Holding LRTs is not enough.
To score big airdrops from Kelp, Renzo, or the rest:
You have to use Pendle’s 'degen' Yield tokens (YTs).
After spending a week unravelling their secrets:
I threw $740 in Renzo and Kelp YTs.
Here are my results after 5 days:
What is Pendle?
Pendle is probably one of the most complex DeFi platforms I've encountered.
I still do not fully grasp how it works, but here's what I understand (please correct me if I'm wrong):
Pendle is a yield-trading protocol that helps you maximise your yield.
Just like token prices, the yield of tokens (e.g. staking ETH) fluctuates over time.
E.g. the estimated yield for ETH is 2.75%, but you do not get a constant 2.75% yield everyday.
There are 2 types of tokens issued by Pendle:
Principal Token (PT): earn fixed yield, 1 unit of the original asset is redeemed at the maturity date
Yield Token (YT): longing yield, you receive the yield of 1 unit of the original asset until the maturity date, claimable in real-time
PT is the 'boring' play since we do not earn any EigenLayer or LRT points.
But it does have an excellent yield if you want to accumulate ETH.
Meanwhile, YT is a risky and degen play.
But this is the ultimate tool to boost your airdrop points:
How does the YT work?
When buying a YT token, we increase our exposure to the yield accrued by the token.
In the case of LRT tokens, yield is defined as:
LRT staking yield (from staking ETH)
EigenLayer points
LRT airdrop points
YT tokens are cheaper than the underlying asset, so you are buying these tokens at a discount.
While you get leveraged yield exposure without any borrowing involved.
(I'll explain more with examples later)
Based on Pendle’s docs, there are 2 ways to earn from YT tokens:
The price of the YT rises
The yield produced by the YT is > the cost of buying YT
But here's the problem with a YT:
The price gradually falls over time to zero upon maturity.
You will earn the leveraged yield and points generated from the YT you purchase.
But your investment eventually goes to zero.
This is why the yield for all LRT YTs is -100% upon maturity.
Once the YT reaches its maturity period:
Your initial capital is lost.
But like we saw with wallets using the YT strategy with @ether_fi:
They earned more than a 100% return.
Take @CC2Ventures' $2k ETH deposit, where he received:
1300 ETHFI ($4.6k at the current price)
Leveraged EigenLayer points
Not a bad return considering we have not factored in the price of an EigenLayer point yet.
The risks of the YT strategy
Before apeing into this strategy, here's the most important factor to consider:
The points you earn have an unknown value, so you may not make back the amount you deposited.
By purchasing the LRT's YT token:
You're betting that the LRT and EigenLayer points earned are greater than the initial capital used to buy the YT.
We don’t know how much 1 LRT and EigenLayer points are worth, so we're gambling that the returns are higher.
And if you're not comfortable with this risk:
I'd suggest buying a small amount to try it out (just like I did).
But here’s the good news:
It's also possible that the price of the YT may increase.
According to Pendle's docs:
"If the market thinks its future yields and points are worth more than what YT is trading at, YT should see demand, driving its price up, and vice-versa."
You can swap out your YT tokens back to any token if they shoot up in price.
This has already happened to rsETH on Arbitrum, when the implied yield rose to 60%.
Those who bought the YT at a lower implied yield are in profit.
(I experienced this too with my holdings which I’ll share later)
@PendleIntern explained how implied APY represents the price of a YT:
Now that we (sort of) understand what's happening on Pendle, here's what I did:
How I interacted with Pendle (on Arbitrum)
P.S. You can swap into the LRT YTs with any token, and not just ETH. But there may be some slippage involved.
#1 ezETH
Maturity: 27 Jun 2024
I swapped 370 USDT (0.114 WETH) for the 1.136 of the YT token.
Implied yield at purchase: 48.11%
Gas fee: $0.09
This means that I'm earning a yield equivalent to 1.136 ezETH restaked with @RenzoProtocol.
While the underlying asset is only 0.114 WETH.
So this gives me ~ 9.96% leverage in the yield I receive.
It got crazier when I bought 370 USDT of rsETH:
#2 rsETH
The maturity is at an earlier date (25 Apr 2024), so my leveraged yield was way higher.
I swapped 370 USDT (0.116 WETH) for the 3.012 of the YT token.
Implied yield at purchase: 49.25%
Gas fee: $0.09
This means that I'm earning a yield equivalent to 3.012 rsETH restaked with @KelpDAO (25.96x leverage).
After 5 days, here's how the value changed for both YT tokens:
The results
#1 ezETH
Capital: 0.114 ETH → 0.122 ETH
Implied yield: 48.11% → 55.44%
Claimable yield: 0.0003812 ezETH
My Renzo and EigenLayer points have not been updated on the dashboard yet.
#2 rsETH
Capital: 0.116 ETH → 0.118 ETH
Implied yield: 49.25% → 60.78%
Claimable yield: 0.001351 rsETH
EigenLayer points: 336.813
Kelp miles: 361,980+
From what I understand:
The claimable yield is the leveraged staking yield you receive.
So I’m getting this yield from staking a leveraged 3.012 rsETH and 1.136 ezETH.
While my position's value is supposed to be decreasing:
I'm in profit for both positions since the implied yield has increased from the time I bought the YTs.
You may earn some ARB STIP incentives too (I received 0.642 ARB):
But what about LRT and EigenLayer points?
If your points are not updating on Renzo or Kelp:
This is perfectly normal.
Both Renzo and Kelp mentioned that it takes time for L2 points to be included in their dashboards.
Final thoughts
I skipped Pendle on the Ethereum mainnet given my low capital and expensive gas fees.
But now that you can earn Kelp Miles and ezPoints even on Arbitrum:
It’s perfect to experiment with Pendle even with low capital.
I hope this helps to clarify any doubts you have regarding this crazy leveraged strategy.
But feel free to ask any questions about it below.
Thanks for reading!
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Essentially how I'm going to play it is like you. If I had 250 or 500 $ worth of ETH, do I want to hold it for a slow 2x or risk it for a quick 4x or more. I'll risk it.
Great write up. It's pay to play now with points and I don't mind it at all. The beaty of defi. The ones who experiment and leverage and risk will win.