DeFi Alpha: Looping Staked ETH with Metronome Smart Farming

Featured Yields: Up to 106% APR on Stablecoins, 87% APR on ETH

DeFi Alpha is a weekly newsletter published for our premium subscribers every Friday, contributed by Defiant Advisor and DeFi investor at 4RC, DeFi Dad, and our Degen in Chief yyctrader.

It aims to educate traders, investors, and newcomers about investment opportunities in decentralized finance, as well as provide primers and guides about its emerging platforms. It is meant to be highly actionable and shareable.

Any information covered in DeFi Alpha should not form the basis for making investment decisions nor be construed as a recommendation or advice to engage in investment transactions. Any mention of a token or protocol should not be considered a recommendation or endorsement.

Latest Developments

Before we get started, here are the top headline-grabbing events from this week that every savvy DeFi investor ought to keep on their radar.

Yield Alpha

Each week we will provide options to earn yield on ETH, WBTC, stablecoins, and other major tokens.

ETH: Up to 86.7% APR looping ETH 4X on Radiant Capital on Arbitrum
- This yield is accrued in ETH borrowing interest and mostly RDNT rewards.
- To participate, it requires a leveraged ETH/ETH position with 5% of the value of the looped position in the 80/20 RDNT/ETH Balancer LP.
- The RDNT LP must be staked for 12 months to achieve 86.7%.
- One must deposit ETH into Radiant here and loop 4X here + zap into an LP staked for 1-12 months (1 month = 4% net APR vs 12 months = 81.6% net APR).
- Caution: This is a leveraged ETH position that could get liquidated if borrowers do not maintain a health factor > 1. This is higher risk than lending or staking.
WBTC: Up to 49.6% APR looping WBTC 4X on Radiant Capital on Arbitrum
- This yield is accrued in WBTC borrowing interest and mostly RDNT rewards.
- To participate, it requires a leveraged WBTC/WBTC position with 5% of the value of the looped position in the 80/20 RDNT/ETH Balancer LP.
- The RDNT LP must be staked for 12 months to achieve 49.6%.
- One must deposit WBTC into Radiant here and loop 4X here + zap into an LP staked for 1-12 months.
- Caution: This is a leveraged WBTC position that could get liquidated if borrowers do not maintain a health factor > 1. This is higher risk than lending or staking.
MATIC: 13.4% APY with a MaticX/MATIC leveraged staking position in Cian
- The yield is backed by validator rewards using MaticX as collateral, and looping borrowed MATIC against the MaticX.
- To participate on Polygon, one can follow the prompts to deposit into the MATICX/MATIC Leveraged Staking strategy here on Cian.
ATOM: 20.75% APR staking ATOM with Keplr Wallet on Cosmos Hub
- The yield earned is issued in ATOM.
- To participate, one must set up a Keplr Wallet, go to the Cosmos Hub validators on Keplr Dashboard, rank by APR, choose a validator, and click Delegate.
- Then, I specify how many ATOMs and follow the prompts to Delegate.
BNB: 17% APY with the BNB/BNBx Wombat LP
- This yield is issued in BNB staking yield, WOM, and trading fees.
- On BSC, one can deposit BNB for BNBx here on Stader.
- Then, one can deposit BNBx here on Wombat’s single-sided deposit and opt to DEPOSIT & STAKE.
AVAX: 39.35% APY with sAVAX/AVAX leveraged staking position in Cian
- The yield is backed by validator rewards using sAVAX as collateral, and looping borrowed AVAX with Aave.
- To participate on Avalanche, one can follow the prompts to deposit into the sAVAX/AVAX Folding – Aave strategy here on Cian.
SOL: 6.77% APY staking SOL with stSOL by Lido
- This is backed by SOL staking yield.
- To participate, one must deposit SOL here or buy it on a Solana DEX.
FTM: 6.2% APR staking FTM via a Beefy Finance vault
- The yield is issued in FTM rewards.
- To participate, one must deposit FTM here on Beefy.
Stablecoins: Up to 106% APR looping DAI 4X on Radiant Capital on Arbitrum
- This yield is accrued in DAI borrowing interest and mostly RDNT rewards.
- To participate, it requires a leveraged DAI/DAI position with 5% of the value of the looped position in the 80/20 RDNT/ETH Balancer LP.
- The RDNT LP must be staked for 12 months to achieve 106% APR.
- One must deposit DAI into Radiant here and loop 4X here + zap into an LP staked for 1-12 months.
- Caution: This is a leveraged DAI position that could get liquidated if borrowers do not maintain a health factor > 1. This is higher risk than lending or staking.

Please be aware we do not always report the highest yield rates because some high yields may be less sustainable due to high inflation token rewards or fewer LPs participating.

Tutorial

Earn Up to 19.5% APY Looping Staked ETH with Metronome Smart Farming

Launched in January 2023, Metronome is a new DeFi multi-collateral and multi-synthetic protocol backed by reputable long-term builders in the space.

