Lido and Idle have collaborated to launch stETH Perpetual Yield Tranches (PYTs). This DeFi primitive provides users two risk-adjusted financial products for ETH staking.
The integration of stETH into Idle’s PYTs now empowers Ethereum stakers to join protected staking or leverage staking rewards. The bootstrap phase will distribute 10,000 $LDO tokens per week to stimulate liquidity provision on stETH Senior Tranches.
PYTs have no locking periods, you can enter and exit anytime. You start accruing LDO tokens when you stake your stETH Senior Tranches – rewards are distributed linearly.
What are Perpetual Yield Tranches?
Perpetual Yield Tranches is a novel primitive developed by Idle DAO, released in production in late December after 2 audits (Consesys Diligence and Certik) and 4 months of successful guarded launch phase.
Depositors into the Junior Tranches receive a higher proportion of the rewards generated via Lido, but also take on extra smart contracts and financial risks. Inversely, the Senior Tranches receive a smaller portion of the generated rewards but they’re in line to be repaid first in case of default.
This new DeFi primitive is flexible, with no locking period or epochs, and fully fungible, allowing it to be easily embedded into other structured products or protocols. Integrators now have the opportunity to offer different products to their final users depending on their preferred risk level.
PYTs are fully automated. The rewards generated by stETH is accumulated and auto-compounded by the PYT directly. Users receive Senior/Junior Tranches Tokens which represent their share of the Tranches’ deposits.
Before you get started, make sure to connect your Ethereum wallet to Idle Finance and own Lido’s stETH.
1. Choose the "Perpetual Yield Tranches" strategy from the homepage.
2. Choose whether to get more stETH Senior or Junior Tranches. Only Senior Tranches are incentivized with 10,000 LDO/week.
3. Click "Approve", then "Confirm" the transaction in your wallet to allow your fund deposit. You can click on "Edit" to increase the gas price if the network is busy (visit https://www.blocknative.com/gas-estimator for current rates) and speed up the transaction completion.
4. Once the approval is confirmed, you will be able to deposit stETH into the Senior Tranche. You will now hold AA_wstETH tokens, representing your stETH deposit.
5. Click "Approve", then "Confirm" the transaction in your wallet to allow the deposit of your AA_wstETH.
6. Click on “Stake/Unstake” to stake your AA_wstETH tokens and receive LDO rewards. Only Senior Tranches can be staked and receive rewards on top of organic APY. Rewards are distributed linearly.
Senior Tranches as an innovative solution to deposit protection
While insurance services are becoming popular among institutional and conservative DeFi users, they require payment in advance, users need to know how long they will deploy liquidity for, and they even might end up losing money if the generated rewards is lower than paid premium.
Senior Tranches can be considered an alternative and more flexible way to receive protection on deposits, with no upfront payments and without the risk of negative returns.
DeFi protocols that integrated Lido as underlying source for rewards, current stETH holders, and ETH owners interested to generate rewards can benefit from the built-in protection feature on Senior Tranches with incentivized APY, or deposit into Junior Tranches to over perform the Lido's rewards.
stETH PYT is the first ETH product with a built-in protection mechanism, targeting a market segment with a conservative risk profile. With the rising interest of institutional capital for ETH in sight of the Merge in 2022, the need for a sustainable rewards will increase, thus the need for protection features.
The initial bootstrap phase will represent the first of a long series of potential joint initiatives, with the aim of working with DAO treasuries, collateralized stablecoin protocols, or CeDeFi applications, as integration partners for PYTs.
Furthermore, Idle DAO already approved to route 990 IDLE/day into Senior Tranches, distributed using the Gauges model (Curve-like). stETH PYTs will also benefit from these incentives, strengthening the relationship between Lido DAO and Idle DAO.