How StakeWise Boost Keeps Your Rewards Juicy & Your Stake Safe
Two weeks ago, StakeWise launched Boost — the latest feature designed to help you increase the rewards in StakeWise!
Depending on the Vault, Boost allows to increase the rewards from staking, at times nearly quadrupling the baseline reward rate. But where does this yield come from?
Boost uses osETH to borrow ETH on Aave and stake it on your behalf, allowing you to collect the surplus staking rewards left after paying the Aave borrow fee.
As of today, Boost is off to an explosive start, contributing over 50,000 ETH ($~150,000,000) in new TVL to StakeWise, and increasing the rewards of its users.
Yet some are still hesitating to use Boost because of concerns around the core part of Boost, leverage.
In this article, we will break down the core mechanics going on within Boost (with numbers) to demonstrate that not all leverage was created equal, and that Boost utilizes leverage in a safe way to increase the rewards of even novice users.
The enemy of all borrowing: liquidations
Let’s start with a bit of theory to help us understand the key risks.
With any borrowing done on-chain, the number 1 thing you must be concerned about is liquidation. Liquidation is a forced return of your loan by a third-party, which makes sure the lender (Aave) is paid back in full, but in return claims a portion of the collateral you provided for the loan.
Liquidation often comes with a penalty, so the amount of collateral you forego to the liquidator is usually worth more than your outstanding loan. The penalty is also amplified by the degree of leverage you take on, so high leverage is usually associated with deep cuts to your collateral in case of liquidation.
Long story short, when using Aave for leverage, liquidation must be avoided at all cost.
Understanding key borrowing mechanics
To understand how far you are from liquidation on Aave, you must be mindful of three key variables:
Max LTV (Loan to Value): maximum borrowing power of your collateral, i.e. how much you can borrow based on the value of your deposit.
Current LTV (Loan to Value): the value of your loan relative to the value of your collateral right now.
For example, Max LTV for ETH when borrowing against osETH is 93%, meaning 0.93 ETH can be borrowed against an osETH deposit worth 1 ETH.
After a while, factors like Aave borrow rate and osETH APY will impact your current LTV, potentially decreasing or increasing it from the original 93%.
Note that osETH price on DEXs does not impact your LTV on Aave. osETH value on Aave is determined by the native feed within the StakeWise protocol (i.e. equals its redemption value), not its market price. Even during a 5% price depeg on DEXs (e.g. on Balancer), the value of osETH on Aave would still be equal to its redemption value. This is the reason why Boost can remain a low-risk strategy.
Liquidation threshold: the point at which a position is considered undercollateralized, and must be liquidated to forcibly return the loan to the lender. In other words, it is the tipping point for when your debt is considered to be so risky by the lender that your deposit must be liquidated in order to repay your debt.
For example, the liquidation threshold for ETH debt against osETH is 95%, meaning that when your ETH loan is 95% of osETH deposit value, your osETH collateral on Aave will be liquidated to repay the loan.
It is also important to know when these variables become relevant.
Max LTV only matters when initiating a loan, while Current LTV & Liquidation Threshold matter for maintaining a healthy borrow position, avoiding liquidation.
Now let’s see how Boost handles LTV and Liquidation Threshold to give you the maximum possible amount of rewards while keeping your position safe.
Safe to use
The borrow position created by Boost starts off with an LTV of 93%. The Liquidation Threshold for osETH is set to 95%. Hence, the safety buffer before the liquidation can start is 2%. While this seems small, it is actually a really large buffer, and is the core reason Boost is safe enough even for novice users.
To see why, let’s consider the reasons why your LTV on Aave can increase, and their relative impact on the 2% buffer.
The LTV of ETH borrows against osETH can go up only in 2 scenarios:
- When osETH APY is below ETH borrow APY on Aave
- When osETH redemption value against ETH in StakeWise (read: osETH exchange rate) goes down
We will now look at them in more detail.
Scenario 1
Scenario 1 is rather rare. Based on the 420-day history of osETH APY and Aave borrow rates, the number of days when your LTV would increase is 51, with no more than 7 days in a row. This works out to only 12% of the time.
