Our mission has always been to empower stakers to do more with their staked ETH. Today, we hit a major milestone on this journey!
We are proud to report that osETH, the liquid staked ETH token of StakeWise, has been listed on Aave — the biggest on-chain lending platform in the whole of crypto.
This means that StakeWise users can now borrow ETH, stables, and other assets on Aave by depositing osETH as a collateral asset on the Ethereum market.
Finally, our stakers can boost yield with leveraged staking at scale, get USD-based loans for real-world purchases, and get exposure to the biggest governance tokens. All without parting with their stake and its rewards!
Below, we explore the mechanics of using Aave for borrowing various assets, discuss the risks you should consider, and mention some of the strategies you can pursue to enhance your yield. Let’s go!
How to deposit osETH and borrow on Aave
📺 Go to the Aave dapp: you will want to land on the Ethereum market — https://app.aave.com
🔢 On the left-hand side, find osETH on the list and hit Supply to choose the amount of osETH to supply as collateral. Press Supply osETH and confirm the transaction. PS: you continue earning your staking rewards while the asset is supplied to Aave!
🛒 On the right-hand side, choose the asset you want to borrow and hit Borrow to enter the amount of the loan.
🧐 Review the numbers: make sure you are happy with the selected LTV, borrow rate, liquidation price, and other parameters. If so, press Borrow asset.
✅ Confirm the asset borrowing transaction in your wallet.
Once completed, you should have supplied osETH and borrowed something on Aave! Congratulations!
When you’re done, repay the loan by pressing Repay next to the borrowed asset and selecting Max in the interface. Approve the asset to be repaid and then press Repay asset to return your loan. To fully withdraw osETH from Aave, press Withdraw next to osETH on the left-hand side, and press Max in the interface. Approve osETH for spending then press Withdraw osETH to complete the withdrawal. Once the transaction is confirmed, you will receive osETH back in your wallet.
PS. We recommend not exceeding 60% LTV if you were not familiar with lending protocols before. See the risk section for explanation.
What is Aave?
Aave is one of the first lending protocols to exist on Ethereum, and is the largest such protocol by Total Value Locked (>$15bn).
Launched in 2017, it has paved the way for a collateralized lending primitive, allowing users to maintain ownership of collateral assets while engaging with other cryptos. It has been the main driver of growth for stablecoin lending, leveraged staking strategies, and DeFi markets across multiple networks. In short, Aave is a DeFi giant that helped expand activity on Ethereum into a vibrant ecosystem it is today.
As one of the DeFi staples, Aave has an enormous capital pool, allowing users to borrow 7-figure sums worth of assets at attractive rates. With billions locked in collateral, Aave has been battle-tested for years, and audited multiple times over.
What can I do with assets borrowed on Aave?
Well, that largely depends on the asset you borrow. Popular strategies involve borrowing stablecoins and reinvesting them at higher rates, and borrowing ETH or LSTs to then resupply them to pursue leveraged staking. You can search for investment opportunities using DeFiLLama, for example — as long as you can invest the borrowed asset at a higher rate than your borrow APY, you will be in profit.
As always, we recommend sticking only to the strategies that you understand, and picking appropriate LTV levels to minimize the risk of losing some of your collateral.
Of course, you can also borrow stables, for example, with the intention of spending the loan on real-world purchases, thanks to things like Gnosis Pay.
What are the risks of borrowing on Aave?
As always, the main thing to watch with borrowing in lending protocols is your Loan-To-Value metric (or its inverse, called the Health Factor).
If you exceed the max LTV for your collateral, or let your Health Factor drop below 1, a portion or the whole of your collateral will be liquidated. This is the main risk of using a lending protocol like Aave to borrow assets.
Note that the LTV of your borrow is calculated based on the market price of the asset you borrowed (the loan), divided by the value of your osETH collateral (the value). Aave uses the true osETH-ETH exchange rate (calculated by StakeWise) to price osETH collateral. This means that the value of osETH on Aave is linked to the price of ETH, not the value of osETH on DEXs. Thanks to this, you do not need to worry about a potential osETH depeg in your LTV calculations.
With the true osETH rate used to price osETH collateral, borrowing ETH against osETH can be done with a high LTV on Aave— the relative price of ETH relative to osETH only changes when rewards are accrued, so your LTV is very predictable even amid ETH price swings. However, borrowing other assets will require you to manage LTV carefully, as the swings in the market value of your borrow against ETH will affect your LTV.
If the price of ETH declinesand your borrowed asset’s price does not decline, your LTV will increase (bad). However, if ETH increases in price and your borrowed asset’s price is flat (e.g. with stablecoins), your LTV should fall (good).
This logic can also be applied more broadly, where if the borrow APY is higher than your collateral APY, the value of your loan will increase vs your collateral value. This will increase your LTV (bad). The opposite, ie borrow APY < collateral APY, can decrease your LTV (good).
In terms of Health Factor, which is the inverse of LTV, you should aim for it to be above 1 at all times to prevent liquidation. A decrease in the price of osETH vs your borrowed asset’s price will cause your Health Factor to drop (bad), while an increase in the osETH price vs your borrowed asset’s price will force your Health Factor higher (good). Whenever your borrow APY > collateral APY, your Health Factor will deteriorate over time (bad); whenever collateral APY > borrow APY, your Health Factor will increase over time (good).
StakeWise makes staking ETH simple and secure! Pool ETH with others or go solo — no matter how you stake, you stay liquid with osETH, our liquid staking token.
Find the best way to stake ETH 👉 https://stakewise.io
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