Euler PYTs: next-gen risk-adjusted lending markets
Announcing USDC, DAI, and USDT Perpetual Yield Tranches based on Euler protocol
Idle and Euler combine PYTs’ risk segmentation with yields generated by sophisticated lending markets, enabling users to deploy liquidity according to their risk-return appetite.
Perpetual Yield Tranches are a new DeFi primitive that lets liquidity providers choose their risk-return profile. They offer two different yield classes: Senior and Junior Tranches, where the latter cover former funds in case of losses. Senior holders benefit from the built-in protection mechanism and, in exchange, route part of the generated APY to the Junior holders.
The Euler tranches are the very first PYTs to implement the Adaptive Yield Split (AYS), increasing capital efficiency for Senior and Junior Tranches. The new AYS mechanism lets Senior Tranche receive most of the underlying yield when coverage is low, or, at minimum, half of the underlying yield when the coverage is high (more than $1 on the Junior protecting $1 on the Senior). On the other side, Junior Tranche receives yields that always outperform Euler’s base rates in exchange for the risk this class is bearing.
The novelty behind Euler
Euler developed a suite of features and tools to unleash the full potential of decentralized finance: in addition to lending and borrowing, the protocol provides general trading services like short, long, and arbitrage strategies.
Lending rates are sustained by EUL borrowing incentives distributed via Gauges. Token holders can then vote on the weights of each Gauge, subsidizing the loan APY. As a consequence, lending returns result in being higher than the average market values in the long term.
From the security perspective, Euler has been committed to developing various safe mode measures and introduced the Oracle Risk Grading System. This mechanism empowers EulerDAO to enable lending and borrowing on any ERC-20 token thanks to Uniswap v3 TWAP (Time Weighted Average Price). The risk system estimates the oracle manipulation cost, allowing tokens to unlock specific functionalities (e.g. collateral) only above a certain security score.
This project has not gone unnoticed. Euler just recently announced a significant funding round led by Haun Ventures, along with FTX Ventures, Variant, Jump_, Uniswap Labs Ventures, Coinbase Ventures, and Jane Street.
Capital preservation and yield generation
The recent market turmoil changed the risk perception and increased the uncertainty related to exotic strategies, shifting the attention towards low-risk and battle-tested yield sources.
As a consequence, many DAOs are looking to turn their reserves into productive assets to generate new revenue streams while maintaining a conservative approach to capital management, due to the many responsibilities tied to this capital, as well as the need for a certain level of predictability around it for budgetary allocation purposes.
Lastly, the borrowing capacity saturation determined historical all-time low yields on lending protocols.
The duality enhanced by Euler’s yields and Senior PYTs creates a unique product that let users commit to a conservative risk profile, reinforces funds resiliency against insolvency scenarios, and outperforms the base lending yields.
What’s next
After DAI, USDC, USDT, this powerful collaboration will expand towards the release of new assets.
The Best-Yield strategy, Idle’s flagship product, will be connected with the Euler PYT. The Best-Yield today deploys liquidity in Aave and Compound, and the addition of a third lending market, via Senior PYTs, preserves the conservative-grade profile while improving the underlying yield.
The use of multiple sources with comparable risk profiles empowers Best Yield to scale liquidity while maintaining the flexibility to optimize its allocations among different markets. This infrastructural design guarantees seamless yield generation to liquidity providers and on-top integrators, giving access to an always-expanding suite of downstream yield sources.
About Euler
Euler is a capital-efficient permissionless lending protocol that helps users to earn interest on their crypto assets or hedge against volatile markets without the need for a trusted third-party. Euler features a number of innovations not seen before in DeFi, including permissionless lending markets, reactive interest rates, protected collateral, MEV-resistant liquidations, multi-collateral stability pools, sub-accounts, and risk-adjusted loans, and much more. For more information, visit euler.finance.
About Idle DAO
Idle DAO is a decentralized organization that builds yield automation infrastructure for DeFi. From brand new DeFi protocols to institutional and DAO treasury managers, businesses of every size use our protocol to optimize capital efficiency and manage their treasuries with DeFi.
We believe that everyone deserves the best for their idle funds, both in terms of returns and risks. Over the past three years, Idle has rolled out the features and services, defining and shaping the yield automation space.
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