DeFi now powers sophisticated, composable yield strategies. One of the clearest examples pairs Ethena, Pendle and Aave into a self-reinforcing on‑chain DeFi yield engine that routes more than $4 billion of capital across interoperable protocols. Below is a plain‑language breakdown of how the loop operates, why it matters, and where Hyperliquid could expand the system.
How the Ethena–Pendle–Aave loop works
Step 1 — Ethena: Ethena issues USDe, a synthetic dollar collateralized with a mix of stablecoins and crypto. To generate returns, Ethena runs a delta‑neutral strategy: it holds spot crypto while taking offsetting short positions in futures so the position stays roughly dollar‑neutral but still earns trading and funding yields. Stakers of USDe currently earn a material yield (around ~9% as of late August).
Step 2 — Pendle: Pendle splits assets like USDe into two token types — Principal Tokens (PTs) and Yield Tokens (YTs). PTs represent the underlying principal and mature at a predictable date (they trade at a discount like a short‑term bond). YTs carry the variable income stream. Separating principal from yield creates tradable building blocks that different investors can use for their objectives.
Step 3 — Aave: PTs make useful collateral because their redemption value and schedule are predictable. Depositors lock PTs on Aave to borrow stablecoins (for example, USDC) and then recycle those borrowed funds back into Ethena to mint more USDe. That recycled capital flows back into Pendle and strengthens the loop — more lending, more minting, more yield compounding.
Where Hyperliquid fits and why it matters
Hyperliquid — and its HyperEVM — already interact with parts of this stack. Ethena uses Hyperliquid perpetuals for some of its yield strategies, and Pendle has significant TVL in HyperEVM products. Adding a fully on‑chain perpetuals venue like Hyperliquid can turn the closed three‑protocol loop into a broader network where liquidity flows into perpetual markets directly, improving capital efficiency and creating new leverage and hedging primitives.
Why readers should care: this loop is a practical example of DeFi composability: protocols act like modular components that can be chained to create scalable yield products without banks or intermediaries. That creates opportunity — and concentrated systemic risk: when protocols are tightly linked, issues in one can cascade across the network. Investors should therefore weigh yields against smart‑contract, counterparty and liquidity risks.
Source: CoinDesk. Read the original coverage for full details.