How is decentralized finance (Defi) Work? In Crypto today for newsletter advisers, Elisabeth Phizackerley and Some solot And from Marex Solutions co-author this piece about the mechanics of a defi transaction using Etherna, Pendle and Aave and how they all work together to create investment yields.
Then, then, DJ Windle Breaking concepts and answering questions about these investments in “Ask an expert.”
Thanks to our week’s newsletter sponsor, Grayscale. For financial counselors near Minneapolis, Grayscale posted an exclusive event, Crypto Connect, on Thursday, September 18. Learn more.
Defi Ani Engine: Etena, Pendle, Aave, and Hyperliquid
In traditional finances, counselors are used in products such as bond funds, currency market instruments, or structured notes that make up the yield through the capital of recycling better. In decentralized finances (Defi)A similar idea exists – but is fully strengthened by smart contracts, exploring how financial markets can run on blockchain metals. There has been no shortage of DEFI experiments for the past six years, as the sector has kicked; However, few have worked as well as interplay between Etha, Pendle, and Aave. Together, these three protocols have built a self-reinforcing cycle that channels more than $ 4 billion in composable assets. As the space develops, the interlinks are likely to further expand, for example, by incorporating hyperliquid elements and the new layer-1, hyperevm. First, some definitions:
- Ethena: Like a money market fund that generates yield from futures.
- Pendle: like a bond desk that divides the yield into “fixed” compared to “floating” parts.
- Aave: Like a bank that offers crypto-native collateral loans.
- Hyperliquid: Like any crypto exchange for futures and spot trading, but completely on-chain.
The original USDE PT loop works like this: it starts with Etherna, which releases USDE, a synthetic dollar supported by a combination of stablecoins and crypto. Ethena uses deposits to implement delta-neutral techniques with futures contracts to produce yield, which will be paid to USDE stakers. Staked USDE earns around 9% to late August.
Then Pendle grabs the USDE and rots it into two parts: main tokens (Pts) and yield tokens (Yts). YTs represent the variable stream of yield (and any points accumulated) From the underlying owner – USDE in this case. While PTS represents the underlying USDE value, which Pendle sold in a discount (Like a t-bill) Then redeemed one-to-one in maturity.
AAVE then closes the loop by allowing investors to borrow against their PT deposits. Because PTs have a predictable redemption structure, they work well as collateral. Thus, depositors often borrow USDC (For example)And recycle it back to Etha to mint a new USDE, which flows back into the pendle, strengthening the loop.
In short, Ethhena forms the produce, it is a pendle package, and a seizure of it. This structure is now having most of the AAVE Ethena deposits and most of Pendle’s total amount locked (TVL)It is made one of the most influential harvest machines.
This flywheel not only works because the yields are attractive -but because the protocols share a common foundation. All three are compatible with EVM, which makes integration easier. Each is designed to be fully on-chain and crypto-native, avoiding dependencies on banks or off-chain assets. In addition, they operate at the same Defi “neighborhood,” with overlay user bases and liquidity pools that facilitate adoption. What can remain a niche experiment has become a major building block of on-chain yield techniques.
The natural question now is if a quarter protocol is involved, and Hyperliquid has a strong case for doing so. Ethena uses Hyperliquid Perps as part of the yield-forming approach, and the USDE is embedded within both hypercore and the Hyperevm. Pendle has $ 300 million in TVL tied to Hyperevm products, and new Boros-Rate funding markets are a natural fit for hyperliquid eternal futures. Aave’s relationship with hyperliquid is more temporary, but the emergence of hyperlend, a friendly fork in Hyperevm, points to a deeper integration ahead. As hyperliquid expands, the system can change from a closed loop to a wider network. Sili can no longer rotate within three protocols but flow directly into the eternal futures markets, deepening capital efficiency and repairing how on-chain yield techniques are built.
The Ethena-Pendle-Aave loop has already shown how fast it can measure when protocols share the same environment. Hyperliquids can push this model more.
– Some solotSenior Global Markets Strategist and Co-head of Digital Assets, Marex Solutions
– Elisabeth PhizackerleyMacro Strategist Analyst, Marex Solutions
Ask an expert
Q. What does “composability” mean in defi?
A. In traditional finances, products exist in silos. In the defi, composability means the protocols are plugged into each other like Lego blocks. Ethena creates produce, pendle packages, and AAVE lends against it, all on-chain. This makes growth rapidly but also means that risks can spread quickly.
Q. What are the chief tokens (Pts) and yield tokens (Yts)?
A. The pendle divides a owner into two parts. The chief token (Pt) is like buying a bond in a discount and redeeming it later. The token of harvest (Yt) is like a coupon, which provides a stream of income. This is just a way to separate the tree -teaching from the yield in the crypto form.
Q. What is a “delta-neutral strategy”?
A. Ethena uses it to maintain synthetic dollars stable. By handling the crypto and shorting futures at the same time, the acquisitions and losses are offsetting each other. The setup remains dollars-neutral while still developing yield similar to market-neutral hedge funding techniques, but on-chain.
– DJ Windle, founder and portfolio manager, wind wealth
Keep reading
- There are now 92 ETF applications associated with cryptocurrency Awaiting approved the US Securities and Exchange Commission.
- Google Cloud develops a Universal Ledger (Caul)A new layer-1 blockchain designed for financial institutions.
- SEC Chair Paul Atkins floated the vision for a single “Superapp exchange” Where investors can exchange everything from tokenized stocks and bonds to cryptocurrencies and digital assets under a single platform.