With Metronome, users can deposit collateral in the form of stablecoins such as FRAX, or more productive assets earning yield in Vesper Finance such as rETH, stETH, or cbETH. These collaterals are used to mint popular crypto synthetics, including msUSD, msBTC, and msETH, which can be used in slippage-free trading or yield farming.

Metronome protocol is new, but the team behind the protocol is not! They are a team of OG DeFi builders. Being a sister protocol to Vesper, most of the Metronome team has deep roots building in crypto as early as 2015, with expertise specifically building in DeFi since the last crypto bear market between 2018-2020. Since 2020, Vesper Finance has been known for its easy-to-use DeFi vaults, which compete with automated strategy protocols such as Yearn. Vesper’s Grow Pools allow anyone to passively earn by depositing single tokens, which are then routed through DeFi’s leading yield sources.

With Metronome, users can deposit the premier collateral tokens such as ETH, WBTC, DAI, USDC, FRAX, and sfrxETH as well as more productive collateral tokens representing those deposits passively earning these respective yields in Vesper Grow Pools:

vaRETH – 11.73% APY

vaCBETH – 8.48% APY

vaSTETH – 5.76% APY

vaUSDC – 7.71% APY

vaFRAX – 9% APY

Metronome allows depositors to supply these different collaterals and then mint synthetic assets for a 1% flat annualized interest fee charged per block.

Depending on the collaterals deposited, there are different LTVs (loan-to-value ratios) set by the protocol here. It is a very familiar setup to what a DeFi pro might use across a combination of Synthetix and Aave – deposit multiple collaterals, mint synthetic assets (msUSD, msETH, msBTC), maintain a healthy LTV to avoid liquidation, use synths for leverage or farming, and eventually pay it all back.

With the recent launch of Smart Farming, Metronome adds a new delight for degens seeking more aggressive yield-earning strategies thanks to a looping application for creating leveraged positions in a few clicks.

Looping is when a DeFi application allows for borrowing a correlated, near equivalent asset such as msETH against vaRETH collateral. With looping, smart contracts automate minting synths, swapping it on a DEX, redepositing it as more collateral, minting more synths, and so on (see above). Looping allows DeFi pros to save time and achieve higher leverage with higher net APYs, while maintaining a relatively safer position than borrowing uncorrelated assets, such as DAI against a volatile collateral such as ETH.

Metronome Smart Farming differentiates itself in multiple ways.

Smart Farming uses Vesper yield-bearing collateral to mint synthetic assets instead of a traditional lending mechanism found in money markets like Aave.

Smart Farming streamlines the process of depositing, minting, swapping, and redepositing to loop their position in one transaction and achieve enhanced APYs.

The real yield underpinning the productive collaterals such as vaRETH or vaFRAX delivers a relatively higher risk-adjusted APY.

Today, I’ll demonstrate how I can earn up to 19.5% APY thanks to Smart Farming looping with up to 4.3X max leverage by minting msETH against vaSTETH collateral.

This is the app for synths, including 5 of the supported collaterals for Smart Farming.

Before we get started, please be aware of these risks.

Smart contract risk in Metronome and Vesper Finance

Systemic risk in DeFi composability

Pegged assets such as stablecoins or stETH are capable of de-pegging

Front-end spoof attack on the Metronome app

Liquidation if I don’t maintain a healthy collateral ratio according to these docs

A disruption to Chainlink oracles used to monitor the underlying asset prices for synthetics and collaterals that are usable on the platform

Step 1: First, I go to the Smart Farming tab on Metronome to check out which of the 5 supported collateral assets with looping I might want to use:

vaUSDC

vaFRAX

vaRETH

vaCBETH

vaSTETH

The UI currently is being upgraded to showcase all real-time APYs, so for now, I have to visit the Vesper Grow Pools and look at the underlying yields for each of these to determine what estimated APY I might earn. Although I could earn an estimated 38.8% APY with FRAX levered up to 4.75X, I’m going to demonstrate earning with vaSTETH levered up to 4.3X, earning an estimated 18.5% to 19.5% APY.

Before we move on, here’s how I calculated an estimated ~18.2% APY looping 4.3X with vaSTETH as collateral, and minting msETH.

vaSTETH has an asset collateral ratio of 78%, according to Metronome docs.

Base APY for stETH on Vesper = 4.98%, which excludes VSP rewards that don’t transfer over

Max Leverage = 1 / (1 – 0.78) * 0.95

Max Leverage = 4.32

Max APY= (Max Leverage * Base APY) – 1%* (Max Leverage – 1)

Max APY = (4.32 * 4.98) – (1*(4.32-1)) = 18.2% APY

Step 2: Because I already hold stETH, and it happens to be the highest looping yield for the 3 supported ETH LSTs on Smart Farming, I’ll choose to loop up to 4.3X with stETH. But first, I need to deposit my stETH into Vesper to get vaSTETH. My stETH will then be earning some additional stETH yield while accruing 4.62% in ETH staking yield.

I find stETH in the Vesper Grow Pools and follow the prompts to deposit my stETH, requiring both an Approval + Deposit transaction.

