How mStable’s Pendle Vault Actually Works

When mStable relaunched in late 2025, we made a deliberate decision to focus on a single product rather than a broad suite of strategies. The goal was not to offer “another stablecoin vault,” but to build a yield product that vastly outperforms the competition on a risk-adjusted basis.

That product is the Pendled sUSDe vault; a Pendle-based strategy that combines Ethena, Aave, and automated leverage into a single, fully managed experience. For users, the result is simple: deposit stablecoins and earn a market-leading yield without needing to manage complexity or constantly monitor positions.

This post explains how the vault works under the hood, where the yield comes from, and what risks users should understand before depositing.

A Different Kind of Stablecoin Yield

Most stablecoin strategies tend to fall into one of two categories, and aren’t that sophisticated. They either earn relatively modest returns through simple lending, or they artificially (and unsustainably) push yield higher by relying heavily on incentives and short-term opportunities that can disappear overnight.

The Pendled sUSDe vault takes a different approach. Instead of chasing variable rates and token incentives, it is built around locking in yield streams using Pendle’s Principal Tokens. This allows the strategy to focus on predictable return mechanics.

Importantly, as a stablecoin yield product, the vault is not a directional trading strategy, and it does not depend on ETH, BTC  or other volatile token price movements. The primary objective is yield amplification, not directional exposure.

So What Happens When You Deposit?

When assets are deposited via the mStable app, the vault begins positioning them for deployment into the active Pendle strategy. The vault supports stablecoins as well as assets like BTC and ETH, all of which are automatically converted into the vault’s native asset, sUSDe, before being deployed.

The first step is entering Pendle. Pendle allows yield-bearing assets to be separated into principal and yield components. The vault purchases PT-USDe, which represents the principal portion of sUSDe yield up to a fixed maturity date. These PTs are typically acquired at a discount and naturally converge toward full value over time, creating a built-in yield component.

Once the PTs are acquired, the vault supplies them as collateral on Aave. Against that collateral, it borrows stablecoins and uses those borrowed funds to purchase additional PTs. This looping process increases exposure to the same underlying yield stream without introducing exposure to volatile assets.

Throughout this process, all leverage parameters are carefully managed by the vault as well as slippage. Health factors are monitored continuously, and the system is designed to operate well within safe thresholds rather than pushing leverage to its limits, which is a mechanic we have refined over the years while designing leverage tokens under the Toros Finance brand.

What about the Yield? How is it Generated?

A significant portion comes from what’s referred to as PT discount convergence. Because PTs are bought at a discount and become worth more over time simply by being held until maturity., time itself becomes a source of return. This is paired with the underlying yield generated by sUSDe through Ethena’s mechanisms, which the PT structure captures. For those unaware, Ethena’s sUSDe is best described as a synthetic dollar. Its yield is generated through delta neutral positions across perpetual futures markets, primarily on ETH and BTC. Funding paid by traders in these markets is routed back to sUSDe holders, forming the base yield that the PT structure captures.'

Now that you understand the yield sources of the underlying protocols, let’s get back to how the vault functions. Leverage is used to amplify these returns and is applied conservatively and exclusively to scale yield exposure. The strategy does not attempt to profit from price movements, and as mentioned, does not rely on short-lived incentives to remain attractive.

The result is a yield profile that has historically ranged between 15% and 50% APY depending on market conditions, with current returns sitting around 22%.

“Active Management” without User Intervention

While the vault is passive from a user perspective, there is automated “active” management happening behind the scenes.

The system automatically maintains safe Aave lending market health factors, adjusts positions as market conditions change, and handles Pendle rollovers before PTs reach maturity. This ensures that users do not need to track expiries, rebalance positions, or manually unwind leverage.

In short, the vault handles the operational complexity so you don’t have to. I’m sure you have more important things to do anyway, right?

Understanding the Risks

Higher yield comes with higher complexity, and it’s important to be transparent about that.

As discussed, the vault is built on multiple blue chip protocols including Pendle, Ethena, and Aave; all of which introduce smart contract risk. Importantly, none of these protocols have experienced major exploits of their core contracts to date, and all are audited, which you can view yourself in their respective docs. Additionally, while the vault’s leverage is managed conservatively, extreme market conditions could still impact collateral values or borrowing conditions.

sUSDe itself is not a traditional fiat-backed stablecoin, and you should understand Ethena’s design and risk profile before participating. While the strategy is built to avoid directional market exposure, it is not risk-free.

Is This Vault Right for Me?

The Pendled sUSDe vault is best for you if you’re looking to earn some yield on your stablecoins and are comfortable with a more sophisticated strategy in exchange for higher returns. It’s also perfect for those that want access to advanced yield strategies without the need to implement and manage it themselves. I’m pretty sure this is most of us!

Zooming Out

The Pendle’s sUSDe vault represents mStable’s new direction: one focused product, built to a high standard, and designed to deliver market-beating, risk-adjusted yield.

By combining Pendle’s yield primitives, Ethena’s sUSDe, Aave’s liquidity, and automated vault management, mStable offers a streamlined way to earn elevated stablecoin returns without requiring users to become experts in each underlying protocol.

For users looking to put stablecoins to work in a more meaningful way, this is your path forward.