What Is Looping in DeFi? Leveraged Yield Loops Explained

Looping in DeFi is a way to lever up a yield: you supply an asset as collateral on a lending market, borrow against it, turn the borrowed funds back into more of the same collateral, and supply that too, repeating until you reach the leverage you want. The result is that you earn the collateral's yield on several times your own money, while paying interest only on the borrowed part.

That is why looping is also called recursive lending or leverage looping. It works when the asset you hold earns more than the asset you borrow costs, and it stops working, quickly, when that gap closes or the collateral slips against the debt.

What is looping in DeFi?

A loop has three ingredients: a yield-bearing collateral asset, a lending market that accepts it, and a borrowable asset that can be converted back into the collateral cheaply. The classic sequence is:

1. Supply the yield-bearing asset as collateral.
2. Borrow a closely related asset against it, up to the market's loan-to-value (LTV) limit.
3. Convert the borrowed asset into more collateral (stake it, mint it, or swap for it).
4. Re-supply the new collateral and repeat.

An early, well-documented example is the stETH loop on Aave: users staked ETH with Lido for stETH, deposited the stETH on Aave, borrowed ETH, staked that ETH for more stETH, and repeated. An academic study of the strategy calls it "leverage staking" and describes exactly those steps (Xiong et al., 2023).

The key word is closely related. Loops are almost always built on pairs that should hold a stable price relationship: a liquid staking token against its base coin, a yield-bearing stablecoin against a plain stablecoin, or a fixed-maturity token against the asset it pays out in. You are betting that the yield spread stays positive and the pair's price relationship holds, not on price direction. If you want the general concept of leverage first, read leverage in crypto.

The maths: how much leverage a loop can reach

Suppose you start with 1 unit of equity and the market lets you borrow a fraction v of your collateral's value (the LTV). Each round, you borrow v times what you just supplied and re-supply it. Your total collateral after infinite rounds is a geometric series:

Total collateral = 1 + v + v² + v³ + … = 1 ÷ (1 − v)

So the maximum leverage of a loop is 1 ÷ (1 − LTV), and your debt at that point is that figure minus 1. A few reference points:

• LTV 50% gives a maximum of 2x.
• LTV 75% gives 4x.
• LTV 77.5% gives about 4.44x.
• LTV 80% gives 5x.
• LTV 90% gives 10x.

The series converges slowly. With $1,000 and a 75% LTV, round one adds $750, round two $562.50, round three $421.88. After three rounds you hold about $2,734 of collateral, or 2.73x, still well short of the 4x ceiling. That is the practical reason manual looping fell out of fashion: every round costs a transaction, a swap and some slippage, and the last few rounds add very little.

At max LTV, a tiny move puts you over the liquidation line, so loopers target a step below the ceiling. More on LTV in crypto loan LTV explained.

Where do those high LTVs come from? Lending markets give correlated pairs special treatment. Aave's "Efficiency Mode" (E-Mode) gives a higher LTV when you supply and borrow assets in the same category, such as USD-pegged stablecoins, according to Aave's v3 documentation. For example, risk manager LlamaRisk's recommended parameters for the August 2026 PT-sUSDe market on Aave V3 Core included an E-Mode with a 92% LTV and a 94% liquidation threshold when borrowing USDe only (Aave governance, June 2026). A 92% LTV allows up to 12.5x.

Net APY of a loop: the formula and a worked table

Once you know the leverage L (total collateral divided by your own equity), the return on your equity is simple to estimate:

Net APY ≈ (collateral yield × L) − (borrow rate × (L − 1)) − fees

You earn the collateral yield on L units and pay borrow interest on L − 1 units. Fees include performance fees, swap costs and any flash-loan premium, spread over your holding period. Treat reward tokens or points as a bonus, not the base case.

Here is a worked example with round, made-up rates: the collateral earns 8% a year, and borrowing costs 6% (column three) or jumps to 10% (column four). Fees are ignored to keep the arithmetic visible.

Three things fall out of the table.

• Leverage multiplies the spread, not the yield. Each extra turn of leverage adds the spread (8% − 6% = 2 points), not the full 8%.
• The breakeven borrow rate falls as leverage rises. The formula is yield × L ÷ (L − 1). At 2x you can tolerate borrow costs up to 16%; at 8x anything above about 9.1% loses money.
• A rate spike flips high leverage first. When borrowing moves from 6% to 10%, the unlevered holder still earns 8%, the 3x looper earns 4%, and the 8x looper loses 6% a year.

