Borrow to Farm
With LSDs, there are three ways you can increase your yield:
If you borrow XAI using an LSD such as cbETH (or any token for that matter), you can earn an increased yield by leveraging our incentives (Curve/Convex/Frax Rewards).
For an example, if I borrow ETH at a 2% rate, and cbETH earns 4.6% from the ETH2 staking, you can leverage to doing the following recursively:
- Deposit cbETH (+4.6% APR)
- Borrow ETH (-2% APR)
- Swap ETH for cbETH (+4.6% APR)
- Deposit cbETH
- Borrow ETH (-2% APR)
- Swap for cbETH (+4.6% APR)
- Deposit cbETH
- Borrow ETH (-2% APR)
In the scenario above, I haven't bought or exposed myself to any extra ETH, but I am earning 7.8% instead of 4.6% on my position. (13.8% from ETH2 Staking yield minus 6% from the borrowing interest)
Keep in mind that this strategy is heavily dependent on the ETH borrow APY and should be monitored as such.
Note: There is some dilution of LTVs, but it was left flat to make the example easier to understand.
Another interesting that is better in terms of peg risk - i.e it will perform better if cbETH/wstETH/rETH de-peg - is borrowing the LSD (e.g. cbETH) to provide liquidity(LPing) in their respective Curve/Balancer pools like so.
This can be done with virtually every LSDs with incentivized liquidity and in most cases nets users greater returns, as LSD DEX incentives are relatively high while borrowing rates for LSDs are low or in some cases even 0%.
Last modified 1mo ago