The Mechanism Behind the Surge in USDe Supply: Analyzing the PT Cycle Strategy

Recently, the supply of the decentralized stablecoin USDe has increased significantly, growing by approximately 3.7 billion USD within about 20 days. This growth is mainly driven by the Pendle-Aave PT-USDe looping strategy. Currently, Pendle has locked up approximately 4.3 billion USDe, accounting for 60% of the total supply, while Aave has a deposit size of about 3 billion USD. This article will analyze the PT looping mechanism, growth drivers, and potential risks.

The Core Mechanism and Yield Volatility of USDe

USDe is an algorithmic stablecoin that achieves price anchoring through delta-neutral hedging in the perpetual contract market. The protocol holds a spot ETH long position while shorting an equivalent amount of ETH perpetual contracts to hedge against the risk of ETH price fluctuations. USDe generates revenue from two sources: staking rewards on spot ETH and funding rates in the futures market.

However, the volatility of the returns under this strategy is high, as the returns depend on the funding rate. The funding rate is determined by the difference between the perpetual contract price and the ETH spot price. During a bull market, traders tend to open high-leverage long positions, driving up the perpetual contract price and resulting in a positive funding rate. Conversely, during a bear market, an increase in short positions can cause the funding rate to turn negative.

Data shows that from 2025 to present, the annualized return of USDe is approximately 9.4%, but the standard deviation reaches as high as 4.4 percentage points. This extreme volatility in returns has generated market demand for more stable yield products.

Pendle's Fixed Income Transformation and Limitations

The Pendle protocol allows income-generating assets to be split into principal tokens (PT) and yield tokens (YT). PT represents the principal that can be redeemed on a specific future date and is traded at a discount; YT represents all future income generated from the underlying asset before maturity.

This structure provides USDe holders with the opportunity to lock in a fixed APY while hedging against yield volatility. Currently, the yield for PT-USDe is approximately 10.4%. Pendle and Ethena have formed a highly complementary relationship, with Pendle's total TVL currently at 6.6 billion USD, of which about 4.01 billion USD comes from Ethena's USDe market.

However, Pendle addresses the issue of yield volatility for USDe, but capital efficiency is still limited. PT holders must lock 1 USD of collateral for each PT token when shorting floating yields, which confines the yield to a smaller spread.

Aave Architecture Adjustment and USDe Circulation Strategy

Recent architectural adjustments by Aave have cleared obstacles for the development of the USDe circular strategy:

1. The price of USDe is directly anchored to the USDT exchange rate, almost eliminating the previous major settlement risks.

2. Start directly accepting Pendle's PT-USDe as collateral, while addressing the issues of insufficient capital efficiency and yield volatility.

These changes enable users to establish leveraged positions with fixed interest rates using PT tokens, significantly enhancing the feasibility and stability of circular strategies.

High-Leverage PT Arbitrage Strategy

To improve capital efficiency, market participants adopt a leverage cycling strategy, enhancing returns through repeated borrowing and redepositing. The operational process typically includes: depositing sUSDe, borrowing USDC at a loan-to-value ratio of 93%, exchanging the borrowed USDC back to sUSDe, and repeating these steps to achieve an effective leverage of about 10 times.

As long as the annualized yield of USDe is higher than the borrowing cost of USDC, the trade remains highly profitable. However, once the yield plummets or the borrowing rates surge, profits will be quickly eroded.

PT Collateral Pricing and Arbitrage Opportunities

Aave adopts a linear discount method based on the implied APY of PT for pricing PT collateral, with USDT pegged pricing as the basis. The PT token will gradually approach its par value as the due date approaches.

Historical data shows that the appreciation of PT tokens relative to the borrowing cost of USDC has created a significant arbitrage opportunity. Since last September, depositing 1 USD can yield approximately 0.374 USD in returns, with an annualized return rate of about 40%.

Risks, Linkage, and Future Outlook

Historically, Pendle's yields have significantly exceeded borrowing costs, with an unleveraged average spread of about 8.8%. Aave's PT oracle mechanism further reduces liquidation risk, featuring a floor price and a circuit breaker.

However, this high leverage structure also brings systemic risks. The risks of Aave, Pendle, and Ethena are more closely interconnected, and any issues arising in one party may have a ripple effect among the three.

Whether this strategy can continue to expand in the future depends on whether Aave is willing to continuously increase the collateral cap for PT-USDe. From an ecological perspective, this cyclical strategy has brought benefits to multiple participants such as Pendle, Aave, and Ethena.

Overall, Aave provides underwriting support for Pendle PT-USDe by anchoring to USDT and setting a discount cap, allowing the circular strategy to operate efficiently and maintain high profits. However, this structure also brings potential systemic risks that require ongoing attention.