Ethereum (ETH) Staking: How to Maximize Your Yields

Anything with the word “leverage” in it may sound scary – and understandably so. But leverage liquid staking provides viable ways of increasing exposure to staking rewards with minimum risk.

There are a couple of ways investors can stake with leverage, and both of them involve Lido’s ERC-20-compatible liquid token stETH. 

The first way is to deposit ETH into Lido in exchange for stETH tokens on a 1:1 basis; borrow ETH against them on Aave; and then stake the borrowed ETH.

The other way is to wrap stETH into wstETH; use it as collateral on Maker to mint DAI; then swap DAI for ETH (or any other token); and stake again.

Both of these strategies allow investors to increase their staking rewards two, five, or even ten times. However, if the borrowing interest climbs over the staking reward rates, stETH depegs from ETH, or the underlying Aave position gets undercollateralized, investors face liquidation risk.

For those that are looking for more user-friendly options, there are tokenized versions of leverage liquid staking.

1. icETH

Index Coop’s Interest Compounding ETH Index (icETH) token product offers a simple solution to leverage staking – and it does it for you. Built on Set and Aave, it offers automatic rebalancing, multiple safety mechanisms, and up to two and a half times amplified staking returns, or around 9-11% APY.

All the same risks of undercollateralization, stETH-ETH depegging, and interest rate increase still exist. However, if investors know their risk appetite and can manage the position accordingly, icETH offers an elegant way of leverage staking.

All investors need to do to get leveraged exposure to ETH staking rewards through icETH is purchase icETH tokens. icETH is also available on zkSync’s layer 2 network, which means investors can trade icETH with virtually zero gas fees (though icETH has a 0.75% streaming fee).

2. DeFi Saver

DeFi Saver is one of the more interesting DeFi products out there. Instead of issuing new tokens, the protocol offers “recipes,” various investment strategies involving interactions between multiple DeFi apps and utilizing flash loans and token swaps.

Investors can choose to use either use ready-made recipes, create their own and execute them with a click of a button, or try it first in a simulation mode. For example, here’s what a leverage ETH staking recipe looks like:

1. Take out a flash loan of 4 WETH from Balancer;

2. Wrap 2 ETH to WETH;

3. Swap 6 ETH for at least 5.97 stETH;

4. Deposit all stETH to Aave;

5. Borrow 4 WETH from Aave;

6. Pay back the 4 WETH flash loan to Balancer.

Such a recipe yields 11.17% APY. It also incurs a 0.1% service fee.

DeFi Saver also offers automatic position protection and is integrated with Optimism and Arbitrum, which significantly reduces gas costs.

All of the same risks also apply here as well. The more layers added, the bigger the risk of getting liquidated.