Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
It seems like forever ago, but in the height of 2021 yield farms, we covered Alpha Homora, a leveraged yield farming protocol, where you can wind up borrowed positions to farm liquidity provisions and earn higher rewards. Leveraged yield farming relied heavily on inflationary token rewards, which since have crashed in price.
Since Alpha Homora, a few things have changed: crypto markets crashed, destroying many of the inflationary tokens necessary for leveraged yield farming, and DeFi has been stress-tested to a point that we know better which protocols work in any market structure.
Gearbox is a newer generalized leverage protocol. Similar to Alpha Homora, it has two sides to it: passive LPs who earn yield by providing single-asset vs active farmers who borrow those assets to trade or farm with up to 10X leverage.
Gearbox Protocol is leverage-as-a-service for DeFi farming strategies, allowing anyone to use DeFi-native leverage in a composable, automated way. If I borrow an asset on Gearbox, I can simultaneously use this as leverage in another protocol to farm more yield. Gearbox currently supports these DeFi protocols on Ethereum Mainnet: Uniswap, Curve, Convex, Lido, SushiSwap, and Yearn. For example, I can borrow ETH and wind up a larger position of Lido stETH or maybe hold a larger position in the Curve stETH/ETH LP.
Unfortunately, as of this writing, Gearbox v2 hasn’t launched but is expected anytime in the next 24-48 hours. One can visit the strategies and yields available under the Credit Accounts tab. For today, I’ll show how I can take the lesser, more passive yield-earning approach in Gearbox as an LP lending a single asset to future Gearbox farmers borrowing for leverage.
How to Earn 11.4% APY Lending wstETH to Gearbox v2 Borrowers
Before we get started, please be aware of these risks.
- Smart contract risk in Gearbox and any integrated protocols such as Curve, Convex, Uniswap, Lido, SushiSwap, and Yearn
- Systemic risk in DeFi composability
- Pegged assets such as stETH can trade at a larger discount, making leveraged strategies not profitable
- Front-end spoof attack on gearbox.finance
- Exploits in the economic design of Gearbox
- Governance attacks or admin key compromise
- If one lends on Gearbox, they could run into a liquidity crunch, unable to withdraw if farmers max out leverage
- Gearbox is not available to US citizens. This is not a recommendation to anyone within the US to use Gearbox, but it is possible to view the available strategies regardless of IP address.
Here’s how I’d get started (if I didn’t live in the US):
- First, I go to the Earn tab on Gearbox and connect my Ethereum wallet.
- Second, I review the available options to lend single assets, such as wstETH, where the yields are currently 100% made of GEAR vs what we should expect to see in the coming days with organic APY from farmers paying interest to leverage farm.
- Since I already hold wstETH or having wrapped my stETH here on Lido, I can now lend my stETH earning 5.5% APR in staking yield, and earn an additional net 11.42% APY in the GEAR token (which isn’t live for trading yet and based on $GEAR valued at $200M FDV).
- I don’t necessarily agree with the FDV being so high in this market and…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
