Leveraged Yield Strategy

Concept

Leverage Yield Strategy is a specific approach within yield-boosting framework. It involves borrowing additional funds against collateralized assets to reinvest in yield-generating activities. The mechanics of leverage yield involve using borrowed assets as collateral to secure additional loans, which are subsequently reinvested into yield-generating protocols. By repeating this loop, users can amplify their exposure and returns. While the strategy promises heightened rewards, it comes with increased risks, including liquidation due to market volatility and fluctuating borrowing costs.

Examples

1. Looping with Liquid Staking Tokens (LSTs):

   A user deposits liquid staking tokens (e.g., tsTON or stTON) as collateral to borrow additional assets. The borrowed assets are reinvested to acquire more liquid staking tokens, which are then looped back as collateral. This creates a cycle of compounding returns from staking rewards while increasing the overall exposure to staking yields.

2. Using DEX LP Tokens:

   A user provides liquidity on a decentralized exchange (DEX), receiving LP tokens in return. These LP tokens, representing the user’s share in the liquidity pool, are used as collateral to borrow additional assets. The borrowed assets are then deployed back into the pool or other yield-generating strategies, amplifying the user's returns through compounding.

Detailed process of these examples are as followed.