Arbitrage Opportunities in the DeFi Space: Yield Tokens on the Pendle Protocol

In the DeFi market, an interesting arbitrage opportunity is quietly emerging. By precisely analyzing the Yield Token (YT) mechanism within the Pendle protocol, we have identified a potential high-return investment strategy. This strategy not only has the potential to yield considerable returns, but also comes with relatively controllable risks.

Introduction to Yield Token

Yield Token is a core component of the Pendle protocol, representing the future yield rights of a certain yield-bearing asset. When certain stablecoins are tokenized, they are split into two parts: Principal Token (PT) and Yield Token (YT). PT represents fixed income with lower risk; while YT, although more volatile, is often undervalued by the market.

Current Market Opportunities

Currently, csUSDL (a stablecoin backed by government bonds) YT is showing an undervalued state on Pendle. This undervaluation mainly stems from the market's failure to accurately assess the value of the airdrop points attached to YT.

Assuming an investment of 1,000 USD to purchase csUSDL YT maturing on July 31, 2025:

• Base annualized yield: approximately 4%
• Implied annualized yield in the market: about 10%
• The current price of YT: approximately $0.0143
• Purchaseable quantity: approximately 70,130
• Daily Points Earned: 30 Coinshift Points

Arbitrage Strategy Analysis

Although the yield of YT is lower than that of the underlying assets on the surface, its true value lies in the overlooked point rewards. These points may translate into substantial capital returns in the future.

points value estimation

Assuming holding until maturity for 55 days:

• Total points earnings: approximately 116 million
• Expected total points for airdrop: 24.1 billion
• Airdrop ratio assumption: 5%
• Estimated token issuance valuation: 150 million USD

Based on this calculation, each point is worth approximately $0.0000311. Therefore, after 55 days, the total value of the points could reach around $3,601. With the basic returns added, the total return rate could exceed 260%.

conservative estimate

Even if the valuation of the token issuance is halved, the return rate can still reach around 80%. Considering that the latest financing valuation of the project is 150 million USD, this expectation remains quite reasonable.

Strategic Advantages

1. High leverage: The price of YT is only about 1.5% of the underlying asset, providing significant leverage.
2. Flexibility: You can sell YT at any time or set limit orders to maintain high liquidity.
3. Market Dislocation: The current market's undervaluation of YT provides a rare Arbitrage opportunity.

Risk Warning

Although this strategy seems quite attractive, there are still certain risks involved:

• Airdrop policy may change
• The token issuance valuation may be lower than expected.
• Market sentiment changes may affect YT prices

Investors should conduct thorough research, understand the relevant mechanisms, and reasonably allocate their positions based on their own risk tolerance.

Overall, for investors willing to take on certain risks and pursue high returns, this may be an arbitrage opportunity worth paying attention to in the DeFi market. However, the market is ever-changing, and once this opportunity is widely recognized, the price of YT may adjust rapidly. Therefore, timely action and cautious decision-making are equally important.