YieldNest MAX LRT PT Looping

MAX LRT Strategies
1

Pick a Strategy Name:

MAX LRT PT Looping

Title: MAX LRT PT Looping

1. Select Your MAX LRT Category:

Selected Category: ynETHx - and potential ynBTCx, ynUSDx and ynBNBx in the future

Strategy Description:

Utilize Spectra Principal Token’s to borrow like assets and loop to farm the basis point spread between the fixed rate yield and borrow costs. This strategy would take place on a soon to come Morpho Vault and any other supported Lending Markets.

Step by Step Guide:

  1. Purchase PT-ASSET from Spectra Pool
  2. Utilize PT-ASSET as Collateral on Morpho or other CDP
  3. Borrow like asset, in the case of ynETHX this would be ETH - current average borrow rate according to DeFi LLama across DeFi is ~2.2%.
  4. Use Borrowed Asset to purchase more PT-ASSET
  5. Repeat until the Spectra Pool runs out PTs, borrow costs get too high or gas > size of trade

Example of Strategy

ynETHx

  • Current Fixed Rate is 9.92%
  • Borrow Cost is an estimated 2-3% APY
  • If 10 PT-ynETHx is used as collateral and deposited on Morpho
  • An expected 8.6 worth of ETH can be borrowed then used to purchase 8.6E worth of PT-ynETHx
  • Total Collateral up to 18.6E of PT-ynETHx, a further 7.4E worth of ETH can be borrowed
  • Total of 26E worth of PT-ynETHx, another 6.4E can be borrowed
  • Total up to 32.4E worth of PT-ynETHx, another 5.5E can be borrowed
  • Total now up to 37.9E worth of PT-ynETHx, another 4.7E can be borrowed
  • 42.6E of Collateral, another 4E of Borrows
  • And even if we stop here on a principal of 10E, an expected 4.22E profit can be made or essentially 42% APY while only paying ~1E in borrowing costs. Still coming to an approximate 32% APY with 3.2E profit.

Protocol Risks:

  • Smart Contract Risks: Possible risks include an exploit of either Spectra or the lending protocol used.

  • Market Risks: If there is a significant depeg on PT-ASSET prices or a liquidity crunch it could become difficult to unwind the position. However due to how Spectra PT’s work, this is largely mitigated as they are redeemable 1:1 for underlying on market expiration.

  • Operational Risks: Potential risk if the lending protocol decides to lower LTV to force liquidate the position, however unlikely.

Protocol’s Liquidity History:

  • Current liquidity depth and health status.

  • Current liquidity depth is $658k in ynETHx & $1.9M in ynETH pools on Spectra, approximately $188k of the ynETHx pool consists of PTs.

  • Historical performance and stability during stress scenarios.

  • As PTs can be redeemed 1:1 for underlying there have been no major incidents during market related stress events

Redemption Flows:

  • Detailed Flow:
  1. On Spectra pool expiry, a portion of the PT-ASSET can be removed from the collateral side
  2. PT-ynETHx can then be redeemed for the underlying
  3. ynETHx swapped to ETH to repay debt
  4. Repeat until total debt is repaid
  • Potential Issues:
  1. Biggest issue would be if a multisig were used getting them together to manually submit transactions, outside of this maybe a transaction bundler should be used to help speed the process

Best-case Scenario:

  1. The best outcome scenario is all debt is repaid in a timely manner

Worst-Case Scenario:

  1. A worst case scenario would be a slashing event for ynETHx or some sort of major depeg that leads to a worse exchange rate when going from PT-ynETHx redemption to ETH to repay the debt owed.

Conclusion - Why Add This Strategy:

  • This strategy should be added as it’s a relatively simple / safe way to access outsized yields on ynETHx, and future assets ynASSETs, as they continue to get added to Spectra.
  • PT Looping is beneficial as it tends to create a demand for YT purchases, as more PT’s are purchased from the pool YT mints become cheaper, which incentivizes arbitrageurs to mint more YT. This in turn drives up PT implied APY, making PT looping even more attractive and so and and so forth.
    • Also due to the nature of Principal Tokens, they are best held to maturity to allow for a smooth redemption process further incentivizing sticky liquidity for YieldNest with little to no additional incentives required.

Submitted by: absolute_unit

Date: 30/3/2025

2 Likes
2

Thanks for sharing this—really thoughtful strategy with some sharp yield layering logic behind it.

Positives:

  • Smart use of Spectra PTs to amplify fixed yield via recursive borrowing is compelling, especially given current spreads.
  • Looping into ynETHx creates sustained demand for MAX LRTs and supports sticky TVL.
  • The YT minting dynamic is a great callout—helpful in optimizing Spectra pool incentives while indirectly boosting implied yields.

Points to Consider:

  • The recursive nature adds complexity and risk—especially around liquidation thresholds and LTV shifts from lending protocols like Morpho.
  • Gas cost and manual redemption flows (especially if multisig-triggered) could be operational bottlenecks unless streamlined.
  • Liquidity depth on Spectra PTs is still relatively thin, which might limit scalability for now.

We really appreciate the initiative—this is exactly the kind of forward-thinking strategy we love to see from the community. We’ll take it into consideration as we explore yield expansion pathways for MAX vaults.

Keep ‘em coming :raising_hands: