This is not investment advice, it is just being published to gather my thoughts and feedback. As always, feel free to reach out, I’d love to hear your thoughts.
Crypto is volatile, but I believe there is an essentially risk-free trade that offers 50%+ APYs.
Here’s how it works:
Purchase PTs from Pendle giving high APYs on products with large liquidity (e.g. LTRs).
Go short the same token to be in synthetic dollars.
Earn the spread between the PT APY and the short payment. The largest other costs include gas fees.
So, let’s look at an example:
ezETH PTs trade at 89% of the underlying, 91 days out.
This means that in 91 days you will receive a return of 12.4%. 365/91 = 4, so 1.124^4 = APY of 59.4%.
But this takes on the risk of $ETH going down in price.
So to hedge, you would short $ETH by being constantly short the $ETH perp swap funding rate. This means that you are long $ETH through your ezETH PT exposure, but short it through your funding rate shorts.
Funding rates are generally positive, however, so as a shorter, you will generally be paid for being short $ETH. This has averaged ~10% APY over the past few years. So now you are making 59% from the ezETH PT APY, and ~10% APY from your $ETH short.
This is essentially what $sUSDe (ethena.fi) does to gain yield, but using exposure to stETH as the long side of the equation. stETH only pays ~4% APY, so longing ezETH PTs gives >50% higher APY.
Risks include smart contract risk (the likelihood the contract is hacked), tax implications, and counterparty risk (mostly the exchange you use to short perp swaps).
If you have any thoughts on this or want to point out something I calculated incorrectly, DM me. This thesis was written very quickly with back-of-the-napkin calculations, so I won’t take any offense. I’d welcome being disproved.
Additional reading:
The Ethena.fi mechanism explained -