Borrow ETH with osETH on Morpho Blue: How and Why To Do It

7 min readFeb 5, 2024

Network rewards on Ethereum are always decreasing, but it does not mean that ETH stakers should settle for lower rewards forever.

We are of course talking about our latest integration with Morpho Blue, a lending and borrowing marketplace that allows borrowing ETH against your osETH!

While it’s certainly not for everyone, this integration unlocks a strategy called leveraged staking — an act of borrowing ETH at low rates, staking it again to earn more network rewards, then depositing staked ETH in Morpho and repeating the process until you earn as much as possible (or until the borrowing capacity is exhausted).

In this guide, we offer instructions for using Morpho to borrow ETH, explain the mechanics of Morpho and the risks involved, and strategies to unlock more rewards with this integration (including leveraged staking).

Strap in! 🏎

How to deposit osETH & borrow WETH from Morpho

📺 Go to the Morpho Blue dapp: you will want to land on the Borrow section —

🔢 Select collateral and borrow amounts: find osETH on the list and insert the desired amount of osETH to supply as collateral, and the amount of WETH (wrapped ETH) to borrow. Press Finalize Borrow to continue.

🧐 Review the numbers: make sure you are happy with the selected LTV, borrow rate, liquidation price, and other parameters. If so, press Confirm.

✅ Confirm the transactions: approve osETH spending, then confirm the osETH deposit and WETH borrow — in total, 3 transactions.

Once completed, you should have supplied osETH and borrowed WETH on Morpho! Congratulations!

When you’re done, repay the WETH loan by pressing Repay in the Debt section and selecting Max in the interface. Press Finalize and confirm the transactions. To fully withdraw osETH from Morpho, press Withdraw in the Collateral section and press Max in the interface. Press Finalize and confirm the transaction to receive osETH in your wallet.

PS. We recommend not exceeding 75% LTV if you were not familiar with lending protocols before. See the risk section for explanation.

What is Morpho Blue?

Morpho Blue is a new-generation lending & borrowing protocol that allows users to create isolated lending markets for specific assets of their choosing. This means that the risks and terms of borrowing and lending in a specific market (coincidentally called a Vault) can be distinct from other such markets within the protocol and their users.

In simple terms, this allows borrowers and lenders to have more control over the loan terms and exposure to the risk of bad debt (i.e. losses from borrowers not returning their loans). This leads to more confidence in lending against novel assets, and thus borrowing against osETH becomes a reality.

The protocol has been live since November 2023, and has accumulated about $60M of deposits to date. It has been audited by Open Zeppelin and Cantina, and its contracts are immutable.

What can I do with WETH?

We trust that as a staker you know the best way to deploy borrowed ETH is to stake it! However, you may combine it with other strategies to maximize your return.

Note that the rule of thumb with borrowing any asset for productive use is for the return to exceed the interest rate and the operational costs (gas), which for ETH loans almost always means staking it again. However, there are different options for approaching it — let’s see some of them (PS. these are merely pointers — do not treat this as financial advice).

Leveraged staking ETH into StakeWise

The easiest way to go is sticking the borrowed ETH into StakeWise, whether into Vaults or by directly swapping WETH for osETH (watch out for the premium here).

You get to keep the difference between your borrow rate and the staking yield, and the more times you repeat the process, the more you will earn (see chart below). However, note that this comes with an increased liquidation penalty in case of breaching the LTV, so pop into the risk section below to learn more.

Staking ETH into StakeWise then depositing into EigenLayer

Another way to make use of borrowing ETH and applying it productively is staking into StakeWise, then putting osETH into EigenLayer for airdrop farming & early access to restaking opportunities e.g. EigenDA.

While not officially confirmed by EigenLayer, the red-hot staking volumes suggest that not only the airdrop will happen, but that it will be very lucrative. We will not pass judgement on whether the market is right or wrong, but if there is one thing we learned from observing the market in the past, it is that hype cycles can lead to self-fulfilling prophecies.

The main risk you should consider is the EigenLayer multisig control over LST deposits (including for osETH), which most market participants seem to be comfortable with (based on deposit volumes). However, be advised.

Staking half of ETH into StakeWise then providing liquidity for osETH on Curve / Balancer

The first half starts out familiar, while the second relies on entering existing opportunities within the StakeWise ecosystem to farm some SWISE. Use them for applying your borrowed ETH in exchange for sufficient returns. See some example guides here and here.

What are the terms for borrowing WETH?

💲 Interest rate: currently 0.9%; will be 4% once 90% of WETH supplied by lenders will be borrowed
💰 Minting fee: 0%
⚖️ Loan-to-value (LTV) cap: 86% of collateral value

In other words, you can borrow up to 86% of your osETH value at a 0.9% interest rate (note: it can increase) by paying nothing upfront. Considering borrow rates elsewhere, this is one of the cheapest ways to get an ETH loan against your stake.

You can return WETH to Morpho at any time and immediately claim back your osETH, including the staking rewards you accumulated throughout the term.

Example of borrowing WETH

  • Deposit 10 osETH worth $23,000 into Morpho. This is your collateral that continues earning staking rewards.
  • You can borrow up to 86% of your collateral in WETH, i.e. a maximum of 8.6 WETH
  • Borrow 7.5 WETH worth ~$17,250
  • Your Loan-To-Value (LTV) ratio at the moment of borrowing WETH is 17,250 / 23,000 = 75.00%.

Risks of borrowing WETH

Not managing your LTV properly

Note that LTV of your borrow is calculated based on the market prices of osETH and WETH, which are related but can decouple. It also depends on the rate at which your loan grows (i.e. the interest rate). This means that if the osETH price declines, your LTV will increase (bad). It also means that if the staking yield on osETH is lower than the borrow rate for your WETH, your LTV will increase (bad). In the scenario where osETH retains parity with ETH (base case) and your borrow rate is below the staking yield, your LTV should fall (good).

The danger zone is when your LTV reaches 86% — in this case your WETH position will be liquidated, and your osETH collateral will be penalized according to this mechanism:

See example below:

Day 1:

Borrow 7.5 WETH worth $17,250 against 10 osETH worth $23,000 (i.e. 1 osETH = $2,300). Your LTV is 17,250 / 23,000 = 75.00%. Price of osETH relative to ETH is >1.

Day 180: if 1 osETH = 0.9 ETH (i.e. -10% or more), then your LTV is 17,250 / 20,700 = 83.33%, meaning you are very close to liquidation.

Hence, we recommend not exceeding 75% LTV when borrowing WETH, to err on the safe side amid market price fluctuations for osETH. This LTV level allows you to experience up to a 10% decline in the price of osETH (relative to ETH, ie depeg) without being liquidated.

However, if you do see a rapid osETH price decrease (most likely to be associated with a major bug in Ethereum execution clients, or significant ETH sell-off), we recommend increasing your collateral or returning a part of your debt ASAP. Obviously, this is not financial advice, and you should do your own research.

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.

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