Aave’s USDG rollover plan has a yield below most quoted borrowing rates

Aave’s proposed USDG rollover would let borrowers carry their stablecoin debt into a new fixed-yield USDG position, but the replacement collateral currently yields less than three quoted borrowing rates. That leaves leverage and separately administered rewards central to whether extending the trade makes financial sense.

The proposal concerns Pendle principal tokens, or PTs, on the X Layer network: holders of the token maturing Oct. 29 would move into a replacement maturing Feb. 25, 2027. In its Oct. 8 assessment, risk provider LlamaRisk said the February token’s on-chain yield alone fell short of USDT0, USDC and USDG borrowing costs. GHO was the cheaper exception in that assessment’s Oct. 7 snapshot.

TokenLogic’s proposal would enable a flash-loan transaction that temporarily repays debt, replaces the old PT collateral, borrows again and repays the flash loan. OKX would develop that integration separately. The Aave listing and separate OKX integration would both need to be implemented.

An Oct. 10 refresh preserves the gap. Pendle’s market API reported a February PT implied annual percentage yield of about 2.98%, with data updated at 21:09 UTC. Aave’s X Layer market display, retrieved at 21:11 UTC, showed variable borrowing APYs of 4.12% for USDT0, 5.87% for USDC and 3.75% for USDG.

The readings show why transaction convenience and investment profitability are separate questions: a rollover can preserve access to borrowing while resetting the collateral’s yield at the new purchase price.

A Pendle PT is a discounted claim on an accounting asset at maturity. For this USDG market, LlamaRisk describes redemption as one PT for one USDG. The purchase discount determines the return from holding to maturity, while ordinary PT holders give up the underlying variable yield and points to the corresponding yield token, or YT, under Pendle’s mechanics.

Borrowing to buy more PT increases exposure to that discount. The strategy earns positive incremental carry when the acquired PT return exceeds its financing cost. When borrowing costs exceed the asset’s return, each additional borrowed increment reduces the position’s return before rewards and costs.

That relationship looked different in LlamaRisk’s August review. Using Aug. 18 data for the October maturity, it quoted a 3.19% PT yield against borrowing rates of 0.45% for GHO, 1.37% for USDT0 and 2.69% for USDG. The review described positive carry.

The Oct. 7 snapshot for the February replacement quoted a 2.79% PT yield against 4.48% USDT0, 4.10% USDC and 3.67% USDG borrowing rates. GHO, at 0.93%, still borrowed below the PT yield. The comparisons span different maturities; existing October PT holders retain their original purchase yield.

There is also a distinction between a quoted funding comparison and an allowed borrowing route. LlamaRisk’s recommended new Aave borrowing category, E-Mode 9, lists USDT0, GHO and USDC as borrowable assets. USDG is absent from that proposed list, so its rate provides a cost comparison rather than proof of eligibility for the February configuration.

The 2.98% annualized PT yield corresponds to about 1.11% gross appreciation over the roughly 137.1 days from the Oct. 10 snapshot to Feb. 25. The annual figure should not be mistaken for the cash return available over that shorter holding period.

A standalone PT-and-debt illustration shows how leverage changes the outcome. It holds the displayed borrowing APYs constant through maturity, excludes rewards, transaction costs and retained YT, and assumes no rebalancing. Two times exposure means assets equal twice starting equity and debt equals that equity; five times exposure means debt equals four times starting equity.

Using the APY convention in Pendle’s calculation documentation, the illustration converts each annualized rate into a return over the same holding period. It then subtracts the debt’s interest cost from the PT position’s appreciation.

The table shows illustrative total returns through Feb. 25. Without borrowing, the same PT position earns about 1.11% before costs. At two times exposure, the return on the investor’s own capital can still cover the negative spread on the borrowed portion. At five times exposure, financing consumes more than the gross PT gain in all three examples.