Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
This week, taking into account the uncertain market conditions, we review the best DeFi looping strategies to amplify blue chip yields that can earn double and even triple-digit yields, regardless of whether the crypto market goes up or down.
First, a few of the major DeFi yield-earning strategies we’ve covered in Wealth Mastery are:
- Lending
- Staking
- Stablecoin LPs
- Stable pair LPs (ie Pendle LRT LPs)
During uncertain times, no matter what the approach above, I try to stick to the yields that limit my exposure to assets I already hold. Chasing the higher risk yields can get you burned.
However, sticking to more well known yields on battle-tested platforms with more liquid markets (i.e. lending on Aave), shouldn’t limit us from achieving a higher net yield. Our approach simply requires a twist…
The twist is known as looping. We’ve previously covered looping with DeFi platforms such as Contango, Summer.fi, and Origami.
Looping allows us to multiply our earnings with yield-bearing tokens such as Ethena’s sUSDe or ether.fi’s weETH. Looping strategies require us to deposit a yield-bearing token to borrow against on an established money market (i.e. Aave) or CDP protocol (i.e. Maker or Fluid) where it’s supported as collateral.
The borrowed funds can then be swapped to generate more of the same collateral, which is then redeposited and the whole process is repeated.
By looping, or folding, this debt position repeatedly, farmers can achieve a highly leveraged exposure with predictably correlated assets.
One popular example of a looping strategy nowadays is collateralizing sUSDe and borrowing DAI, or collateralizing weETH while borrowing ETH.
It’s important we borrow the same asset or an asset correlated to the collateral so that we can avoid having to worry about our LTV (loan-to-value ratio) growing to a point where our position is undercollateralized and subject to liquidation.
Manually entering a folded position can be tedious, risky, and gas-intensive. Streamlining this process with less clicks, less risk, and less gas is a draw for leveraged farmers.
Some platforms such as Origami Finance even monitor the health factor (collateralization) to ensure that market volatility or high interest rates do not bring their debt position above the liquidation threshold.
Contango and Summer.fi allow users to choose their own leverage but it also means taking responsibility for preventing their own position from being liquidated.
If you’d like to go back and review these individual platforms with corresponding tutorials, here’s links to Wealth Mastery:
For today, I’ll provide an overview of some of the best looping strategies across Summer.fi, Origami, and Contango, and different strategies requiring the use of all three.
Choosing The Best DeFi Looping Strategies
Before we get started, please be aware of these risks.
- Smart contract risk in Contango, Summer.fi, Origami, and any associated underlying protocols for looping such as Aave or MakerDAO
- Front-end spoof attack on the app frontend
- Oracle risks
- Liquidation of a leveraged position if…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
