Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
Lido, the most popular liquid staking protocol in DeFi, is ready to expand to L2s! With almost $5.7B in staked ETH (stETH), Lido DAO announced they’d be allocating 150k LDO rewards to incentivize wstETH LPs on Arbitrum and Optimism dApps including Beethoven X, Balancer, Curve, Velodrome, and KyberSwap. Thus far, the most trading volume per liquidity appears to be on KyberSwap on Optimism, which has about $1.53M in wstETH/ETH liquidity earning fees on about $2M in trade volume the last 24 hours.
Source: KyberSwap Optimism wstETH/ETH LP analytics
As a result of the lesser liquidity combined with increased trade volume, there’s ~29.31% APR in LDO + KNC rewards subsidizing LPs, while there’s real yield (trading fees) earning LPs an additional 4.82% APR, netting just over 34% APR. A KyberSwap Elastic Pool like this allows users to provide liquidity to a pool within a custom price range, similar to the concentrated liquidity design of Uniswap v3.
Today, I’ll show how I can deposit a combination of wstETH + ETH into a KyberSwap elastic pool LP and earn a net 34% APR as of this writing, before adding the liquid staking yield of 4.9% for the underlying wstETH.
How to Earn 34% APR with wstETH on L2 with KyberSwap
Before we get started, please be aware of these risks.
- Smart contract risk in KyberSwap and Lido
- Systemic risk in DeFi composability
- Pegged assets such as wstETH can trade at a lower discount rate
- Front-end spoof attack on kyberswap.com
- Exploits in economic design
- Governance attacks or admin key compromise
- Estimated yield can go up or down depending on the amount of liquidity competing for LDO + KNC rewards and the price of these reward tokens
Here’s how I get started!
- First, I need to visit the KyberSwap LP for wstETH/ETH on Optimism to determine the estimated ratio of wstETH/ETH and figure out whether I have enough of each token to deposit.
- By setting a price range for this stable pair, it ultimately tells me how much of each token I’ll need. In the example below, I need about 1 ETH + 0.807965 wstETH.
- If I prefer to mint, wrap, and/or bridge wstETH from Ethereum Mainnet over to Optimism L2, I could do the following on the Lido dApp.
- Mint stETH for ETH 1:1 here.
- Wrap the stETH to wstETH here.
- Bridge the wstETH from Ethereum Mainnet to Optimism here.
- What might be easier is if I just bridge ETH over to Optimism using a bridge aggregator like Bungee Exchange, and then use KyberSwap on Optimism to swap ETH for however much wstETH I need to create the LP.
- Once I have both ETH + wstETH, I can go to the Add Liquidity for the wstETH/ETH LP on KyberSwap and I can specify depositing the maximum amount of either token (making sure I don’t deposit all my ETH so I still have ETH to pay gas fees). I follow the prompts to Approve + Deposit both tokens in exchange for the KyberSwap LP.
- Lastly, I go to the Kyber Elastic Pools Farm page and click on the + button next to the wstETH/ETH LP to deposit/stake the LP to start earning KNC + LDO rewards. I’ll return here in the future to harvest my yield rewards.
That’s it! I’m earning passive yield while holding a combination of staked ETH (wstETH) and ETH while…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
