How decentralized finance (Challenge) work? In the newsletter for today’s advisers, Elisabeth Phizackerley and Ilan Solot and Marex Solutions co-written this part on the mechanics of a DEFI transaction using Ethena, Pendle and Aave and how they all work together to create investment yields.
Then, DJ Windle breaks down the concepts and answers questions about these investments in “Ask an expert”.
Thank you to our sponsor of this week’s newsletter, Grayscale. For financial advisers near Minneapolis, Graycale organizes an exclusive event, Crypto Connect, Thursday, September 18. Learn more.
– Sarah Morton
DEFI DEFORM OF MOTORS: ETHENA, PENDLE, AAVE AND HYPERLIQUIDE
In traditional finance, advisers are used to products such as bond funds, money market instruments or structured tickets that generate yield by recycling capital more effectively. In decentralized finance (Challenge)A similar idea exists – but entirely fueled by intelligent contracts, exploring how financial markets can work on blockchain rails. There has not been a shortage of experiences in the past six years since the start of the sector; However, few worked as well as the interaction between Ethena, Pendle and Aave. Together, these three protocols have built a self-reproductive cycle which channels more than $ 4 billion in composable assets. As the space develops, the interns are likely to develop even more, for example, by integrating the elements of the hyperliquid and its new layer 1, Hyperevm. First, certain definitions:
- Ethena: Like a monetary market fund generating a term return.
- Pendle: Like a dividing liaison office which gives “fixed” portions vs “floating”.
- AAVE: Like a bank offering loans against cryptocurrency guarantees.
- Hyperliquid: like any crypto exchange for future and punctual trading, but entirely in chain.
The original PT USDE loop works roughly like this: it begins with Ethena, which emits Usde, a synthetic dollar supported by a combination of stablecoins and crypto. Ethena uses deposits to implement Delta’s neutral strategies on term contracts to generate a yield, which is paid for USDE stakers. The markup USDE earns approximately 9% at the end of August.
Pendle then takes the Usde and breaks down into two parts: the main tokens (Pts) and give in tokens (Yts). YTs represent the variable yield flow (and all the accumulated points) underlying assets – USDE in this case. While the PTs represent the underlying value of the USDE, which is sold by discount pendle (like a t-bill) Then bought one by one at maturity.
Then, Aave closes the loop by allowing investors to borrow against their pt deposits. Since PTs have a predictable buyout structure, they work well as guaranteed. Thus, depositors often use USDC (For example)And recycle it in Ethena to marry new USDE, which throws itself again into Pendle, strengthening the loop.
In short, Ethena generates the yield, the pendle fills it and the Aave pulls it. This structure now represents the majority of Ethena’s deposits on Aave and most of the total locked value (TVL)By making one of the most influential performance engines on the chain.
This steering wheel does not only work because the yields are attractive, but because the protocols share a common base. All three are compatible with EVM, which facilitates integration. Everyone is designed to be entirely in chain and crypto-native, avoiding dependencies on banks or off-chain active ingredients. In addition, they operate in the same “district” DEFI, with the basics of overlapping user and liquidity pools which accelerate adoption. What could have otherwise remaining a niche experience has become a basic element of chain yield strategies.
The natural question is now whether a fourth protocol will join, and hyperliquid has a solid argument to do it. Ethena uses hyperliquid perps as part of its performance generating strategy, and the USDE is already integrated both into hypercore and hyperevm. Pendle has 300 million dollars on TVL linked to hyperevm products, and its new boros funding rate markets are a natural adjustment for perpetual hyperliquid. Aave’s relationship with hyperliquid is more temporary, but the emergence of Hyperlend, a friendly fork on Hyperevm, underlines a deeper integration to come. As the hyperliquid develops, the system could evolve from a closed loop in a larger network. Liquidity would no longer only do the cycle in the three protocols, but would flow directly into perpetual term markets, deepening the effectiveness of capital and reshaping the way in which chain yield strategies are built.
The Ethena-Pendle-Aave loop already shows how deffi can evolve when the protocols share the same environment. The hyperliquids could still push this model.
– Ilan Solot, Senior Stratège of the World Markets and Co-Tête of Digital Assets, Marex solutions
– Elisabeth Phizackerley, macro-strarte analyst, marex solutions
Ask an expert
Q. What does “composability” mean in Defi?
A. In traditional finance, products exist in silos. In DEFI, composability means that protocols connect to each other as Lego blocks. Ethena creates a yield, Pendle supports him and Aave lends him against him, all in chain. This makes growth rapid, but also means that risks can spread quickly.
Q. What are the main tokens (Pts) and give in tokens (Yts)?
A. Pendle divides an asset into two parts. The main token (Pt) It’s like buying an obligation at reduced prices and buying it later. The yield token (Yt) is similar to a coupon, providing a flow of income. It is simply a way to separate the principal from the yield in cryptographic form.
Q. What is a “neutral Delta strategy”?
A. Ethena uses it to keep its synthetic dollar stable. By simultaneously holding future crypto and short-circuit, gains and losses compensate. The configuration remains neutral in dollars while generating a performance similar to neutral, but chain -fed hedge.
– DJ Windle, founder and portfolio manager, Windle Wealth
Continue to read
- There are now 92 ETF requests linked to cryptocurrency pending approval from the American Securities and Exchange commission.
- Google Cloud develops the Large universal book (Gucul)A new layer 1 blockchain designed for financial institutions.
- The president of the SEC, Paul Atkins, launched the vision of a unified “exchange” exchange where investors could exchange everything, from the shares and bonds tokenized to cryptocurrencies and digital assets under a single platform.