Step 3: I’m now ready to return to Metronome Smart Farming to loop my vaSTETH. I can select my vaSTETH collateral to supply, choose to supply the Max in my wallet, and then play with Set Loop or manually type it in to get the desired leveraged position by borrowing msETH against vaSTETH, which then under the hood gets swapped for more vaSTETH, redeposited, mints more msETH and so on.

I’m careful to set my looping so that my Health Factor remains above 1, or else I can be liquidated! This is just an example with smaller amounts of vastETH, but normally, I personally try to keep my looping positions at a Health Factor of >1.25 to avoid liquidation.

Lastly, I follow the prompts to Confirm transaction(s) to create the looped position and will return to this dashboard to monitor and deleverage my position in the future!

This is not a recommendation or endorsement to use leverage and create this exact position. It is purely for informational purposes.

Airdrop Alpha

In each DeFi Alpha guide, we update a list of DeFi protocols that have yet to announce and/or launch a token.

$ARB is Live!

Layer 2 network Arbitrum has launched its ARB token.

Claim your ARB tokens here.

We’ve been tracking Arbitrum ever since last summer’s Odyssey, in addition to tutorials on GMX, Radiant, TreasureDAO and more, so our readers should certainly be eligible!

Arch Finance – a protocol for comprehensive indices that provide access to differentiated sources of market risk.

Arbitrum – one of the leading L2s for Ethereum. Claimable now!

Arrakis Finance – a trustless algorithmic market-maker, for auto-managing Uniswap V3 LPs on Ethereum, Polygon, Arbitrum, and Optimism

Base – A new Ethereum L2, incubated by Coinbase and built on the open-source OP Stack, that could potentially have a governance token in the future

DeFi Saver – a one-stop dashboard for creating, managing and tracking DeFi positions across Aave, Compound, Maker, Liquity, and Reflexer

DeFrag – instant loans for Treasure gaming NFTs on Arbitrum

Farcaster – a “sufficiently” decentralized social network where users will have the freedom to move their social identity between applications

Jupiter – The leading DEX aggregator by trading volume on Solana

LayerZero – An omnichain interoperability protocol, powering popular dApps like Stargate and Radiant Capital. Check out our airdrop guide here.

Lens Protocol – A decentralized composable social graph, underpinning an emerging landscape of Web3 social media dApps including Lenster, Lenstube, and Orb

LI.FI – A cross-chain bridge and DEX aggregator protocol

Liquality – A cross-chain, non-custodial browser extension wallet, similar to MetaMask but with more integrations for swapping cross-chain.

Magic Eden – The leading NFT marketplace by trading volume on Solana

Nested – a crypto social trading platform built on Ethereum and other chains

Opyn – one of the OG decentralized options protocols on Ethereum, with major investors that signal a token has to be in their future. Buy/sell puts or call options to earn a possible future airdrop.

Orb – one the leading mobile apps for Lens social media

Phaver – one of the leading mobile app for Lens social media

Polymarket – one of the strongest players in the DeFi prediction market vertical, bet on an outcome related to crypto, politics, sports and more or add liquidity

Polynomial – A derivatives protocol built on Synthetix on Optimism, with a newly launched perps trading platform called Polynomial Trade.

Sense Protocol – A decentralized fixed-income protocol on Ethereum, allowing users to manage risk through fixed rates and future yield trading on existing yield bearing-assets

Set Protocol – one of the earliest DeFi protocols yet to launch a token for DeFi asset management, popular for TokenSets and known for powering IndexCoop indexes

Socket (formerly Movr) – their bridge aggregator Bungee moves assets between chains, finding the cheapest, fastest route

StarkNet mainnet is live! Bridge and swap some tokens for a potential airdrop. Guide here.

Volmex – Volmex is a tokenized volatility protocol, similar to the VIX but ETHV

Wormhole – a cross-chain messaging protocol known for bridging between Solana, Terra, Polygon, BSC, Avalanche, Fantom, and Oasis

Yield Protocol – a newer protocol for fixed-term, fixed-rate lending in DeFi, backed by Paradigm, one might earn a future airdrop by lending DAI or USDC

Zapper – participate in Zapper trading, lending, providing liquidity, or yield farming; given the Zapper Quests and NFT Rewards program, it can be surmised that if Zapper ever releases a token, this is one way they might do a retro airdrop

Zerion – The same can be said about Zerion; if they ever release a token, they’re likely to reward those who interacted with their smart contracts swapping, lending, providing liquidity, or borrowing.

ZigZag – a DEX on zkSync. The airdrop has been distributed. Check your zkSync wallet.

zkSync – zkSync Era, the first zkEVM is live! Airdrop guide in this week’s Degen Tutorial.

The information contained in this newsletter is not intended as, and shall not be understood or construed as, financial advice. The authors are not financial advisors, and the information contained here is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation. We have done our best to ensure that the information provided is accurate, but neither The Defiant nor any of its contributors shall be held liable or responsible for any errors or omissions or for any damage readers may suffer as a result of failing to seek financial advice from a professional.