Entry and exit costs matter more than they look, because they scale with leverage too. If building and unwinding the position each cost 0.3% of the notional you trade, a 5x loop pays roughly 1.5% of your equity on the way in and another 1.5% on the way out. At a 16% net APY that is more than two months of earnings. Short holding periods rarely justify high-leverage loops. For more on how quoted rates compound, see APY vs APR.

How much can go wrong before liquidation

A loop is liquidated when its debt divided by the (oracle-priced) collateral value rises above the market's liquidation threshold. There are two ways to get there: the collateral is marked down against the debt, or the debt grows faster than the collateral.

Collateral markdown

If you sit at a current LTV of v and the liquidation threshold is T, the collateral can fall by this much relative to the debt before liquidation starts:

Maximum drawdown before liquidation = 1 − (v ÷ T)

• LTV 50%, threshold 80%: the collateral can fall 37.5% against the debt.
• LTV 77.5%, threshold 80%: only about 3.1%.
• LTV 90%, threshold 92%: about 2.2%.

And the hit to your equity arrives well before liquidation. A markdown of d costs roughly L × d of your equity. At 4.5x, a 3% markdown already wipes out around 13.5% of what you put in, even if no liquidator ever touches the position. That is why loops are reserved for pairs where a few percent of deviation is genuinely unusual.

Interest drift

Even with no price move, debt accrues interest every block. If the lender's oracle values your collateral at a fixed price (rather than including its accrued yield), the LTV creeps up by roughly the borrow rate each year. A position at 77.5% LTV against an 80% threshold needs its debt to grow about 3.2% to reach liquidation; at an 8% borrow rate that takes around five months if nobody rebalances. Automated vaults handle this with a keeper; manual loopers have to watch it themselves, ideally through the health factor.

What liquidation costs

Liquidation is partial on most markets, but it is not free. On Suilend, for example, third-party liquidators repay 20% of an eligible account's loans by selling the equivalent collateral and collect an extra 5% bonus on that amount, according to Suilend's liquidation docs. At high leverage that bonus comes out of a thin equity slice. Mechanics across protocols are compared in DeFi loan liquidations explained.

Common types of DeFi loops

Liquid staking token (LST) loops

Supply an LST, borrow the base coin, stake it into more LST. The yield is staking rewards; the cost is the base coin's borrow rate. The stETH/ETH loop on Aave is the best-known example. On Sui, Suilend's one-click Strategies include an sSUI/SUI loop whose yield sources are sSUI staking yield plus sSUI rewards for depositing sSUI and borrowing SUI, per Suilend's Strategies FAQ. The same page notes that oracle risk does not apply to its SpringSui LST/SUI loops because the SUI price feed is used for both sides. Background on the tokens themselves: Sui liquid staking compared.

Stablecoin and yield-bearing stablecoin loops

Supply a yield-bearing dollar token, borrow a plain stablecoin, buy more of the yield-bearing token. The yield comes from whatever the token's issuer does (lending, basis trades, treasury bills), and the cost is the stablecoin borrow rate. sUSDe loops against USDe or USDC on Aave are the large-scale example; see what is USDe for where that yield comes from. On Sui, Ember's eEARN looped against USDC on Suilend is one such loop (more below). These loops are usually labelled "stablecoin looping", but the collateral is not a plain stablecoin, so check how its value can fall. Yield-generating stablecoins explained covers the token side.

Fixed-rate (Pendle PT) loops

Pendle principal tokens (PTs) trade at a discount and redeem at full value on a set maturity date, so they carry a fixed yield. Loopers supply PTs and borrow stablecoins to buy more. Aave has onboarded several PT-sUSDe and PT-USDe expiries with dedicated E-Mode categories, as the governance thread above shows. The PT's market price can still move before maturity, and each loop must be rolled or closed at expiry.

Points and rewards loops

Some loops exist mainly to multiply a points programme or token incentives, since many programmes reward deposits or borrows by size. Contango's docs list "farm rewards, airdrops, and points with leverage" as a use case (Contango docs). Read the rules first: some lenders explicitly exclude loops. Suilend, for instance, defines looping as depositing and borrowing the same non-stablecoin asset or the same or different stablecoins, and says looping accounts stop receiving rewards until the loop is unwound (Suilend docs).

Manual loops vs one-shot flash-loan loops

A flash loan is a loan with no collateral that must be repaid within the same transaction. If it is not repaid, the whole transaction reverts as if it never happened. Aave describes flash loans this way and sets the fee at deployment to 0.05%, adjustable by governance (Aave flash loan docs).

