Forum Link: https://forum.inverse.finance/t/proposal-to-add-pt-susde-29may2025-market-to-firm/544

Summary

This proposal seeks to integrate the PT-sUSDe-29MAY2025 token from Pendle as a collateral asset on FiRM, Inverse Finance’s fixed-rate lending protocol. Like its predecessor (the successfully onboarded PT-sUSDe-27MAR2025), PT-sUSDe-29MAY2025 is a Principal Token representing the right to receive 1 USDe upon maturity—this time on May 28, 2025. While the risk assumptions remain the same as the earlier market, the key distinctions are:

1. A switch to Pendle’s audited Discount to NAV Oracle to price PT-sUSDe-29MAY2025 based on a fixed discount rate of 20% (rather than the fixed $1 approach).
2. A change in the Collateral Factor (CF) to 91.5%.

Background

Pendle Finance is a yield-trading platform that tokenizes yield-bearing assets into two components:

1. Principal Tokens (PTs), redeemable for the underlying asset at maturity;
2. Yield Tokens (YTs), which accrue the asset’s yield until expiry.

After a successful integration of PT-sUSDe-27MAR2025 on FiRM in late 2024, demand for PT-based strategies has proven to be strong. This new PT, PT-sUSDe-29MAY2025, extends the maturity date and aims to offer continued opportunities for fixed-income and carry-trade strategies, leveraging FiRM’s fixed-rate borrowing.

Discount to NAV Oracle

When FiRM onboarded PT-sUSDe-27MAR2025, to simplify risk management and minimize potential manipulation, we opted for a fixed $1 oracle along with a policy-multisig–controlled fallback to respond to extreme conditions or potential oracle malfunctions. While this was prudent for the initial launch, it was an imperfect solution as the fixed $1 price feed did not account for market discounts or yield to maturity over time.

For PT-sUSDe-29MAY2025, we propose using the Discount to NAV Oracle originally deployed by Pendle, audited by WatchPug and currently in use for Morpho’s PT markets. The feed accounts for the zero-coupon nature of the PT by applying a fixed discount rate to par value that exponentially converges to $1 as maturity nears. Only two main parameters—discount rate and time (block #) of maturity—must be configured. Importantly, by setting a conservative discount rate, the protocol intentionally underprices the PT relative to potential market optimism, which is safer from a protocol risk perspective.

Based on yield data for sUSDe PT markets, present time to maturity, and referencing methodologies used by other protocols (e.g., Morpho, Aave, and Spark in the Sky forum) — the RWG recommends a 20% discount rate for PT-sUSDe-29MAY2025. This is informed by

1. Historical Pendle PT Yields: sUSDe PT yields have frequently hovered in the 15–25% APY range, with occasional spikes higher.
2. Comparable PT Deployments: The 20% discount rate has been used on other platforms successfully (e.g., Morpho’s PT-USDe-Feb2025) to balance between over- and under-estimating collateral value.
3. Market Growth Expectation: While PT yields can spike briefly, sustained extreme yield environments (>70% APY) remain unlikely with the growth of USDe.

Oracle Switch Guardian Role

For the PT-sUSDe-27MAR2025 integration, governance approved the use of an oracle switch guardian, assigning it to the Policy multisig. RWG recommends we retain a guardian fallback for the PT-sUSDe-29MAY2025 market to address significant deviations from expected yields or catastrophic scenarios (e.g., a USDe depeg) by swapping the discount to NAV fixed feed to a discount to NAV USDe feed that has sUSDe’s peg factored in.

For a more detailed overview of how the Feed Switch with guardian operates as well as the design choices that went into deciding our choice of PT oracle for FiRM, refer to the risk assessment prepared by the RWG.

Collateral Factor Setting

Collateral Factor (CF) in FiRM determines the maximum DOLA a user can borrow against the discounted value of their PT. For the PT-sUSDe-27MAR2025 market, the CF was set at 87%, balancing capital efficiency with the risk of PT discounts due to spikes in implied yield.

With PT-sUSDe-29MAY2025, we propose raising the CF to 91.5%, matching other PT markets on other lending protocols. The switch to a feed that will underprice the collateral, compared to our previous choice that overpriced it, justifies the increase in CF from 87%. Furthermore, our prior analysis (with PT-sUSDe-27MAR2025 at 87% CF and a fixed $1 oracle) showed that higher CFs could be acceptable if the feed accounts for implied yields. This combination (20% discount rate + 91.5% CF) offers capital efficiency while providing adequate protection in typical yield spikes (e.g., 40–50% APY).

Risk Assessment

Because PT-sUSDe-29MAY2025 is structurally identical to PT-sUSDe-27MAR2025—just with a different expiry date—the same risk assumptions apply. These were covered in a past risk assessment document produced by the RWG.

On-Chain Actions

1. Add PT-sUSDe-29MAY2025 Market to the DBR contract
2. Set borrowController of this market to the FiRM BorrowController
3. Set market supply ceiling to 20,000,000 DOLA
4. Set daily limit in BorrowController to 2,000,000 DOLA
5. Set Collateral Factor to 91.5%
6. Set Liquidation Factor to 100%
7. Set Liquidation Incentive to 5%
8. Approve PT-sUSDe-29MAY2025 market on the DBR Helper
9. Set Minimum Debt Amount in BorrowController to 3,000 DOLA
10. Set stalenessThreshold for the PT-sUSDe-29MAY2025 market to 86,460 seconds
11. Set FiRM Oracle price feed for PT-sUSDe-29MAY2025 to the deployed FeedSwitch