Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
Last week, we covered an up-and-coming LST-fi protocol called Gravita, which allows users to borrow interest-free against staked ETH collateral, with a 0.5% upfront minting fee. This week, I’ll cover another rapidly growing LST-fi project that has attracted an enormous amount of capital ($182M TVL) called Lybra Finance.
Lybra is designed to establish a new interest-bearing stablecoin that is secure and fully decentralized to function “as a genuine crypto bank account for its holders, independent of any government or authority.” Lybra will attempt to do this using LST yields (ie stETH) to pay interest proportionally to eUSD holders, which results in its borrowers not only borrowing interest-free but also getting paid to open a loan. Here’s how the protocol design works below:
- Users deposit ETH or stETH and the protocol mints eUSD, with a collateral factor of 170%, meaning 58% LTV on loans. Please not there’s an inconsistency in the copy on the website and in Lybra docs whether max collateral factor is 150% or 160% or 170% so I’m being extra cautious and quoting the highest CF to be safe.
- Lybra protocol then stakes any deposited ETH into LST protocols such as Lido, which then earns staking yield for the protocol and its users.
- Lybra Protocol automatically converts any ETH deposits to stETH. The protocol treats 1 ETH as 1 stETH.
- Lybra exchanges the staking revenue generated by stETH into eUSD and airdrops it proportionally to eUSD holders, allowing users to make more the longer they borrow.
Lybra also has a live governance token LYBRA, with a fully diluted valuation of $243M and 100M supply as of this writing. Lybra DAO is managed by those who hold its governance token, LBR. LBR utility includes staking, governance, mint, and liquidators rewards.
LBR voting weight is proportional to the amount of LBR a voter stakes in the voting contract. In other words, the more LBR tokens locked in the contract, the greater the voter’s decision-making power. Those who stake LBR for esLBR share in protocol revenue, which is currently paying about 51.39% APR, thanks to 1.5% of stETH yield being distributed to esLBR holders.
Today, I’ll demonstrate how I can earn 59.8% APR in eUSD interest + esLBR rewards by minting/borrowing eUSD against stETH.
How to Earn 59% APR with Borrowed eUSD on Lybra Finance
Before we get started, please be aware of these risks.
- Smart contract risk in Lybra Finance and Lido Finance
- I could be liquidated if I don’t maintain my LTV (loan-to-value ratio)
- Systemic risk in DeFi composability
- Stablecoins like eUSD are capable of de-pegging, especially new ones
- Front-end spoof attack on the Lybra app
- Lybra is newly launched and hence it will take time for centralized attack vectors to be minimized or eliminated. Assume there are centralized risks!
- An economic design exploit yet to be discovered in the Lybra protocol
- An admin key or colluding group of signers on a multisig
Here’s how I get started!
- First, in order to earn the quoted 59% APR with eUSD on the Earn tab on Lybra Finance, I need to deposit stETH and borrow eUSD. The moderators in the Lybra Discord kindly verified this for me (see below).
- Let’s assume I already hold…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