Flash loans turn a many-round loop into a single step. To build a 4x position from $1,000:

1. Flash-borrow $3,000 of the debt asset.
2. Convert your $1,000 plus the $3,000 into $4,000 of collateral.
3. Supply the $4,000 as collateral.
4. Borrow $3,000 against it on the lending market (a 75% LTV).
5. Repay the flash loan plus its fee ($1.50 at 0.05%).

Unwinding works in reverse: flash-borrow enough to repay the debt, withdraw the collateral, convert it back, repay the flash loan. Interfaces such as DeFi Saver offer this one-transaction flow for PT positions on Aave (DeFi Saver help).

The flash-loan version hits the exact target LTV and pays swap costs once, but the whole conversion happens in one swap, so price impact on a thin market can be large. The manual version spreads swaps out but pays more in fees and leaves you exposed between rounds.

Automated loop vaults

An automated loop vault pools deposits, runs the loop for everyone, and gives you a token representing your share. You no longer manage a health factor; the vault's contract and its operator (often called a keeper) do. Examples:

• Contango says it "lets you loop anything on-chain" and that all its positions are built by automating a looping strategy on spot and money markets (Contango docs).
• Kamino Multiply is a one-click leveraged-yield product built on the same supply-borrow-swap loop.
• Suilend Strategies on Sui lets you deploy, adjust leverage on, and withdraw from preset loops such as sSUI/SUI from one interface (Suilend docs).
• Ember Loop on Sui is JewelSwap's own beta vault that loops Ember's eEARN against USDC on Suilend; see below.

Vaults remove the busywork but add layers: the vault's own contract, its keeper, its admin keys and its fees all sit on top of the lender and the collateral token. They also decide when you can leave. Some offer instant exits funded from a buffer; others queue withdrawals while they unwind. For how vaults work in general, see crypto vaults explained.

The risks of leverage looping, with real incidents

Correlated depeg

Loops assume the collateral tracks the debt asset. When it does not, leverage amplifies the gap. In May 2022 Lido warned that holders of leveraged stETH positions "might be at risk of liquidation" as stETH slipped against ETH (Decrypt, 13 May 2022). By 14 June 2022 stETH was trading at almost a 7% discount to ETH (The Block). On-chain analysis later found that Three Arrows Capital had used stETH as collateral on Aave and sold stETH at the peak of the depeg (CryptoSlate, summarising Nansen). More on how pegs break: stablecoin depegs explained.

Borrow-rate spikes and utilisation

Lending rates jump when a pool's utilisation crosses its kink, and loops are the first casualties. In July 2025 Aave's WETH borrow rate rose from about 2% to 18% within a week, which made stETH leverage loops unprofitable; the resulting unwinds imbalanced the ETH/stETH pool and pushed stETH off its peg, according to Glassnode as reported by ForkLog, 25 July 2025. That is the table above playing out live: when the borrow rate passes the breakeven, every looper wants out at once. See utilisation rate in DeFi for how the rate curve works.

Oracle mispricing, in both directions

The price your lender uses decides when you are liquidated, not the price on any single exchange. On 10 October 2025, USDe briefly fell to $0.65 on Binance's spot market while holding close to $1 on Curve and other on-chain venues (21Shares). 21Shares notes that Aave treats USDe conservatively as collateral, so the exchange-specific crash did not set off a chain of on-chain liquidations. The flip side: an oracle that ignores a real, lasting markdown keeps you un-liquidated but leaves your equity quietly eroding. See what is a price oracle.

Unwinding costs and exit liquidity

To exit a 5x loop you sell five times your equity in collateral. If the collateral's market is thin, price impact eats into what you get back, and in a stampede everyone is selling the same thing.

Smart-contract stacking

A typical loop depends on the collateral token's contracts, the lender, the oracle, the DEX used for swaps, possibly a flash-loan provider, and, in a vault, the vault itself. A bug or admin-key compromise in any layer can cause losses. Leverage does not change that probability, but it multiplies the size of the hit relative to your deposit.