Looking further, 30% of the negative days and the aforementioned 7-day negative streak occurred in December 2024, during the rotation of validators in the Genesis Vault, which ultimately led to marginal (~0.1%) declines in performance. Adjusting for them, the total number of negative LTV days in our 420-day sample drops to 45, or ~10.7% of the time, while the negative streak falls to 5 days in a row.
So, that’s it — 39 days per year (~10.7%) when your LTV is expected to increase as ETH borrow APY exceeds osETH APY.
The cool thing is that on the rest of the days your LTV would actually be decreasing.
This is because whenever osETH APY exceeds ETH borrow APY, the value of your collateral grows faster than your loan value. In other words, as long as the staking APY exceeds the borrow APY, the buffer between your LTV and the Liqudation Threshold actually increases with every passing day.
Read another way, for every 1 day of LTV increase, you get ~8 days of LTV decline — enough to continually reduce your LTV from the initial 93%.
Hence, using Boost for longer actually makes the strategy progressively safer, because it increases the buffer between your LTV and the Liqudation Threshold.
However, let’s assume that a regime change has occured that has pushed up the ETH borrow APY, making it consistently exceed the osETH APY by 2%.
Starting off from an LTV of 93%, a borrow APY that consistently exceeds the osETH APY by 2% would not lead to a liquidation for at least over 1 year. Please see how it would evolve over time:
This speaks to the 2% buffer actually being really significant, and puts the ~10.7% days in the negative territory into perspective.
Even in a very unrealistic scenario of significant regime change in borrow rates, using Boost for a year would not lead to a liquidation. Naturally, it doesn’t mean that you would continue using Boost in that environment — we’d advise against it, since it would be deeply unprofitable — but theoretically you could, and it would not lead to a liquidation.
Hence, the biggest risk involved in borrowing — the liquidation — is really hard to come by even with a negative difference between osETH APY and Aave borrow rates.
Scenario 2
Scenario 2 — mass slashing in StakeWise — is arguably much more rare.
In the 4-year history of StakeWise, the protocol has not experienced slashing even once.
However, it still remains a theoretical possibility, so let’s break down the risks.
In order to breach the 2% buffer and get liquidated, a borrow position must experience a decline in collateral value of 2.1%. In other words, enough validators must be slashed in StakeWise to reduce the value of osETH by 2.1%.
Depending on the way you look at it, this means 480–1150 validators being slashed across the protocol — an event that simply hasn’t happened for anyone in the network to date. The reason why is because it’s difficult to slash so many validators at once.
Simultaneous slashing of this scale requires a truly large (>1M ETH) staking operation going wrong. Even if you were to question our expertise in handling validators at any scale, StakeWise simply doesn’t possess large enough numbers to cause a slashing of this magnitude.
This makes liquidation due to osETH value loss from slashing significantly unlikely.
Escape hatch
If the measures described above fail to mitigate the risk of liquidation, a last-resort “escape hatch” can be utilized to de-risk your Boost position.
Specifically, once the LTV of the borrow position belonging to Boost reaches 94.5%, anyone can trigger an unboosting transaction on behalf of the user. The exited funds will go to the owner of the Boost position, and will need to be claimed by them as customary for unboosting.
The StakeWise core team monitors all the boosted positions and triggers exits for those that have reached 94.5% LTV. However, we still urge you to monitor Boost APY on your own and exit if it remains negative for longer than a week.
Conclusion
Boost is designed to be a low-risk method to access higher rewards, and we believe it is set up to do really well.
With the considerable 2% buffer between Max LTV and Liqudation Threshold on Aave, you can expect to comfortably enjoy amplified rewards without being at any real risk of liquidation.
Despite this analysis, we still urge you to treat Boost as a DeFi product and remain attentive to significant and prolonged swings in its APY — after all, there’s now more money on the line!
StakeWise also monitors Boost APY and the Aave interest rates every day, and will communicate with its community about any significant changes if and when necessary. In the worst case scenario, the protocol is able to trigger the exit of assets from Boost on your behalf, with all the proceeds still going to you.
We still recommend remaining alert to Boost’s dynamics and StakeWise announcements to ensure you are handling your portfolio with utmost care.
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