USDai's upward depeg is a fascinating case study into stablecoin mechanics, PT <> YT flows, and basic economic principles that underpin DeFi. WTF is intern waffling about? Let me break this SILLINESS down and how YOU could have capitalized. ___________________________________________________ Unlike MOST depegged stablecoins, USDai by @USDai_Official depegged in an UPWARD direction. What this means is that traders are currently willing to pay more than $1 for something that should be valued EXACTLY $1. Your first instinct is probably "what type of regard is buying $1 for more than $1" and I'd USUALLY be in agreeance. The difference is that holding USDai gives users Allo Points which are being 'priced in' to the standard $1/USDai value. "But wait... shouldn't every stablecoin with points also be valued > $1 then?" ___________________________________________________ To answer this question, we need to understand how stablecoins maintain peg in the first place. The most common method is using a Peg Stability Module (PSM) which allows users to arbitrage mispricings while returning the stablecoin to peg: 1. Price < $1 → users buy stablecoin and redeem for $1 of underlying (or something similar) 2. Price > $1 → users mint stablecoin and sell for > $1 We are in Scenario 2. for USDai but there is an issue - USDai caps are fully filled so arbitrageurs CANNOT mint more to return it to peg! The surge in demand for USDai's Allo Points WITHOUT the ability for new mints disrupts the stablecoin equilibrium. As a result, USDai SHOULD be expected to be ABOVE peg until caps are raised. ___________________________________________________ The next thing you may have noticed is USDai's Implied Yield running to an absolutely SILLY 51.6% fixed APY, by far one of the highest yielding stables on the platform. There is something CRITICAL to note here - Pendle prices assets in terms of the UNDERLYING token. In our case, it is USDai which is currently trading at $1.06. A 51.6% fixed APY is based on this $1.06 face value. What does this mean for you? > Buying PT-USDai will let you capture a fixed yield if you are ALREADY holding USDai. > If you are swapping in from USDC, there is a chance you'll end up with a loss in the event USDai repegs from $1.06 → $1 DEFINITELY exercise caution if you plan on entering PTs now. ___________________________________________________ One thing that is VERY interesting indeed is that if you were an early YT-USDai buyer, you are up heavily on both implied yield AND USDai/USD. This should make sense since: 1. IY has spiked heavily from ~20% → 51.6% 2. USDai has depegged upwards from $1 → $1.06 While a large component of this IY spike can be attributed to demand for Allo Points, the rest is due to something a widdle bit more structural. Recall that the thing that affects IY is trading activity of YT and PT: 1. IY ⏫ if people buy YT OR sell PT 2. IY ⏬ if people sell YT OR buy PT In our case, we have PLENTY of people buying YTs. We do NOT have many people buying PTs since PTs are depegged upwards. This means we're ultimately left with IYs that we can expect to continue an upward trajectory AT LEAST until USDai's underlying caps are raised! ___________________________________________________ This is a neat little lesson into how caps on stablecoins can: 1. Cause price to depeg in an upward direction 2. Cause IY to spike in an upward direction 3. Both without standard market dynamics to bring them back to normal If you are able to identify similar set-ups on Pendle's underlying stablecoins, it could VERY MUCH be possible to captures these opportunities. Intern for one will be keeping a VERY close eye on said protocols and see where dem money bags be lying. NFA NLA NMA MDMA Pendle