YT vs YU: How should we play? Understand the funding strategies of Pendle and Boros in one article! I don't know if you have noticed, but Pendle co-founder @ tn_pendle released the data of Boros being online for one month—— Open interest contract size of 61.1 million US dollars Accumulated nominal trading volume of 524 million US dollars 11000 users The vault limit is almost always filled every time it is opened This growth rate is really impressive! You should know that even with relatively conservative leverage and position limits, @ boros_fi managed to run out in just one month, achieving data that many agreements cannot complete in a year. This definitely indicates that the new concept of 'fund rate trading' has been accepted by the market. Some people may ask: In the Pendle ecosystem, even though there are already revenue tokens like YT, why bother with a Boros YU? Is YU the capital fee version of YT? I want to say: Yes, but not entirely. YT (Yield Token) is the core product of @ endle_fi, mainly targeting the income of on chain assets. What you buy is the income stream over a period of time. YU (Yield Unit) is the core product of Pendle's new platform Boros, focusing on tokenization trading of perpetual contract funding rates. What you buy is the future of the PERP market funding rates. In one sentence: YT focuses on on on chain revenue, while YU focuses on funding rates. The two have completely different underlying strategies and usage scenarios, so they are completely different approaches. When should we use YT and YU? How should we play them separately? I'll first unfold my thought process—— I don't start with 'what are they', but with 'what problem do I want to solve'. If you straighten out this line, the strategy behind it will naturally become clear. one ️⃣ Why do I use YT: using small money to gain power and weight We all know that YT is a tradable right to on chain profits - profits from staking, lending, and LP mining are split and packaged into assets that can be freely bought and sold. When considering YT, I don't look at APY first. The first question I ask myself is: am I willing to give up my principal and exchange a small amount of money for future income rights? The logic of YT is like this: the principal must be reset to zero, and before resetting, you take away all the corresponding returns and points of the principal. For example—— You spent a sum of money (such as 100U) to buy YT, which is actually a one-time buyout of all the profits and (possible) points generated by the corresponding principal (such as 1000U) before the maturity date (such as 90 days). The project team usually gives YT a relatively high points multiplier, for example, if Falcon gives YT 60x points and you directly pledge 100U, you may only have a few points per day; But by buying YT, you can get a weight of several thousand U for every 100U, and the points earned every day are equivalent to someone staking several thousand U points for 90 days. So the key to YT is not APY, but "equity speed": you can take 10/10 of the current equity with 1/10 of the principal. The premise of logical validity is that you agree that the points/airdrops released by the project during these 90 days will be priced by the market. The risk lies in the fact that YT's maturity and return to zero are certain, your principal is destined to be abandoned, and whether the equity you receive can be worth the principal is random. But this is not a mindless game, my thought process usually has three steps: 1) Can we calculate the future clearly? I will first calculate the value of the points: how many points are added each day, how much is the total plate, and how much can I get from my own portion. If the estimated rate of return is ≥ YT, including implicit APY, all costs (borrowing, slippage, transaction fees), and a safety cushion, then one is eligible to proceed 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 some of the profits in advance. Even if a black swan appears later in the season, at least a portion of its value can be recovered. 3) Can we accept deterministic losses? Regardless of how it is calculated, YT's zero return upon expiration is an iron law. According to my standards, the principal portion is not heavily invested, only a small amount is used as a trial and error budget to increase project returns/points over a period of time. Just like the eUSDe YT in this round of ENA, strategy deduction can be carried out according to this idea—— ① Fixed points → Fixed airdrop: YT cost 11.2%, with approximately 17% annualized ENA value calculated based on ENA pricing; ② Valuation → Locking Price: Short selling ENA hedging to lock in price risk, with a yield difference of approximately 6%+; ③ Other bonus points: When combined with Ethereal airdrop expectations, the model can see an annualization of 45% to 90% when optimistic. So, the key words for YT are: give up the capital, invest in the future. Recommend a commonly used tool in the community: YT Actuary, which can help you filter out investment targets with the lowest cost of earning points: https://pendle-yield-calculator.vercel.app/ two ️⃣ Why do I use YU: Change the funding rate to a fixed interest rate spread YU is a contractual expression of the funding rate - the funding rate in perpetual contracts is separated, standardized, and packaged into tokens that can be long, short, and leveraged. What you are buying is the sentiment expectation of the PERP market. YU's starting point is completely different. I would first ask myself: Do I have a PERP position, or do I care about fluctuations in funding rates? If the answer is yes, then YU is very valuable. My thought path is—— 1) Where is my current funding risk? If I overpay on CEX, my concern is that the funding fee will continue to be positive and I will have to keep paying. If I am on an empty PERP, then my concern is that the funding fee will become negative and I will not receive the money that should have been collected. So the first step is to figure out: am I afraid of "paying" or "not receiving the money"? 