Protocol
Pendle YT Earn: Potential Impacts
Everything in DeFi is connected to everything else.
A new feature on one app can potentially impact the costs of a completely different app. The interconnected nature of DeFi is the reason for it.
To predict such changes, you'll need "2nd order thinking".
Recently, Pendle released a feature that can have notable 2nd order effects. I'll walk through it today.
What is Pendle? It's a yield trading protocol. We've covered it multiple times, but I'll recap quickly anyway.
It takes any yield-bearing asset, say wstETH for example, and divides it into two:
- Yield token (YT) of wstETH until the date of maturity.
- Principal token (PT) of wstETH until the date of maturity.
Users have many options. They can just deposit into the Pendle liquidity pool, which splits the asset into two. Or they can trade YT or PT tokens to speculate on the yield or get a fixed yield.
(The above explanation is simplistic. If you aren't familiar, we have a Playbook Series on Pendle Trading in TDE Pro.)
This onchain model for yield trading itself was very innovative.
Now, Pendle has released a new feature: YT Extra. It allows protocols to directly incentivize the yield on YT tokens.
On the surface, this might not look big. YT holders will get some increased yield. Since the yield won't be purely dependent on airdrop or organic yield, they'll also get a new floor for the yield traders.
TLDR: Good for YTs. But what's the big deal about it???
Well.. this is where we've to think about the second-order effects. If the YT yield increases, what impact will it have?
#1. Higher fixed APY for the project's PT
The prices of PT & YT are determined through an AMM that always enforces the following formula: PT price + YT price = Underlying token price.
If the yield on YT increases, its demand and price will increase as well. If the YT price increases, then according to the above formula PT price must decrease.
Reduction in PT price means an increase in the fixed yield of that PT. This is great for everyone.
But the impact wouldn't end there. Now, let's consider the impact of a better PT.
#2. Increased Money-Market Loop
In DeFi, assets with high yield are great for "looping strategies". They require the yield from the "looped asset" to be higher than the cost of the "borrowing asset", which is often USDC.
So PTs with High fixed APY can potentially become one of the favorite assets for the "loopers".
Here's how it can work.
- Deposit PT & borrow (USDC?) against it.
- Buy new PT with the USDC and earn yield from it as well.
As long as the yield from PT is higher than the borrowing rate for USDC against PT as collateral, this strategy will be profitable.
We've now discovered another consequence of the YT Extra. (H/t @lordjorx.)
#3. A go-to mechanism for TVL growth
PTs & YTs are one of the greatest DeFi innovations. It's up there with the AMM of Uniswap. Like DEXes, it created a new category.
Within DEXes, ve(3,3) was a great innovation. It aligned the incentives of the stakeholders and gave protocols a reliable mechanism to attract liquidity for their project.
YT Extra is doing the same for the yield trading sector. With it, protocols can now attract users to PTs & YTs of their token.
Yield trading was a significant factor in growing the TVL of DeFi projects with yield-bearing tokens. Restaking and stablecoin projects are two good examples.
Similarly, projects will use Pendle and YT Earn to boost their TVL.
The DeFi Edge Product
TDE Pro: The Proven Shortcut in Crypto
Many people are quitting crypto.
But that's a mistake. While the market is bearish now, there'll be many good opportunities in 2026. This is the time to upgrade your skills.
But if you try to learn everything by yourself, you'll be confused. Misleading ideas, fake screenshots, scams, and more.
That's why we built TDE Pro:
- A structured roadmap and courses to go from beginner to pro.
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- Unfiltered access to me and a global team of analysts. See what we're personally investing in.
Don't mistake us for a call group that pumps memecoins. We are a community that looks to find such thesis-backed opportunities.
If you're interested,
Guide
How to do an annual crypto review in 60 minutes?
What does it mean to be smart? One answer I love is rapid error correction.
We all make mistakes. But there's a big difference in outcomes between the person who fixes their mistake and the one who keeps repeating it over and over.
Ever see the people who roundtrip their gains every cycle? It's because they don't do the hard work of finding the underlying issues. Your brain is an imperfect piece of software with bugs.
You patch these bugs through experiences AND reflection.
That's why Ray Dalio says Pain + Reflection = Progress.
No one really teaches you how to reflect. So I'm here to give you some frameworks. If you do this properly, even a brutal year becomes useful. Set aside an hour, and it'll prove to be the most useful hour of the year.
Here are the questions I'll be using to guide my reflection.
- What actually happened this year?
- What went well?
- What didn't go well?
- What did you actually learn?
- Audit your information diet.
- What strategies need updating?
- Which biases did you fall for?
- What edge are you building?
- Where are you vulnerable?
The above question will help your reflection. But by itself, it can feel a bit bare.
In the X article below, I share my thoughts on those questions and some takeaways from my own reflection. Read it for a more detailed guide.
🚀 DeFi Catalysts
Canton is partnering with NASDAQ, which has already facilitated end-to-end margin and collateral workflows on the Canton Network.
Zama Protocol went live on the mainnet. It completed the first confidential stablecoin (cUSDT) transfer on Ethereum.
Jupiter Exchange announced Jupiter Mobile V3, a fully native pro trading mobile terminal.
Zora attracted Nick Shirley, the YouTuber who exposed the Minnesota Daycare Fraud scheme, to release creator coin. But the token didn't gain much traction.
Shade Network introduced itself as a private L2. It claims to be a fully private execution layer. This is similar to the vision of the Aztec chain.
Strata published the next phase of its growth. It's expanding from a single Ethena USDe product into a multi-asset, multi-chain "risk-tranching" layer.
📰 Industry News
Trump Media will be launching and airdropping a new token to DJT shareholders. It'll be issued on Crypto.com's Cronos blockchain.
Iran's Ministry of Defence Export Center has announced its willingness to accept cryptocurrency payments to bypass sanctions.
🐦⬛ X Hits
- 2025 recap of crypto.
- The thesis for spot onchain equities
- Expectations for tokenization in 2026.
- Advice to crypto consumer app builders.
- The upcoming composability era of perps/derivatives.
😂 Meme
Until next time,
Edgy
Today's email was written by Edgy and Yayya.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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