Overview
Chaos Labs supports the listing of PT-USDG-28MAY2026 on the Aave v3 Ethereum instance. As USDG is currently listed on Aave v3 as a borrowable asset, the following analysis will not explore the underlying asset’s structure and will focus solely on the implications of listing its Pendle principal token as an E-Mode-limited collateral. We hereby propose risk parameters for PT-USDG-28MAY2026, including recommended initialDiscountRatePerYear and maxDiscountRatePerYear values based on the dynamic linear discount rate oracle methodology described here. The recommended parameters are built on top of our Principal Token Risk Oracle framework, outlined in detail here.
Risk Oracle Parameter Evolution
Through rigorous quantification of the algorithm, we find that the integration risk of PT-USDG decays as the token approaches maturity. This dynamic justifies using increasingly efficient risk parameters over time. As USDG is a fiat-backed stablecoin with a 1:1 USD peg maintained by Paxos, the terminal risk profile of the principal token converges to that of the underlying stablecoin itself. We project the evolution of the LT, LTV, and LB, with the initial parameterization approximately as follows LTV: 93.5%, LT: 95.5%, LB: 2%
Discount Rates
Based on the observed data and pricing dynamics of the market, our initial recommendations for the discount rate parameters are as follows: initialDiscountRatePerYear : 5.12%, maxDiscountRatePerYear : 18.82%
Supply Cap
Given the dynamics underlying the expansion of the liquidity profile in Pendle’s PT/SY AMM Pool, along with the relatively recent listing of the asset on Pendle, we view the liquidity depth as sufficient for meaningful supply caps. The plot below represents the amount of liquidity available under 3% price impact as the market approaches expiry, given the current liquidity distribution in the AMM. With the maturity of the market, the price impact associated with swapping PT becomes less extreme. With higher market maturity, the costs associated with executing sell orders of the asset compress; this trend is especially pronounced for the assets with lower scalarRoot values, which imply greater expected implied yield fluctuations, and such tokens tend to exhibit greater liquidity concentration variance. As shown in the chart below, the AMM can currently facilitate swaps worth $60M of tokens at a relatively conservative 3% slippage.
Additionally, both the PT and SY liquidity profiles in the AMM have recently expanded, reaching 60 and 17 million tokens, respectively. Given the currently observed liquidity dynamics, the Pendle AMM presents as a reliable venue for routing potential liquidations under high stress market conditions.
Pricing
Pricing of USDG’s principal token presents a unique tradeoff. Specifically, as USDG is currently priced on Aave V3 Ethereum using a fixed 1 USD anchor, the choice of the underlying ASSET_TO_USD_AGGREGATOR within the PendlePriceCapAdapter carries substantial implications for user experience and protocol solvency under market stress.
If the USDG principal token is priced using the same anchored price as the borrowable USDG asset, borrowers would not be subject to liquidations stemming from secondary market volatility. However, the anchored oracle cannot trigger liquidations when the underlying depegs, which increases the bad debt risk. Consider the PT-USDG at maturity, where the risk oracle converges to approximately LT: 96%, LB: 1%. At this point, a user can borrow 0.96 USDT against 1 PT-USDG, with the oracle valuing both at par. If USDG trades at $0.95 on the secondary market, the collateral is worth $0.95 in real terms while the USDT debt retains its full $0.96 dollar value. The position valued at the market prices of the assets would be technically insolvent unless USDG restores its peg.
On the other hand, if the principal asset’s base (non-discounted) price is configured as market, negative secondary price deviations would result in asymmetric liquidations, as the USDG debt side would still be valued at par with the intended peg. Given the expected high leverage in the market, temporary secondary market price deviations could trigger liquidations on positions that are fundamentally healthy.
In order to provide a quantitative basis for the selection of the price feed, we present the empirical dislocations of the USDG/USD Chainlink price feed against the intended peg of $1. As can be observed, since September 2025 the oracle has dislocated by more than 10 basis points only 3 times, with peak deviations of 27, 29.5, and 29 basis points, while the average dislocation was limited to 5 basis points.
Given the risk of underpricing of the underlying component of the principal token, we recommend pricing PT-USDG-28MAY2026 with an anchored USD feed, analogous to the configuration of USDG, as the base price within the PendlePriceCapAdapter. Such configuration is prompted by relatively low USDG liquidity both on-chain and on centralized venues. To mitigate the residual depeg risk associated with the anchored feed, we recommend implementing a Proof of Reserve feed or a freezing mechanism at a later stage.
Specification
| Parameter | Value |
|---|---|
| Asset | PT-USDG-28MAY2026 |
| Isolation Mode | No |
| Borrowable | No |
| Collateral Enabled | No |
| Supply Cap | 80,000,000 |
| Borrow Cap | - |
| Debt Ceiling | - |
| LTV | - |
| LT | - |
| Liquidation Bonus | - |
| Liquidation Protocol Fee | 10.00% |
| E-Mode Category | PT-USDG Stablecoins |
Initial E-Mode Risk Oracle
| Parameter | Value |
|---|---|
| E-Mode | Stablecoins |
| LTV | 93.5% |
| LT | 95.5% |
| LB | 2.0% |
Linear Discount Rate Oracle
| Parameter | Value |
|---|---|
| initialDiscountRatePerYear | 5.12% |
| maxDiscountRatePerYear | 18.82% |
PT-USDG Stablecoins E-mode
| Asset | PT-USDG-28MAY2026 | USDT | USDe | USDC | USDG |
|---|---|---|---|---|---|
| Collateral | Yes | No | No | No | No |
| Borrowable | No | Yes | Yes | Yes | Yes |
| LTV | Subject to Risk Oracle | - | - | - | - |
| LT | Subject to Risk Oracle | - | - | - | - |
| Liquidation Bonus | Subject to Risk Oracle | - | - | - | - |
Disclaimer
Chaos Labs has not been compensated by any third party for publishing this recommendation.
Copyright
Copyright and related rights waived via CC0