2) Can I lock in the risk and earn a spread? At this point, YU can come in handy: the Implied APR at the moment of entry will solidify into your Fixed APR. Afterwards, for each settlement cycle (Binance is 8h, Hyperliquid is 1h), the system will take the actual Funding (Underlying APR periodicity) and subtract it from your Fixed to settle your cash flow: Multi perp → Long YU → Consolidate future funding fees into Fixed: pay Fixed, receive Funding. Cash flow per period ≈ Notional × (Funding Fixed) × Δ t/year Empty PERP → Short YU → Consolidate future funding fees into Fixed: collect Fixed, pay Funding. Cash flow per period ≈ Notional × (Fixed Funding) × Δ t/year When it expires, the Implied will naturally disappear (as no new YU will be generated), and your accumulated settlement will be the final profit or loss. That's why I said in the previous issue that 'negative rates are not complicated' - always just look at the difference between Funding Fixed, regardless of the sign. So, YU's keywords are: cost locking, betting on volatility. three ️⃣ When should I choose YT? When should I choose YU? I think this is a flexible application. If I were to give a simple criterion for judgment: You are betting on project growth and market pricing → playing YT; You care about capital efficiency and risk hedging → use YU. The two are not isolated either. For example, you can buy ENA's YT and enjoy a premium airdrop; Then use Short YU (if ENA is available later) to fix the funding rate during the hedging process. To be more specific, I can explain my logical judgment on the choice—— 1) Under what circumstances should I choose YT? ① Can you calculate future equity—— The known points multiplier/distribution window/season rules are clear, and the daily points increment x remaining days x distribution ratio can be estimated. If the annualized value of (points+earnings) you measure is ≥ YT, the current implicit APY+total cost (borrowing/slippage/transaction fees)+3-5% safety cushion, then it can be done. ② You are willing to spend a small amount of money to gain weight, able to bear the risk of zero principal, and able to withstand the risk of the season's black swan (lock up, delay, etc.). ③ It is best to have hedging measures or secondary market liquidity to reduce positions and recover at any time. ④ You have a clear retreat point, for example—— The current price exceeds the upper limit of your model; Season rules/distribution ratio deterioration; The growth rate of points has significantly declined, and the secondary liquidity has deteriorated. So YT needs to be able to calculate, understand, lock, and withstand, so choose YT. 2) Under what circumstances should I choose YU? ① You have a PERP position and need to make the funding controllable More Perp (afraid of paying) → Long YU; Empty pep (afraid of not receiving) → Short YU. For example, if you plan to hold a position for two weeks, with an estimated average Funding of ≈ 12%, 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' to use YU as a tool. ③ You can handle pricing misalignment and margin management. CEX Funding is mostly denominated in USDT, while Boros settlement is denominated in ETH/BTC. Align exposure (sell/buy ETH) after each settlement to avoid exchange rate residuals. The margin should ideally cover 2-3 times the extreme volatility pressure and achieve ultimate position management, without expanding or trading during periods of low liquidity. So the essence of choosing YU is that you need to lock in cash flow or bet on the spread between Funding and Fixed. I have created a quick decision table that can help with judgment. You can test it every time you need to implement the Pendle strategy—— ① My core question is points/airdrops or funding fees? → The former YT | The latter YU ② Am I energized and protecting my future rights? → Can: YT arbitrage | Cannot: YT ticket small warehouse trial and error ③ Do I need to lock cost/revenue for my PERP position? → Yes: paired YU (multiple Long, empty Short) ④ Is the price difference sufficient to cover the cost and safety cushion? YT ≥ 3-5% annualized margin; YU deviation ≥ 2-3% annualized (converted based on holding period) four ️⃣ Conclusion—— YT and YU are essentially two different rhythms in the Pendle universe: YT is the friend of time, for those who are willing to use small money to leverage big - you are holding the chips of the future, betting on project growth, market heat, and point pricing; YU is a friend of volatility, for those who care more about certainty - you take the current cash flow and replace uncontrollable funding fees with controllable interest rate differentials. They are two completely different game rules, but their value lies in: which one do you need in your current situation? Can you use the right tools, or even put them together, to bring institutional interest rate arbitrage methods into your own hands? My suggestion is to start with small positions and not rush to leverage. First, run the logic and understand the flow of funds. Once you truly master the Pendle gameplay, YT and YU will become your own tools! At that time, you will find that you can swim in the world of DeFi like a fish in water, gentle as a dragon! If you are interested, you can join Pendle's Chinese community and read more about the real-life sharing of experts. Follow and learn a few tricks, and your thinking will become much clearer: https://t.me/PendleFinance_CN