What Is Looping
Looping is a DeFi strategy where you borrow against your assets (collateral), then redeposit what you’ve borrwed to borrow more on repeat. When looping goal is to increase your deposits and earn more interest that SHOULD be able to cover for the borrowing interest while leaving you with extra profits. Think about it as using the debt to earn more since the interests on deposits (your collateral) is higher than the interest you’ll pay for borrowing the other asset. There are many reasons why you would loop including: The main goal of looping is to increase your deposit size, so you can: Earn more interest (from lending protocols). Collect more staking rewards (if using LSTs). Farm Protocol Incentives. Leverage your exposure to price upside. The trick is that the extra yield you earn on these bigger deposits should be higher than the cost of borrowing. That’s what leaves you with profit.How to Loop
First you need to understand the risk associated with lending. You can get liquidated due to price changes if you don’t pay your debt. So what if you could use assets with same or similar price movements to eliminate that? Yes you can. Imagine you looped with stablecoins since their prices are stable. Because stablecoins (like USDC, USDT) are pegged to $1, they don’t swing wildly. This means way less chance of unexpected liquidations due to price crashes. Another great option: Liquid Staked Tokens (like stETH, SUI). These tokens track the price of their underlying assets (SUI) while letting you keep earning staking rewards. It’s like holding ETH and getting dividends at the same time. Great! Now that you understand what assets to loop, how do you do it ?Visit a Lending Protocol
First, you’ll need to visit a lending protocol. You want to check for a lending protocol that offers high interests on deposits on the asset and will allow you to loopDeposit Some Collateral
Deposit some collateral on the protocol with the asset so that you can start earning interest and you can borrowBorrow Against It
Once your deposit is in, borrow a portion of its value. Most protocols let you borrow around 60–75% of your collateral’s value (called Loan-to-Value, or LTV).Deposit Again
Take the borrowed asset and redeposit it as additional collateral. This bumps up your total deposits, which bumps up your total potential yield. You’ll also be able to borrow more.Repeat the Process
Borrow again against the new, bigger collateral pile. Redeploy. Borrow again. Repeat until you reach a level you’re comfortable with.Risks Associated With Looping
Looping isn’t free money. It’s very exciting but you need to watch your back. Here’s what you need to watch closely:Liquidation Risk
If your collateral value drops too much, or your borrowed amount creeps too high, the protocol will liquidate your assets automatically to repay your debt. This means your precious tokens get force-sold, often at a discount, and you’re left holding the bag. This risk is higher if:- You loop aggressively (borrow close to your maximum limit).
- Your collateral is volatile (like ETH or LSTs instead of stablecoins).
Interest Rate Risk
When you borrow in DeFi, you don’t lock in a fixed rate like you might with a traditional loan. Borrow rates can fluctuate depending on market demand. If too many people start borrowing the same asset, rates can spike. If your borrow interest rate becomes higher than your deposit yield, you might end up paying more than you earn.Pricing Errors & Volatility (Especially for LSTs)
LSTs and stablecoins can de-peg or trade at discounts during market stress or high volatility. If that happens:- Your collateral value may suddenly drop.
- Your loop can quickly move into liquidation danger zone.