Enhance Euler Yield's Pendle PT offering with an Ethena Looping Cluster

Euler DAO Markets
1

Summary

This proposal seeks to enhance Euler Yield’s Pendle PT offering by establishing an Ethena-focused looping cluster and increasing LLTVs to compete with Morpho’s dominant position in Pendle PT strategies. It aims to attract Ethena PT loopers, lenders, and arbitrageurs while managing risks through adjusted LLTVs, caps, IRMs, and a temporary 0% reserve factor to bootstrap liquidity. The immediate goal of this initiative is to grow Euler Yield’s PT market share to 20%, i.e., to attract $120M Pendle PT TVL on Euler Yield.

Pendle PT on Morpho

Morpho has an effective monopoly on Pendle PT looping strategies. Pendle PT collateral accounts for $500M in deposits on Morpho’s Ethereum instance, 95% of which is attributable to Ethena PTs such as sUSDe, eUSDe and USDe. Morpho’s singleton contract holds 44% of PT-sUSDE-29MAY2025 supply and 31% of PT-eUSDE-29MAY2025 supply. Altogether Pendle PTs drive $420M in stablecoin borrows on Morpho and account for 30-40% of all productive USDC and DAI allocations.

Morpho’s PT pairs are highly competitive for borrowers with LLTV at 91.5%. Pairs use either a 15-minute TWAP or a linear discount oracle with the USDe/USD leg hardcoded 1:1. We believe this setup weighs excessively in favor of the borrower as lenders bear USDe volatility risk. Nevertheless, this case study reveals strategic opportunities for Euler Yield’s Pendle PT offering.

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Pendle PT on Euler Yield

As of writing this proposal Euler Yield houses ~$35M in Pendle PT collateral deposits:

  • $22M of PT-eUSDe-29MAY2025 with an 86% LLTV (uncorrelated) and 90% LLTV against USDe and 92% LLTV against eUSDe;
  • $9M of PT-sUSDe-29MAY2025 with an 81% LLTV (uncorrelated) and 90% LLTV against USDe and sUSDe;
  • $4M of PT-USD0++-26JUN2025 with an 84% LLTV (uncorrelated) and 90% LLTV against USD0.

Although growing, Euler Yield’s PT vaults have not managed to take significant market share from Morpho, with Euler contributing 6-7% of total PT usage in lending on Ethereum. The immediate goal of this initiative is to grow Euler Yield’s PT market share to 20%, i.e., to attract $100M Pendle PT TVL on Euler Yield.

Establishing an Ethena-focused looping cluster in Euler Yield

Noting that Ethena PT borrowing accounts for $900M of Morpho’s TVL, we believe there is a great strategic opportunity to be realized from establishing an Ethena-focused looping cluster inside Euler Yield.

Euler Yield houses $22M in eUSDe deposits, $4.6M in sUSDe, and $2.6M in USDe. USDtb is scheduled to be onboarded in the immediate term. We propose that the Ethena looping cluster consist of the following assets: eUSDe, sUSDe, USDe, PT-sUSDe, PT-USDe, and PT-eUSDe. PTs inside this cluster shall have a highly competitive 94% LLTV.

The intent of this cluster is to support the following user profiles:

  • Ethena PT loopers migrating from Morpho to Euler without volatility risks from USDe
  • Lenders of USDe and eUSDe seeking to earn extra yield.
  • Ethena reserves (USDe and USDtb) deployed to the vaults to benefit from risk-adjusted yield opportunities through PT looping (subject to approval by the Ethena Risk Committee)
  • Interest rate arbitrageurs between sUSDe and PT-sUSDe

Together with this cluster we also recommend onboarding the new PT-sUSDe with July maturity with the same LLTVs as the other maturities.

Risk Recommendations

LLTVs

Note that the recommendations for PTs include all maturities, including the proposed PT-sUSDe-31JUL2025 vault.

Collateral Debt LLTV Borrow LTV
PT-sUSDe USDe, eUSDe, sUSDe 94% 93%
PT-sUSDe USDtb, USDC, USDT, PYUSD, RLUSD, wM, USDS, sUSDS, DAI, sDAI, USD0 88% 86%
PT-eUSDe USDe, eUSDe 94% 93%
PT-eUSDe USDtb, USDC, USDT, PYUSD, RLUSD, wM, USDS, sUSDS, DAI, sDAI, USD0 88% 86%

Note: we recommend that the LTV spread for correlated borrows against PT-sUSDe and PT-eUSDe be reduced to 1%.

