Locking Yield with Pendle — Case Study #1

Published in

Pendle

3 min readJun 24, 2021

27 June Update: Edited to reflect risks beyond price.

Since going live, we have seen a number of interesting yield strategies carried out on Pendle. In this article, we feature a case study where a user locked in yield on $300,000 worth of aUSDC and cDAI.

Utilizing Pendle, the user achieved 2 things:

First, he locked in returns of $54,497 against initial capital of $300,000, in return for the future yield of his aUSDC and cDAI until December 2022. This gave him an immediate return of 18.16% in USDC.

Second, he redeployed the $54,497 to purchase OT tokens representing ownership of aUSDC and cDAI at discounted rates of 20% and 11% respectively.

The long position on OT is a bet on OT price appreciation with fixed returns at expiry, assuming no smart contract issues.

If the user holds the position until December 2022, he would be able to redeem these OTsfor the underlying aUSDC and cDAI at a 1:1 ratio, increasing his initial asset amount by 20% and 11%.

We’ve chosen to feature this as case study #1 as it is a relatively safe strategy anyone can execute compared to DeFi farming. Note that the user faces no price risk, as long as he is willing to hold his positions until expiry. Users still take on smart contract risks of Pendle and the underlying protocols.

These are the steps to achieve the same results:

Step 1 — Obtain yield-generating tokens

The user deposited 150,000 USDC into Aave to obtain 150,000 aUSDC and deposited 150,000 DAI into Compound to obtain 6,983,339 cDAI.

Step 2 — Deposit yield-generating tokens into Pendle

The user deposited both 150,000 aUSDC and 6,983,339 cDAI into Pendle, minting:

150,000 YT-aUSDC + 150,000 OT-aUSDC
6,984,825 YT-cDAI + 6,984,825 OT-cDAI

Step 3 — Sell YT to lock gains immediately

The user sold all YTs into USDC:

Swapped 150,000 YT-aUSDC for 27,376 USDC
Swapped 6,984,825 YT-cDAI for 27,121 USDC

This step earned the user 54,497 USDC. With the USDC available to deploy, he decided to enter a long position on OT (step 4).

YT-aUSDC swaps:

YT-cDAI swaps:

Step 4 — Obtain assets at a discount by purchasing OT

The user purchased OTs with the USDC obtained from Step 3:

Swapped 33,487 USDC into 40,282 OT-aUSDC (~20% discount)
Swapped 21,014 USDC into 1,169,700 OT-cDAI (~11% discount)

As mentioned, OT can be traded or redeemed for the underlying assets at expiry. This means that at expiry, the 40,282 OT-aUSDC the user purchased for $33,487 will be convertible to 40,282 aUSDC ($40,282).

OT-aUSDC swaps: