Looping recycles borrowed assets back into the same collateral to amplify a spread. The same mechanic powers a stablecoin carry, an ETH staking play, a Pendle fixed-rate position and a leveraged BTC bet — each with a different risk shape. Here is how each one works, the numbers behind it, and where it breaks.
The mechanic
How looping works
You supply a yield-bearing asset as collateral, borrow against it, and use the borrowed funds to buy more of the same collateral — repeating until you hit your target loan-to-value. Each loop adds exposure: a $10,000 deposit at 90% LTV can hold roughly $100,000 of collateral. The position nets out positive only while the collateral yield clears the cost of the debt; leverage then multiplies that thin spread into a meaningful return on your equity.
Net APR on equity
(yield − LTV × borrow) / (1 − LTV)
Leverage
1 / (1 − LTV)
The same factor that magnifies returns magnifies losses. Watch your health factor — if collateral falls or debt grows enough to breach it, the position is liquidated and you eat the penalty.
The four loops
Strategies
Numbers below are illustrative — not live rates.
Carry · stable
Stablecoin loop
Supply a yield-bearing stable like sUSDe or a PT-stable as collateral, borrow USDC on Aave or Morpho, and loop back into more collateral. The collateral yield sits above the USDC borrow rate, so the spread is positive on every loop — high LTV between two dollar-pegged assets lets you stack leverage with little price risk between the legs.
Yield
~9%
Borrow
~5.5%
LTV
90%
Illustrative, not live.
Key risks
Stablecoin depeg (the collateral leg drops below $1) and borrow-rate spikes that invert the carry at high LTV.
Supply a liquid staking token like wstETH or weETH as collateral and borrow plain ETH on Aave, looping back into more LST. You earn the staking yield on the full looped balance while paying the lower ETH borrow rate. The spread is thin — only leverage makes it worthwhile — and because both legs are ETH-denominated, price moves cancel out.
Yield
~3.2%
Borrow
~2.6%
LTV
90%
Illustrative, not live.
Key risks
LST/ETH ratio depeg (a discount on the staking token), and staking- or borrow-rate moves compressing an already thin spread.
Supply a Pendle principal token — PT-sUSDe or another PT-stable — as collateral on Morpho and borrow USDC against it. A PT locks in a fixed yield to maturity, so looping it turns a known fixed rate into a leveraged fixed carry: the implied yield comfortably clears the borrow cost over the term.
Yield
~12%
Borrow
~6%
LTV
85%
Illustrative, not live.
Key risks
A PT only realises its fixed yield if held to maturity; before then its price moves with rates, and a sharp move can drag the position toward its liquidation LTV.
Supply cbBTC or WBTC as collateral and borrow a stablecoin to buy more BTC, looping for leveraged spot exposure. BTC collateral pays roughly no yield, so this is a negative-carry, leveraged directional bet — not a yield play. You pay borrow interest every day; the upside is price appreciation, and the trade only wins if BTC rises faster than the carry bleeds.
Yield
~0%
Borrow
~5.5%
LTV
75%
Illustrative, not live.
Key risks
Negative carry compounds while you hold; a BTC drawdown both shrinks collateral and pushes you toward liquidation, where leverage forces the loss.
Leverage cuts both ways. Before you size a position, understand what can go wrong:
—Liquidation cascades. A small adverse move at high LTV breaches your health factor; forced selling can deepen the move and take the whole position with it.
—Borrow-rate spikes. Utilisation-driven rates can jump above your collateral yield and invert the carry, turning a paying position into a bleeding one.
—Depeg. A stablecoin or LST trading off its peg shrinks collateral value against the debt and can trigger liquidation even with no market-wide move.
—Smart-contract risk. Every loop stacks more exposure across lending markets, oracles and wrapped assets — more surface area for an exploit or oracle failure.
—More loops ≠ better. Once borrow exceeds yield, each additional loop adds negative carry and tightens your liquidation buffer for nothing. Past the point where the spread is positive, leverage only adds risk.