How to evaluate a loop: a checklist

1. Where does the collateral yield come from? Staking rewards, lending, basis trades, incentives? Could it fall to zero or turn negative?
2. What is the breakeven borrow rate? Compute yield × L ÷ (L − 1) and compare it with the borrow rate's range over the last few months, not just today.
3. How is the collateral priced by the lender? Market price, redemption rate, or fixed? What happens to your position under each kind of stress?
4. How far is liquidation? Compute 1 − LTV ÷ threshold. Know the liquidation penalty and whether liquidation is partial.
5. How deep is the exit market? Check the price impact of selling your full collateral, not your equity.
6. What are the total fees? Entry, exit, performance, flash-loan, swap. Divide by your expected holding period.
7. Are rewards or points actually paid on loops? Some lenders exclude them.
8. Who can change the rules? Admin keys, timelocks, fee ceilings, pause powers, upgrade rights.
9. Has every layer been audited? Not just the lender. How to check a DeFi protocol is safe walks through this. If you could not stand to lose the whole deposit, use lower leverage or skip the loop.

Where JewelSwap fits: Ember Loop on Sui

JewelSwap Labs runs Ember Loop (jeLOOP), an automated stablecoin loop on Sui in public beta since 11 October 2026. It is unaudited: only deposit amounts you can afford to lose. According to the Ember Loop docs:

• You deposit USDC and receive jeLOOP, a share of one pooled position.
• The vault buys Ember's yield-bearing eEARN, supplies it as collateral on Suilend, borrows USDC and buys more eEARN, using a flash loan rather than many rounds. It targets about 4.5x leverage (about 77.5% LTV), with an on-chain maximum of 78% per lender.
• A keeper runs every 10 minutes to lever new deposits, rebalance and fund withdrawals.
• Withdrawals are queued tickets, usually paid within 10 to 30 minutes; there is no instant exit.
• Fees are 0.45% on entry, 1% on withdrawal and 10% of gains above a high-water mark, with hard contract ceilings of 1%, 1% and 20%.
• Admin and upgrade rights sit with JewelSwap's 3-of-5 multisig. A guardian key can pause the vault or switch on de-risk mode, and new leverage pauses automatically if Ember's on-chain rate shows eEARN being marked down.

It is a clear example of the oracle point above: Suilend values eEARN at $1 via the USDC price feed, so an eEARN markdown hits jeLOOP's price without, by itself, pushing the loan toward liquidation, while interest accrual on the debt does. The docs show the net-yield formula and an illustrative rates table; the Ember Loop app shows live estimates rather than a fixed APY. The full walkthrough is in Ember Loop: leveraged stablecoin yield on Sui, with background on Ember and how to use Suilend.

Frequently asked questions

What does looping mean in crypto?

Looping means supplying an asset as collateral, borrowing against it, converting the borrowed funds into more collateral and supplying that again, repeated until you reach a target leverage. It multiplies the collateral's yield on your capital, minus borrow interest on the borrowed part.

How do you calculate the maximum leverage of a loop?

Maximum leverage is 1 ÷ (1 − LTV), the sum of the geometric series 1 + LTV + LTV² + …. A 75% LTV allows 4x and a 90% LTV allows 10x. In practice you stay below the maximum to keep a buffer before liquidation.

How do you calculate the net APY of a looped position?

Net APY ≈ collateral yield × leverage − borrow rate × (leverage − 1) − fees. With an 8% yield, a 6% borrow rate and 5x leverage, that is 40% − 24% = 16% before fees. If the borrow rate rises to 10%, the same position earns 0%.

Is stablecoin looping risk-free because both sides are dollars?

No. The collateral in a stablecoin loop is usually a yield-bearing token whose value depends on its issuer's strategy, so it can be marked down or depeg. Borrow rates can rise above the collateral yield, and unwinding at high leverage means selling several times your deposit. Smart-contract risk applies to every layer.

What is a flash loan and why do loopers use it?

A flash loan is an uncollateralised loan that must be repaid in the same transaction or the whole transaction reverts. Loopers use one to borrow the full debt amount upfront, buy all the collateral at once, supply it, borrow against it and repay the flash loan, building or unwinding the loop in a single transaction.

Do automated loop vaults remove liquidation risk?

No. A vault's keeper can rebalance before the position gets close to liquidation, which lowers the risk, but a sharp collateral markdown, an oracle issue, a keeper outage or a contract bug can still cause losses. You also take on the vault's own contract, admin and fee risk.

Keep reading

• Ember Loop: leveraged stablecoin yield on Sui
• Health factor in DeFi lending
• Beginner's guide to leveraged yield farming
• Delta-neutral yield farming
• Sui lending protocols compared

This article is for educational purposes only and is not financial advice. Leveraged positions can lose more value than unlevered ones and can be liquidated. Rates in the worked examples are illustrative, not forecasts. Protocol parameters and Ember Loop details are as of 12 October 2026, per the linked Aave, Suilend, Contango and JewelSwap documentation; Ember Loop is an unaudited beta.