🧐 YT vs YU: How Should We Play? Understand the Funding Strategies of Pendle and Boros in One Article!

I wonder if you have noticed the data released by Pendle co-founder @tn_pendle after Boros has been online for a month—

🔹 Open interest of $61.1 million

🔹 Cumulative nominal trading volume of $524 million

🔹 Number of users: 11,000

🔹 The vault capacity is almost always filled immediately upon opening

This growth rate is really impressive! It’s worth noting that this was achieved under relatively conservative leverage and position limits; @boros_fi managed to achieve data in just one month that many protocols take a year to complete.

This definitely indicates that the new concept of "funding rate trading" has been accepted by the market.

Some may ask: In the Pendle ecosystem, there is already a yield token like YT, why create a YU for Boros? Is YU just the funding rate version of YT?

I would say: Yes, but not entirely.

📍 YT (Yield Token) is the core product of @pendle_fi, mainly targeting the yield of on-chain assets; what you buy is a stream of yield over a period of time.

📍 YU (Yield Unit) is the core product of Pendle's new platform Boros, focusing on the tokenized trading of perpetual contract funding rates; what you buy is the future of the perp market's funding rate.

In short: YT is aimed at on-chain yield, while YU is aimed at funding rates; the underlying mechanisms are completely different, so the strategies and use cases are entirely distinct.

So when should you use YT, and when should you use YU? How do they each work?

Let me lay out my thought process—

I won’t start with "what they are," but rather with "what problem I want to solve."

Once you clarify this line of thought, the subsequent strategies will naturally become clear.

1️⃣ Why do I use YT: Leveraging small amounts for large weights

We all know that YT is a tradable right to on-chain yield—yield from staking, lending, and LP mining is extracted and packaged into an asset that can be freely bought and sold.

When considering YT, I don’t first look at APY; my first question is: Am I willing to give up my principal to exchange a small amount of money for future yield rights?

The logic of YT is as follows: the principal will definitely go to zero, but before it does, you take all the yield and points corresponding to the principal.

For example—

You spend a sum of money (say $100) to buy YT, which essentially buys out all the yield generated from the corresponding principal (say $1,000) before the maturity date (say 90 days) + (possible) points.

The project team usually gives YT a relatively high points multiplier; for example, Falcon gives YT a 60x points multiplier. If you directly stake $100, you might only earn a few points a day; but by buying YT, $100 can give you the weight equivalent to several thousand dollars, and the points you earn daily are equivalent to what someone would earn staking several thousand dollars for 90 days.

So the key to YT is not APY, but "equity velocity": with 1/10 of the principal, you can take 10/10 of the current equity.

The premise for this logic to hold is: you believe that the points/airdrops released by the project during these 90 days will be priced by the market.

The risk is: YT will definitely go to zero at maturity; your principal is destined to be forfeited, and whether the equity you receive can be worth the principal is random.

But this is not a mindless gamble; my thought process usually has three steps:

1) Can I calculate the future?

I will first estimate the value of the points: how much the daily point increment is, what the total pool is, and how much I can share. If the estimated yield ≥ YT implied APY + all costs (lending, slippage, transaction fees) + safety margin, then I qualify to move to the next step.

2) Is there a way to lock in uncertainty?

If I think the airdrop or token value is relatively stable, I will consider hedging in the secondary market to lock in part of the yield early. This way, even if a black swan event occurs later in the season, I can at least recover some value.

3) Can I accept a certain loss?

No matter how you calculate it, the expiration of YT going to zero is a hard rule. By my standards, I do not heavily invest the principal part; I only use a small principal as a trial-and-error budget to bet on the incremental project yield/points over a period of time.

For instance, the current eUSDe YT from ENA can be strategized as follows—

① Fixed points → Fixed airdrop: YT cost is 11.2%, and the points yield is about 17% annualized (based on the estimated value of points calculated from ENA pricing);

② Estimate value → Lock price: Short ENA to hedge, locking in price risk, with a yield difference of approximately 6%+;

③ Other bonus items: Adding the expectation of Ethereal airdrop, the model can see annualized returns of 45%~90% when optimistic.

So, the keyword for YT is: give up principal, bet on the future.

I recommend a commonly used community tool: YT Actuary, which can help you filter out investment targets with the lowest cost for obtaining points:

https://pendle-yield-calculator.vercel.app/

2️⃣ Why do I use YU: Turning funding rates into fixed spreads

YU is a contractual expression of funding rates—funding rates in perpetual contracts are separated, standardized, and then packaged into tokens that can be longed, shorted, and leveraged. What you buy is the sentiment expectation of the perp market.

The starting point for YU is completely different.

I will first ask myself: Do I have a perp position, or do I care about the fluctuations in funding rates?

If the answer is yes, then YU is very valuable. My thought process is—

1) Where is my current funding rate risk?

If I am long perp on a CEX, I am worried that the funding rate will remain positive, and I will have to keep paying.

