all parties in the ecosystem are clear: Pendle charges a 5% fee from YT, Aave receives a 10% reserve from USDC lending interest, and Ethena plans to extract about 10% of the share after enabling the fee switch. Devens summarized that Aave provides a high-profit potential for Pendle's PT-USDe leveraged rotation strategy through a USDT peg and a price discount cap, but the increase in leverage also intensifies systemic risks among Aave, Pendle, and Ethena, requiring ongoing attention.