🧐Advanced Pendle Arbitrage Techniques: Doubling Returns with Loop Lending｜Using Ethena PT as an Example—— Recently, I noticed that @ethena_labs' PT assets have been listed as collateral on Aave, and the quota was almost instantly depleted. Yes, many DeFi players have likely discovered a secret: Pendle + lending protocols can create a low-risk leveraged structure. If executed properly, the annualized return rate can reach 30%. But this isn’t simple leverage; it’s a calculated strategy to gain fixed returns + airdrop points + structural arbitrage, turning Pendle’s loop lending strategy into a new round of “smart money games.” In my last post, many people privately messaged me about this topic. Today, let’s dive into the loop lending strategy of @pendle_fi—— 1⃣Strategy Principle: Use PT as collateral to amplify fixed returns Pendle separates yield rights and principal, where PT = principal token and YT = yield token. The logic of loop lending is straightforward—— You buy Pendle’s stablecoin PT, use it as collateral on Aave, and borrow stablecoins; Then, you go back to Pendle to buy more stablecoin PT—repeat the cycle to amplify returns. This forms a closed loop of “buy PT → collateralize → borrow stablecoins → buy more PT.” As long as the interest rate spread is positive (yield > borrowing cost), you can leverage to earn fixed returns. 2⃣Operational Steps: 5 Steps to Master Pendle PT Loop Lending Using PT-sUSDe as an example, you start with 1000u, assuming an annualized yield of 7.5% and Aave borrowing cost of 5%. 1) Buy PT-sUSDe: Go to Pendle and buy PT-sUSDe, ensuring you select the maturity date. 2) Deposit PT into Aave V3 as collateral: Open Aave V3 and deposit the corresponding PT asset as collateral. 3) Borrow stablecoins (e.g., USDC, USDT): Aave provides lending functionality; borrow the amount of stablecoins you can handle (e.g., LTV 70%, borrow 700u). 4) Use borrowed stablecoins to buy more PT: Return to Pendle to buy more PT, then collateralize again, borrow again… forming a loop. 5) Set the number of loops based on personal risk preference: Generally, it’s recommended not to exceed 3 loops (to avoid liquidation risk). 3⃣Return Model: How Much Can You Earn with Leveraged Loops? The returns from loop lending mainly come from: ✅ Fixed interest rate yield from PT ✅ Compound effect from multiple rounds of leverage ✅ Potential airdrop points (Pendle + Ethena + Aave, if applicable) Assuming: PT annualized yield = 7.5% Aave borrowing cost = 5% Two rounds of loops, i.e., leverage multiplier = 2.5x Net return = (7.5% × 2.5) - (5% × 1.5) ≈ 11.5% annualized Even in a low interest rate spread environment (7.5% vs 5%), leveraging loops can still elevate stablecoin yields to over 10%, making it highly suitable for conservative players looking to enhance returns through structured strategies. If you use other assets with higher PT rates and lower borrowing costs, annualized returns can be even higher, sometimes reaching up to 70%. 4⃣Risk Warning: Is This Risk-Free Arbitrage? No arbitrage is risk-free. The main risks include: ❗️Price slippage and liquidity issues: Multiple rounds of PT purchases may lead to increased slippage. ❗️Interest rate fluctuations: Aave’s borrowing rates are variable and may rise, compressing your interest rate spread. ❗️LTV and liquidation risk: PT, as a non-mainstream collateral, has conservative liquidation parameters. If PT fluctuates, it may be liquidated. ❗️Depeg risk: Although PT is tied to stablecoins, the underlying asset (e.g., sUSDe) carries slight depeg risk. The most noteworthy risk is liquidation risk in loop lending. As the number of loops increases, net returns and APR both rise, but liquidation risk factors also increase simultaneously. Assuming the current market price of PT-sUSDe is $1.00, the first loop has almost no liquidation risk (PT price can drop over 12%); By the third loop, PT price only needs to drop 8.5% to trigger liquidation; By the fourth loop, the liquidation threshold narrows to just a 6% drop, which is extremely dangerous. Increasing the number of loops narrows the risk boundary, especially under high leverage, where each incremental loop compresses the margin for error. Therefore, I recommend a maximum of 1-2 loops. Avoid over-leveraging; this is the most cost-effective and safe zone. 5⃣Who Is Suitable for Pendle Loop Lending Strategy? Loop lending involves several rounds of leverage, so it does have certain operational thresholds. Suitable groups include: ✅ Players familiar with DeFi operations and on-chain lending liquidation logic ✅ Conservative leverage enthusiasts interested in stable returns + airdrop incentives ✅ Those willing to monitor collateral status daily or weekly and adjust leverage as needed ❌Not suitable for complete beginners who don’t understand liquidation mechanisms ❌Not suitable for those unable to monitor positions and manage leverage regularly 6⃣Summary—— Pendle’s stablecoin PT + lending = “Treasury Bonds + Leverage” in DeFi. The loop lending strategy is very similar to TradFi’s “leveraged bond yield arbitrage,” with the most enticing aspect being stable interest rate spreads. The logic is the same, just in a different form. Now is indeed a good window of opportunity, but it’s essential to remember: 1) All arbitrage involves exchanging risk for returns. 2) PT-sUSDe, while pegged to stablecoins, still carries risks like discounting, liquidity, interest rate fluctuations, and liquidation. 3) When the market is greedy, leverage is often the final straw that breaks the position. Understanding structure, mastering rhythm, and respecting risk are the three essential lessons for Pendle players. Controlling risk while maximizing returns is the ultimate key to survival! You can join Pendle’s Chinese community, where there are many strategies for current financial management to learn and reference: Pendle also has detailed Chinese instructional guides: