“Ethena, PENDLE, AND AAVE FORM A POWERFUL DEFI YIELD Engine. This Article Explores How They Work Together and How Hyperliquid Cold Expand this System.”, – WRITE: www.coindesk.com
THEN, DJ Windle Breaks Down The Concepts and Answers Questions About Tese Investments in “Ask An Expert.”
Thank you to our sponsor of this weeke’s Newsletter, Grayscale. For Financial Advisors Near MinnePolis, GrayScale Is Hosting An Exclusive Event, Crypto Connect, On Thursday, September 18. Learn More.
– Sarah Morton
Defi Yield Engines: Ethena, PENDLE, AAVE, AND HYPERLIQUIDIn Traditional Finance, Advisers Are Used To Products Like Bond Funds, Money Market Instruments, or Structured Notes that Generate Yield by Recycling Capital More Efficient. In Decentralized Finance (Defi), A Similar Idea Exists – But Powered Entirely by Smart Contracts, Exploring How Financial Markets Can Run on Blockchain Rails. There had no shortage of defi experts over the past Six years, Since the Sector Kicked Off; However, FEW HAVE WORKED As Well As the Interplay Between Ethena, PENDLE, AND AAVE. Together, thesee Three Protocols have built a self-reinforcing cycle that channels more than $ 4 billion in composable assets. As the Space Develops, The Interlinkages Will Likely Expand Even Further, for Example, by Integration Elements of Hyperliquid and Its New Layer-1, Hyperevm. First, Some Definitions:
- Ethena: Like A Money Market Fund Generation Yield from From Futures.
- Pendle: Like A Bond Desk Splitting That Yield Into “Fixed” Vs. “Floating” pages.
- Aave: Like A Bank Offering Loans Against Crypto-Native Collalateral.
- Hyperliquid: Like Any Crypto Exchange for Futures and Spot Trading, But Fully On-Chain.
The Original USDE LOOP WORKS RUGHLY LIKE This: It Begins With Ethena, WHICH ISSUES USDE, A SYNTHETIC DOLLAR BACKED BY A Combination of Stablecoins and Crypto. Ethena uses Deposits to Implement Delta-Neutral Strategies on Futures Contracts to Generate Yield, Which Gets Paid to Stakers of USDE. Staked USDE IS EARNING AROUND 9% AS OF LATE AUGUST.
PENDLE THAT USDE AND DECOMZES IT INTO Two Parts: Principal Tokens (PTS) and Yield Tokens (YTS). YTS Represent the variable stream of yield (and any points accrued) from the underlying asset – USDE in this Case. While Pts Represent The Underlying Value of USDE, WHICH IS SOLD by PENDLE AT A DISCOUNT (Like A T-Bill) THEN REDEMED ONE-TO-ONO MATURITY.
THEN AAVE CLOSES THE LOOP by ALLOWING INVESTORS TO Borrow Against Their Pt Deposits. Since Pts Have A Predictable Redemption Structure, They Work Well As Collateral. SO, Depositors ofThen Borrow USDC (for Example), and Recycle It Back Into Ehena to Mint New USDE, WHICH FLOWS AGAIN INTO PENDLE, REINFORCING The Loop.
In short, Ethena Generates Yield, Pendle Packages It, and Aave Leverages IT. This Structure Now Accouns for the Majority of Ethna’s Deposits on Aave and Mista Pentle’s Total Value Locked (TVL), Making IT One of the MOST INFLUENTIAL YIELD ENGINES.
This Flywheel Didn’t Only Work Because Yields Are Attractive, But Because The Protocols Share A Common Foundation. All Three Are Evm-Compatible, Making Integration Easier. Each is designed to be fully on -chain and crypto-Native, avoiding dependencies on Banks or Off -chain Assets. Additionally, they operate in the same defi “Neighborhood,” with overlapping User Bases and Liquidity Pools that Accelerate Adoption. What Might Have OtherWise Remained A Niche Experiment Has Become A Core Building Block of On-Chain Yield Strategies.
The Natural Question Now Is Whather a Fourth Protocol Will Join, and Hyperliquid Has A Strong Case for Doing SO. Ethena Uses Hyperliquid Perps As Part of Its Yield-Generation Strategy, and USDE IS ALREADY EMBEDDED WITHIN Both Hypercore and the Hyperevm. PENDLE HAS $ 300 Million in TVL Tied to Hyperevm Products, and Its New Boros Funding-Rate Markets is a Natural Fit for Hyperliquid Perpetual Futures. Aave’s Relationship with Hyperliquid Is More Tentative, But The Emergence of Hyperlend, A Friendly Fork on Hyperevm, Points to A Deeper Integration AHEAD. As Hyperliquid Expands, The System Could Evolve from A Closed Loop Into A Broader Network. Liquidity would no Longer Just Cycle Within Three Protocols But Flow Directly Into Perpetual Futures Markets, Deeping Capital Efficiency and Reshasing Howa.
The Ethena-Podle-Aave Loop Already Shows How Fast Defi Can Scale When Protocols Share the Same Environment. Hyperliquids Could Push this Model Even Further.
– Ilan Solot, Senior Global Markets Strategist and CO-HAAD OF DIGITAL Assets, Marex Solutions
– Elisabeth Phizackerley, Macro Strategist Analyst, Marex Solutions
Ask An ExpertQ. What does “composivity” mean in defi?
A. In Traditional Finance, Products Exist in Silos. In defi, composability means protocols plug into each Other like lego Blocks. Ethena Creates Yeld, Pendle Packages It, and Aave Lends Against It, All On-Chain. This Makes Growth Fast But Also Means Risks Can Spread Quickly.
Q. What Are Principal Tokens (PTS) and Yield Tokens (YTS)?
A. Pendle Splits An Asset Into Two Parts. The Principal Token (PT) Is Like Buying A Bond at A Discount and Redeming It Later. The Yield Token (YT) is Similar to a Coupon, Providing An Income Stream. It’s Simplay a Way to Separate Principal From Yield in Crypto Form.
Q. What is a “delta-neutral strategy”?
A. Ethena uses this to keep it synthetic dollar stable. By Holding Crypto and Shorting Futures Simultaneously, Gains and Losses Offset Each Other. The Setup Stays Dollar-Neutral While Generation Yield Similar to Market-Neutral Hedge Fund Strategies, But On-Chain.
– DJ Windle, Founder and Portfolio Manager, Windle Wealth
KEEP READING
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