Optimizing Yields with Pendle - Key Takeaways

Course level: #intermediate

💡 Review Pendle 101 key takeaways if you need to refresh your memory about what is PT and YT in Pendle.

Simple Yield Farming on Pendle

1. Earn fixed yield

• Go to Market. Select an asset and click the “PT - Fixed APY” box to continue.

• You are guaranteed to earn the displayed amount of your chosen underlying asset if you hold until the maturity date.

• 

  In this example, you are guaranteed to earn ~0.17 stETH (which is ~4.6% APY) on 29th Dec 2027.
• The fixed yield comes from the discount you get from buying the Principal Token (PT) at a lower price than the underlying asset. Your PT can be redeemed 1:1 for the underlying asset at or after the maturity date. In other words, the price difference is your yield at maturity.

• The PT can be a viable alternative to spot, with similar risk exposure, and the benefit of downside cushion thanks to the Fixed Yield realized upon redemption.

• You are not locked and can exit at any time, even before the maturity date.

  • If you exit early, your actual earning will depend on the market price of PT, which is driven by buyers/sellers activities (supply and demand). So you may earn higher or lower (and in extreme cases, at a loss) than the fixed APY at entry.

• Note that time works in your favor because PT price gradually closes its gap (i.e. rises) to the underlying asset, and becomes 1:1 to the underlying asset at the maturity date. So you don’t need to worry about short term price fluctuations.

  • You may even take early profit by exiting early when PT price rises.

    

    Example showing PT price gradually rises to the redeem price ($1 in this case) over time despite short term fluctuations.

2. Liquidity provision

• Go to the “Pools” and select an asset to continue.

• You can deposit your yield-bearing assets to provide liquidity to Pendle pools to earn extra “free” yields on top the native yields using the same assets.

  • LP receives returns from multiple avenues:

    • Native yields

      • Yields/rewards from the underlying asset (e.g. yield from stETH, or ETH rewards distributed from GMX’s GLP)

      • Fixed yield from the PT component of the pool

    • Swap fees

    • $PENDLE incentives

  • LP is denominated in your selected underlying asset only (e.g. native stETH plus PT-stETH only in the stETH pools)

    • you are not exposed to price actions of uncorrelated assets

    • ultimately no impermanent-loss (IL) concern at maturity

• You are not locked and can exit at any time, even before the maturity date. The APY you earn from liquidity provision is also independent of the maturity date.

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Yield Trading Basics

Buy YT to long yield

• Go to Market. Then select your asset and click “YT”.

• Buying a YT means you are increasing your yield exposure (long yield). You can either hold it until maturity, or buy low and sell high to turn a quick profit.

  • You profit when either or both…

    1. the price of YT rises (then you may sell it off for a capital gain),

    2. the yield produced by the YT becomes bigger than your cost buying the YT

  • This strategy works well when you expect the underlying APY of an asset to rise in the future, or when you think the YT price is undervalued.

• Since YT is typically much cheaper than the underlying asset, you effectively get leveraged yield exposure by buying YT, with no actual borrowing involved, so there’s no risk of liquidation or oracle errors.

  

  With the cost of 1 stETH, you are buying yield exposure of 11.9 stETH. An 11.9x leverage in notional value in this case.
• Here’s a table that quickly summarises what is going in favor or against you as a YT holder. Just flip the arrows’ directions if the indicators go the other way round.

  Indicators👇 / Effect 👉	YT Price	YT Yield Receivables
  Underlying asset price ⤴️	⬆️	┄
  Implied APY ⤴️	⬆️	┄
  Underlying APY ⤴️	┄	⬆️
  Long Yield APY ⤴️	┄	⬆️
  Time to maturity ⤵️	⬇️ (slowly)	┄

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Important concepts in yield trading

PT + YT = Underlying asset

• So the higher the YT price, the lower the PT price, and vice versa.

• PT and YT are just two sides of the same coin

Underlying APY

• The yield of the underlying asset. Pendle displays a 7-day moving average in the app.

• Note that the underlying APY does not directly affect the implied APY

Implied APY

• Represents the market consensus of the future APY of an asset

• It changes depending on the supply and demand of YT and PT in the market

  Buy/Sell	YT	PT
  Buy	Implied APY ↑	Implied APY ↓
  Sell	Implied APY ↓	Implied APY ↑

• It is the measure of how valuable the YT is

  • In layman's terms, implied APY is the “price of YT” in yield % terms (and the inverse price of PT)

💡 Key takeaway: Pendle is a marketplace of Implied APYs of different assets. (Akin to how Uniswap is a marketplace of spot prices of different assets)

Long Yield APY

• is the estimated return (expressed as annualized percentage yield) that you can get by buying YT and holding it until maturity, assuming the underlying APY stays the same at its current value.

  • Its value can be negative if the total value of the future yield based on the current underlying APY will be less than the cost of buying YT.

• Gives you a clue if the YT is currently cheap (when positive) or expensive (when negative)

Fixed APY

• is the guaranteed yield you will receive if you buy and hold PT now

• numerically equivalent to the Implied APY