Leveraged Pendle PTs
Last updated
Last updated
Leveraged Pendle PTs are an advanced yield strategy to earn fixed yield from Pendle PTs with leverage.
This strategy borrows from Notional at a fixed or variable rate and then buys a specific PT on Pendle.
This strategy gives users organic yield paid in the deposit token (ex USDC) even if the PT is based in a different token (ex USDe).
To create a leveraged PT position, follow these steps:
Go to the leveraged PT page.
Pick a network.
Pick your opportunity. Each opportunity card shows the deposit token and the PT it buys.
Input the deposit amount and select your borrow terms. Borrow term options show you the total APY that you will earn and the borrow APY that you will pay on your leverage.
Select your leverage using the leverage slider.
Click Continue to Review.
Click Submit.
Depositing to a leveraged points farming position involves borrowing from Notional's lending markets. You can borrow at a variable rate or at a fixed rate.
Variable borrow
Zero fee on entry or exit.
Borrow rate can be volatile.
Good choice if you are short-term or if you think fixed borrow rates are too high.
Fixed borrow
Upfront fee on entry and exit before maturity. (More info on fixed rate fees here).
Borrow rate is fixed.
Good choice if you are longer-term or think the fixed rate is low.
At maturity, your fixed rate auto-converts to a variable rate and your position remains open.
Selecting your leverage changes how much you borrow which changes the borrow rate and the total APY.
The more leverage you use, the more you borrow. Usually, this means that your total APY goes up. But it can also make your total APY go down if you borrow so much that it spikes your borrow rate.
Once you select your borrow terms and leverage, the Notional UI will show you details about your leveraged PT position:
Here is what each line means:
Borrow amount. The amount you're borrowing in the deposit token (ex USDC).
Asset amount. The total amount of tokens in the PT currency (ex USDe) you'll have after converting your deposit and borrowed funds from the deposit token.
USDC Debt at Maturity. The amount of debt you will owe at the debt maturity date (if borrowing fixed).
USDe at PT Expiration. The amount of PT currency tokens you will have at the PT expiration.
The following calculations help you understand your costs and returns:
Borrow Interest Paid: #3 - #1 — This represents the interest you’ll pay to Notional on your borrowed amount.
PT Yield Earned: #4 - #2 — This represents the yield you’ll earn from the PTs at expiration.
Using this information, you can estimate your net worth at PT expiration and assess your potential profitability.
To estimate your net worth in the deposit token (e.g., USDC) at PT expiration, follow these three steps:
1. Estimate Debt Owed at PT Expiration
Notional's fixed borrow maturities may not align exactly with PT expirations. When your fixed debt matures, it converts to a variable rate, accruing interest until the PT expiration. To estimate your total debt at PT expiration:
Assume a variable borrow rate for the period between debt maturity and PT expiry.
Calculate the accrued interest during this period.
Example:
Debt Maturity Date: Dec 12, 2024
PT Expiration Date: Dec 25, 2025 (13 days later)
Variable Borrow Rate Assumption: 10%
Debt at Maturity: 143,354 USDC
Interest Calculation:
Accrued Interest = 143,354 * 0.1 * (13 / 365) = 511 USDC
Estimated Debt at PT Expiry:
143,354 + 511 = 143,865 USDC
2. Convert PT Currency Value at Expiration to Deposit Token
If the PT currency (e.g., USDe) differs from the deposit token (e.g., USDC), you must convert the PT value at expiration into the deposit token.
PT Currency at Expiry: 174,638 USDe
USDe/USDC Exchange Rate: 1.002
Conversion Calculation:
PT Value in USDC = 174,638 * 1.002 = 174,987 USDC
3. Calculate Net Worth at PT Expiration
Subtract your estimated debt from the converted value of the PTs.
Calculation:
PT Value in USDC: 174,987 USDC
Debt at PT Expiration: 143,865 USDC
Estimated Net Worth:
174,987 - 143,865 = 31,122 USDC
Example Summary
In this example, the user deposits 30,000 USDC and ends up with an estimated net worth of 31,122 USDC at PT expiration. This equates to a net profit of 1,122 USDC!
By understanding this breakdown and the key steps, you can confidently assess the profitability of your leveraged PT strategy.
Total APY depends on three things:
The PT APY (called Vault Share APY).
The APY spread (APY spread = PT APY - borrow APY).
The leverage ratio.
You can find the calculation on the left-hand side of the page.
To find your position, go to the leveraged vaults tab on the portfolio page.
This page will give you detailed information regarding your position, including:
Your current APY
How much you deposited
The current value of your position
Your current earnings
The Notional UI will show you a health factor and a liquidation price for your position.
The liquidation price is in terms of the PT / deposit token. This price can decline for two reasons:
The PT APY increases. This will cause the PT / PT currency (USDe) exchange rate to decrease.
The exchange rate between the PT currency and deposit token (USDe / USDC) decreases.
To manage your position, switch to the default portfolio view and expand the position row. Then click the manage button.
The manage button gives you a few options:
Deposit more
Adjust leverage
Withdraw
Switch borrow terms
To deposit more, click the button that says Deposit.
This will take you to a transaction page with a deposit input field.
Your borrow terms and leverage ratio will be kept the same as you deposit more.
Adjusting leverage allows you to increase or decrease your leverage without depositing more tokens or withdrawing from Notional.
Click the adjust leverage button and move the slider to your desired leverage. You can see the impact on your position on the UI:
Switching your borrow terms lets you swap your leverage in one click while keeping your position open.
