A liquid staking leverage loop promises staking yield on more ETH than you actually own: stake ETH for stETH, deposit it as collateral, borrow ETH against it, swap the loan back into stETH, and repeat. Each loop inflates the staked ETH earning yield on your behalf.
The math is less kind: every borrowed ETH carries interest, and when the borrow rate exceeds the staking yield — as it often does — each loop subtracts from your return while multiplying liquidation risk. The scenario: 10 ETH ($30,000 at $3,000/ETH), stETH at 3.2% APY, 75% loan-to-value, borrowed ETH at 4.5% APY, three loops.
How the leverage loop works
Four actions, repeated: stake ETH for stETH, deposit stETH as collateral, borrow up to 75% of its value in ETH, swap back to stETH and re-deposit. New to the asset? Read how liquid staking tokens (LSTs) work first — the loop's collateral is only as sound as the token behind it.
Exposure after each loop
Loop 1: deposit 10 stETH, borrow 7.5 ETH, swap to stETH — 17.5 stETH staked, 7.5 ETH debt. Loop 2: borrow 5.625 ETH — 23.125 stETH staked, 13.125 ETH debt. Loop 3: borrow 4.21875 ETH — about 27.34 stETH earning yield against about 17.34 ETH of debt.
The net APY math
Gross yield is the staking APY on total exposure; cost is the borrow APY on total debt. Net profit in ETH is gross yield minus borrow cost; net APY is that profit divided by your original 10 ETH.
At 3.2% on 27.34 stETH, gross yield is 0.875 ETH per year; at 4.5% on 17.34 borrowed ETH, the cost is 0.780 ETH. Net: 0.095 ETH — 0.95% APY on your 10 ETH, versus 0.32 ETH (3.2%) from plain staking with no debt and no liquidation risk. Since the borrow rate exceeds the staking yield, every borrowed ETH loses 1.3 percentage points, so each loop drags net APY lower. The loop only adds yield when staking APY beats borrow APY — and even then the margin is razor-thin.
| Loops | Staked exposure (stETH) | Gross yield / yr | Total debt (ETH) | Borrow cost / yr | Net APY on 10 ETH |
|---|---|---|---|---|---|
| 1 | 17.50 | 0.560 ETH | 7.50 | 0.338 ETH | 2.23% |
| 2 | 23.13 | 0.740 ETH | 13.13 | 0.591 ETH | 1.49% |
| 3 | 27.34 | 0.875 ETH | 17.34 | 0.780 ETH | 0.95% |
Key takeaway: With a 3.2% staking yield and a 4.5% borrow rate, each looped ETH loses 1.3 percentage points — three loops drag net APY from 3.2% down to roughly 0.95%.
The liquidation math: what a 5% depeg does
Your loan-to-value ratio is debt divided by collateral, both in ETH terms. After three loops the blended LTV is 17.34 / 27.34 = 63.4%, and lending markets typically start liquidating near 80% LTV. Comfortable — until stETH slips below its peg.
If stETH trades at a 5% discount, collateral falls to 25.97 ETH while debt stays at 17.34 ETH, and blended LTV jumps to 66.8%. Survivable — unless you borrowed up to the ~80% liquidation threshold, as most loopers do. Then a 5% depeg pushes LTV straight past the line. See our guide on how depegs affect your real return.
Liquidation is not quiet: liquidators sell stETH into a market already discounting it, deepening the discount and pushing the next looper's LTV over the line. That cascade is why a modest 5% depeg hurts leveraged positions far more than the headline number suggests.
Key takeaway: Looped near the liquidation threshold, a 5% stETH depeg can push your LTV past 80% and trigger forced selling into a falling market — leverage multiplies liquidation risk, not just yield.
Three risks the yield calculation hides
Smart-contract risk stacks
A plain staker trusts one protocol: Lido. A three-loop position trusts four or more — Lido, the lending market, the DEX, and the price oracle. A bug, exploit, or oracle failure in any one can unwind the whole loop at the worst moment.
Borrow rates are variable
The 4.5% borrow APY is today's rate. In volatile markets lenders withdraw, utilization spikes, and variable rates can jump into double digits within hours. Track live stETH pricing and liquidity on CoinGecko before committing.
The exit can disappear
In a depeg, stETH/ETH liquidity thins exactly when leveraged holders need to unwind. Exiting costs slippage on top of the discount — and the bigger your loop, the more expensive your escape.
The 2022 stETH depeg, briefly
In June 2022, as Celsius unwound leveraged positions, stETH traded roughly 5-7% below ETH for weeks, and leveraged loopers were liquidated into the fall — forced sales deepened the discount, which liquidated the next tier. The cascade already happened.
Conclusion
Leverage looping is arithmetic, not magic: net APY = (exposure x staking APY minus debt x borrow APY) / original capital. It only pays when staking yield beats the borrow rate — and the thin gain barely compensates for liquidation risk, rate spikes, and stacked smart-contract exposure. Size for the depeg, not the average day.
Before you loop anything, model your baseline: the free staking calculator at cryptostakingcalculator.tools shows what plain staking would earn on your ETH — subtract the borrow cost and decide whether the extra risk buys you any extra yield.
Disclaimer: This article is for educational purposes only and is not financial advice. Staking, lending, and leveraged strategies carry real risk of loss, including liquidation and smart-contract failure. Always do your own research (DYOR).
