Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
Recently, ETH lending rates have been rising to parity with the liquid staking rate for ETH, which currently sits around 3.5% APR for the most popular form of staked ETH–stETH by Lido. This is the result of massive speculation related to the The Merge, an event marking the transition of the Ethereum network from a proof-of-work consensus to proof-of-stake, including a near 90% reduction in the daily issuance of ETH, as well as 99.5% reduction in the carbon footprint of the network.
While I’d highly recommend watching this 1-hour webinar I recently hosted with Blockworks, here’s a few tips of what NOT to do going into The Merge :
- Do NOT click unknown links in your Discord, Telegram, Twitter DMs or text messages–most are phishing links to get you to download malware
- Do NOT click Google ads for DeFi–scammers will link to cloned websites
- Do NOT Google search DeFi apps–Google may link to cloned fake websites
- Do NOT click on PDFs or Google Docs sent to your email from unknown contacts–another common way to get malware on your computer
- Do NOT fall for social media posts promising to upgrade your ETH for The Merge–there’s no upgrade needed. If you go to sleep and wake up post-Merge, Ethereum will work exactly as it does today. Do nothing!
- Do NOT under any circumstances, share your private key or seed phrase, even if someone claims to be customer support. NEVER ever do this!
One last thing to avoid going into the Merge is leverage. With the growth of stETH and ETH borrowing on DeFi money markets like Aave as well as new decentralized perpetuals like GMX, there have been countless new DeFi products advertising higher ETH yields using leverage. While I’m a proponent of letting adults do whatever they wish with their own money, what’s dangerous about times like these is that ETH borrowing rates can skyrocket overnight, due to demand. When this happens, some of the assumptions baked into leverage strategies can break, dramatically. One example was the Instadapp Lite vault for borrowing ETH against stETH, which for a time was yielding net 8-10% APY, denominated in ETH. However, when borrowing rates for ETH went up to 10% on Aave, the Instadapp Lite leverage turned into a net negative yield, as low as -20%! With this in mind, I believe most average ETH holders should not be deploying into strategies which incorporate ETH borrowing.
Instead, I want to briefly highlight 3 top strategies for passively earning yield on ETH going into the Merge, without having to use leverage. We’ve covered all of these previously! These strategies are designed for me to sit back and relax in case chaos breaks out as traders make moves to cover their positions, regardless of whether markets go up or down.
- Old faithful! Lend ETH on Aave to earn up to 3.93% APY
- LP with stETH/ETH on Curve, staked on Convex for a net 10.11% vAPR
- LP on the Hop bridge with hETH/wETH for Arbitrum at 8.24% APR or Optimism at 10.41% APR
Top 3 Passive Strategies for ETH Holders Going into The Merge
Before we get started, please be aware of these risks.
- Smart contract risk in Aave, Lido, Curve, Convex, and/or Hop protocol(s)
- Systemic risk in DeFi composability
- Pegged assets such as stablecoins or stETH can de-peg
- Front-end spoof attack on any…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