Users might want to do this if a different borrow term gives them a higher total APY. For example, if the variable borrow rate spikes, a user might want to switch from the variable borrow rate to a lower fixed rate in order to protect their total APY.
On the manage position menu, you will see one button for each borrow maturity. You will see the Total APY that you would get if you switched your borrow to that maturity.
To switch your borrow terms, just click the button and submit the transaction on the next screen.
Leveraged PTs have two kinds of fees - trading costs and initial borrow fees.
When you deposit into a leveraged PT strategy, the strategy will convert the deposit token into the PT currency and then buy the PT on Pendle. This causes transaction cost.
These costs are combined and shown as "Trading Cost" on the Trade Summary:
If you exit before the PT maturity, you will get both of these costs again. If you exit after the PT has matured, there is no cost for selling the PT on Pendle but you will still get the cost of converting the PT currency back to the deposit token.
Leveraged PT strategies include borrowing, which can include fees. Variable borrowing does not include an upfront fee, but fixed rate borrowing does. Read more about fixed rate borrow fees here.
The Notional UI will show you a detailed breakdown of the borrow fees on the trade summary when you enter or exit your position.
Leveraged PTs include liquidation risk. Remember - you're borrowing from Notional and using the borrowed funds to buy a PT.
The liquidation price is in terms of the PT / deposit token (PT / USDC). This price can decline for two reasons:
The PT APY increases. This will cause the PT / PT currency (PT / USDe) exchange rate to decrease.
The exchange rate between the PT currency and deposit token (USDe / USDC) decreases.
It's possible for leveraged PT strategies to have a negative Total APY if the borrow rate increases above the PT APY. One way to mitigate this is to use a fixed borrow rate.
When you borrow in leveraged PTs, there are two types of borrowing:
Fixed Rate Borrowing: This locks in a borrowing rate for the duration of the loan, so you know exactly how much interest you will pay by the time the loan matures. However, if you want to repay the loan early, the current market rate for fixed-rate borrowing comes into play. The amount you will owe may fluctuate based on whether the rate has gone up or down since you first borrowed. This can lead to profit or loss if you exit early.
Variable Rate Borrowing: With a variable rate, your interest rate can change block by block, meaning the amount of interest you owe is continuously adjusted based on the market rate. There’s no upfront fee for liquidity providers as the rate is always moving.
When you take out a fixed-rate loan, you pay interest on that loan at the agreed-upon rate (e.g., 9.34% per year). The "fixed" part means that no matter what happens to the market rates after you lock in your loan, your interest rate won't change. However, if you want to close your position early, the present fixed rate in the market will impact the amount you owe.
For example:
Let’s say you borrow 100 ETH at a fixed rate of 5% for one year. If you hold the loan to maturity, you’ll owe exactly 5 ETH in interest. However, if you want to exit early, say after six months, the current fixed rate affects your payoff:
If rates stay at 5%: You have held your loan for half the time and will need to pay half the interest upon exit, or 2.5 ETH.
If rates rise to 8%: Your debt becomes cheaper. It might cost you only 2.4 ETH to repay instead of 2.5 ETH, meaning you save on interest by exiting early.
If rates fall to 3%: Your debt becomes more expensive. It could now cost 2.6 ETH to repay, meaning you’ll pay more to close the position early.
That’s why Notional shows you changes in the value of your debt even though you’ve locked in a fixed rate — it affects early repayments.
The fee you pay upfront for fixed-rate borrowing covers two things:
Liquidity Provider Fee: Just like with any other trade in a market, there’s a fee associated with borrowing from a fixed-rate liquidity pool. This fee compensates liquidity providers who enable you to access the fixed rate.
Vault Fee: Leveraged strategies often charge an extra fee for the additional complexity and risk involved. This fee is charged upfront for fixed-rate borrowing, while for variable-rate borrowing, it's spread out over time.
If you notice a difference between your "Present Value" and the amount displayed on the withdrawal screen, it’s likely due to slippage caused by low fixed rate liquidity. If you have a large debt repayment, the fixed rate can move significantly, resulting in slippage loss.
You can estimate the slippage loss using this formula:
Slippage Loss = Debt Repayment Amount × Slippage Percent × Year Fraction
Example: If repaying 253 ETH causes a 3.6% slippage over 3 months, slippage loss is approximately 2.27 ETH. (253 * 0.036 * 0.25)
In leveraged PTs, you can borrow fixed and lend fixed, which introduces additional dynamics to how your position’s "Present Value" changes. Here's why your earnings and present value can fluctuate:
Market Rate Movements (Borrow Side) While your borrow rate is fixed, the market rate for fixed loans changes. If you close your borrow position before maturity, the value of your debt may differ based on how your locked-in rate compares to the current market rate.
Market Rate Movements (Lend Side) Similarly, the fixed-rate lend token you hold can fluctuate in value before maturity. Its present value depends on how the market rate for fixed lending shifts relative to the rate at which you locked in.
Exchange Rate Risk In this strategy, you borrow in one currency (ex USDC), swap to another currency (ex USDe), and then lend fixed in that new currency. This creates exposure to the exchange rate between the two currencies.
If the value of USDe depreciates relative to USDC, the value of your lend position decreases when measured in USDC terms.
Conversely, if USDe appreciates relative to USDC, your lend position increases in value.
Combined Effects With both fixed borrowing, fixed lending, and potential currency exposure, fluctuations in interest rates and exchange rates interact to influence your Present Value. This creates both risks and opportunities depending on market conditions, giving you more levers to optimize your strategy.