If I am short perp, I am worried that the funding rate will turn negative, and I won’t receive the money I should have.

So the first step is to clarify: Am I afraid of "paying" or "not receiving money"?

2) Can I lock in the risk and earn the spread?

This is where YU comes into play: the implied APR at the moment of entry will solidify into your fixed APR.

After that, for each settlement period (Binance is 8 hours, Hyperliquid is 1 hour), the system takes the actual funding (the periodic underlying APR) and compares it with your fixed rate to settle cash flow:

📍 Long perp → Long YU → Solidify future funding fees to fixed: pay fixed, receive funding.

Each cash flow period ≈ Notional × (Funding − Fixed) × Δt/year

📍 Short perp → Short YU → Solidify future funding fees to fixed: receive fixed, pay funding.

Each cash flow period ≈ Notional × (Fixed − Funding) × Δt/year

At maturity, the implied naturally disappears (because no new YU is generated), and your accumulated settlement is the final profit and loss.

This is why I said in the last issue that "negative funding rates are not complicated"—always look at the comparison of Funding − Fixed, regardless of the sign.

So, the keyword for YU is: lock costs, bet on volatility.

3️⃣ When to choose YT? When to choose YU?

I think this is flexible; if I had to give a simple judgment standard:

If you are betting on project growth and market pricing → play YT;

If you care about capital efficiency and risk hedging → use YU.

The two are not isolated.

For example, you can buy YT of ENA to bet on airdrop premiums; then use Short YU (if ENA can be listed later) to fix the funding rate during the hedging process.

To be more specific, I can explain my logic for choosing—

1) When to choose YT?

① You can calculate future equity—

The known points multiplier/distribution window/season rules are clear, and you can estimate daily point increment × remaining days × distribution ratio.

If you calculate that (points + yield) annualized ≥ YT current implied APY + all costs (lending/slippage/transaction fees) + safety margin of 3–5%, then it’s feasible.

② You are willing to use a small amount of money to bet on weight, can accept the principal going to zero, and can bear the risks of black swan events in the season (locking, delays, etc.).

③ It’s best to have hedging means or secondary market liquidity to reduce positions and recover at any time.

④ You have a clear exit point, such as—

🔹 Current price exceeds your model's upper limit;

🔹 Season rules/distribution ratio deteriorates;

🔹 Point growth rate significantly declines, and secondary liquidity worsens.

So, YT is for those who can calculate, understand, and hold on; choose YT.

2) When to choose YU?

① You have a perp position and need to make funding controllable.

Long perp (afraid of paying) → Long YU; Short perp (afraid of not receiving) → Short YU.

For example, if you plan to hold a position for two weeks, estimating average funding ≈ 12%, and Boros can lock in fixed 8% → deviation of 4% annualized → then you can play YU.

② You are doing cross-market/cross-term spreads and need a "fixed leg"; you can use YU as a tool.

③ You can handle pricing misalignment and margin management.

CEX funding is mostly priced in USDT, while Boros settles in ETH/BTC. After each settlement, align the exposure (sell/buy ETH) to avoid exchange rate residuals.

Margin should ideally cover 2–3 times the extreme volatility pressure, and you should practice extreme position management, avoiding expanding positions or trading during illiquid periods.

So the essence of choosing YU is that you want to lock cash flow or bet on the spread between funding and fixed.

👉 I’ve created a quick decision table to help with judgment; you can self-test each time you need to make a Pendle strategy—

① Is my core issue points/airdrops or funding fees? → The former is YT | the latter is YU

② Can I quantify and hedge future equity? → Yes: YT arbitrage | No: YT ticket small position trial and error

③ Do I have a perp position that needs to lock costs/income? → Yes: paired YU (long paired with long, short paired with short)

④ Is the price difference enough to cover costs + safety margin? → YT ≥ 3–5% annualized margin; YU deviation ≥ 2–3% annualized (calculated based on holding period)

4️⃣ Conclusion—

YT and YU are essentially two different rhythms in the Pendle universe:

YT is a friend of time, for those willing to use small amounts to leverage large amounts—what you hold is future chips, betting on project growth, market heat, and point pricing;

YU is a friend of volatility, for those who care more about certainty—what you hold is current cash flow, turning uncontrollable funding fees into controllable spreads.

They are two completely different sets of rules, but the value lies in: which one do you need in your current situation? Can you use the right tools, or even combine them, to bring the interest arbitrage methods that institutions play into your hands?

My advice is: start with small positions, don’t rush into leverage.

First, run through the logic; understanding cash flow is crucial. Once you truly familiarize yourself with how Pendle works, YT and YU will become your powerful tools!

By then, you will find that you can navigate the DeFi world with ease, like a fish in water!

👉 If you're interested, you can join Pendle's Chinese community, check out the real trading shares from the big players, and learn a few tricks to clarify your thinking: https://t.me/PendleFinance_CN

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