Caps

Vault Supply Cap Borrow Cap
PT-sUSDE-29MAY2025 40M 0
PT-sUSDE-31JUL2025 40M 0
USDe 40M 36M
eUSDe 40M 36M
sUSDe 40M 12M

IRMs

Vault Base rate Kink Rate at kink Rate at 100% (max)
eUSDe 0% 80% → 90% 7% → 6.5% 80%
sUSDe 0% 30% 12.75% → 2% 848.77% → 80%

Reserve Factor

To bootstrap liquidity we propose that the reserve factor/interest fee of USDe, eUSDe, and sUSDe be temporarily set to 0.

Incentives

To bootstrap Ethena-focused liquidity, we recommend incentivizing eUSDe and USDe deposits with moderately aggressive rEUL campaigns.

Author

Objective Labs is a service provider for Euler Labs tasked with product development, risk management, and incentive optimization. Objective Labs is Euler-aligned.

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[Gauntlet] - Parameter Recommendations for Ethena Looping Cluster in Euler Yield (2025-04-25)

Gauntlet has reviewed Objective Labs’ proposal for a dedicated Ethena looping cluster in Euler Yield. We concur that there is ample opportunity for Euler to capture a larger share of the DeFi activity for Ethena assets. Should the community wish to pursue this opportunity, we recommend the following parameter updates to optimize risk-adjusted capital efficiency for this cluster.

Cap Recommendations

PT-sUSDe has sufficiently high swap liquidity to SY in its Pendle pool. With present DEX liquidity a swap of sUSDe to stablecoin can withstand up to 40M sUSDe before incurring 10% price impact. However we recognize the capacity available in competitors for the PT, and note Ethena’s tested resilience, believing holding risk to be low. We recommend a small downward adjustment to the caps for sUSDe itself but are aligned with Objective Labs for the PT recommendations, as well as USDe.

We recommend a slight adjustment to the eUSDe borrow cap based on our IRM recommendation below.

Vault Supply Cap Borrow Cap
eUSDe 40M 34M
sUSDe 30M 9M

Interest Rate Curve Recommendations

For eUSDe, presently there is ~$24.2M supplied to the vault. Of this, the proportion being used as collateral in positions with a health factor < 1.053 (corresponding to the health where a 5% price drop would result in liquidation) is ~$3.7M, or approximately 15.3%. Though such a depeg is a long tail event, we believe it prudent to apply caution while encouraging enhanced usage. Additionally, Pendle implied APY has been hovering between approximately 7.5% and 9% since our last analysis for the IRM, currently sitting at ~8.4%. Therefore we believe the current kink rate is already competitive for attracting loopers.

Vault Base rate Kink Rate at kink Rate at 100% (max)
eUSDe 0% 85% 7% 80%

We are aligned with the update to the sUSDe IRM proposed by Objective Labs, which better captures current demand and improves utility for interest rate arbitrageurs while constraining outsize borrows for this yield-bearing asset.

LLTV Recommendations

All of USDe, eUSDe, sUSDe, and the PT’s price configurations share the USDe/USD component Pyth oracle. We agree that for these correlated assets, pairwise LLTVs can be slightly raised with minimal additional risk to users, and LTV spreads can be lowered with the same effect based on expected user profiles and available conversion paths for liquidators. We note the potential for sUSDe/USDe market correlation to lower during stress scenarios.

Our recommended adjustments are shown. This includes slightly lowering LLTVs for correlated pairs with longer conversion paths, and slightly raising the LTV spread for non-correlated assets. We also believe the LTV spreads for eUSDe can be slightly lowered at this point with minimal additional risk. Otherwise we agree with the suggestions made by Objective Labs.

Collateral Debt LLTV Borrow LTV
PT-sUSDe sUSDe 94% 93%
PT-sUSDe USDe 92.5% 91.5%
PT-sUSDe eUSDe 92% 91%
PT-sUSDe USDtb, USDC, USDT, PYUSD, RLUSD, wM, USDS, sUSDS, DAI, sDAI, USD0, USDtb 88% 85.5%
PT-eUSDe eUSDe 94% 93%
PT-eUSDe USDe 93.5% 92.5%
PT-eUSDe USDtb, USDC, USDT, PYUSD, RLUSD, wM, USDS, sUSDS, DAI, sDAI, USD0, USDtb 88% 85.5%
eUSDe USDe 94% 93%
eUSDe wM, USDT, USDS, USDC, USD0, RLUSD, PYUSD, DAI, USDtb 88% 86%

Next Steps

  • We welcome community feedback.