Looping means you deposit an asset, borrow against it, and redeposit the borrowed funds. As a result, the same capital earns more yield and more airdrop points.
However, every loop adds leverage, and leverage cuts both ways. I use looping myself, but I only go one level deep. Below, I explain why, with the math that shows where the danger starts.
This guide covers how looping strategies work, which types exist, and how to start without getting liquidated. For more strategies, see our other airdrop farming content.
What Is Looping in DeFi?
Looping is a recursive borrowing strategy. You use an asset as collateral, borrow against it, and then put the borrowed funds back to work. Each round is one loop.
For example, you deposit staked ETH on a lending protocol. Then you borrow ETH against it and stake that too. Now you earn staking rewards on a bigger position than you started with.
In other words, looping is leverage built from lending markets instead of a futures exchange. Because of that, the same rules apply. Bigger position, bigger rewards, bigger risk.
How a Loop Works, Step by Step
Here is one loop with simple numbers.
- First, you stake $10,000 of ETH and receive a liquid staking token.
- Next, you deposit that token as collateral on a lending protocol.
- Then you borrow $5,000 of ETH against it.
- Finally, you stake the borrowed ETH as well.
So you started with $10,000, and you now have $15,000 staked. Your debt is $5,000. That is 1.5x exposure from one loop.
You can repeat the cycle with the new collateral. Each extra loop adds a smaller slice, because you can only borrow a share of what you deposit.
Why Farmers Use Looping
Looping pays in two ways.
Higher yield. Say staking pays 3% and borrowing ETH costs 2%. Without a loop, $10,000 earns $300 per year. With the loop above, $15,000 earns $450, and the loan costs $100. Therefore, you net $350, or 3.5% on your own money.
That boost is modest, and it only works while staking pays more than borrowing costs. If the borrow rate climbs above the yield, the loop loses money.
More airdrop points. This is the bigger reason. Many protocols award points on deposits and on borrows. Since your position is 1.5x larger, you collect points on $15,000 instead of $10,000. In addition, the loan itself often earns points on the lending protocol.
So one dollar does several jobs at once. That idea sits at the heart of capital-efficient farming.
How Deep Should You Loop? One Loop vs Seven
The number of loops decides how close you sit to liquidation. Here is a comparison with ETH as collateral and a stablecoin loan. Both cases start with $10,000, and the protocol liquidates when debt reaches 80% of collateral.
One loop at 50% loan-to-value
- Position: $15,000
- Debt: $5,000
- Health factor: 2.4
- ETH must fall about 58% before liquidation
Seven loops at 75% loan-to-value
- Position: about $36,000
- Debt: about $26,000
- Health factor: 1.11
- ETH must fall less than 10% before liquidation
ETH can drop 10% in a single day. Therefore, the deep loop can lose everything on an ordinary bad day, while the single loop survives a full bear market.
The health factor tells you how safe you are. It compares your collateral, adjusted for the liquidation threshold, with your debt. Above 2 is comfortable. Near 1 means you are one candle away from liquidation.
Loops with matching assets, such as staked ETH against ETH, behave differently. The price of ETH matters less, because both sides move together. Instead, the risk is that the staking token slips from its peg. Since those slips are usually small, protocols allow far higher leverage on these pairs. Pushed to the max, though, a 3% wobble in the peg is enough to liquidate you.
My Approach: One Loop and No Deeper
I have never gone deep with looping. My setup is simple. I stake, use the staking token as collateral, borrow ETH, and stake again. Then I stop.
That single loop gives me extra yield and extra points. It also lets me sleep, because my risk tolerance is not that high.
Meanwhile, I know people who went six or seven levels deep. That is risky for three reasons.
- Small moves can liquidate the entire position. At that depth, there is almost no buffer left.
- It needs a lot of monitoring. You have to watch health factors and borrow rates daily, sometimes hourly.
- Oracles are not 100% accurate. A lending protocol relies on a price feed. If the feed prints a wrong price for a few minutes, a thin buffer is gone.
If you go this route anyway, make sure you understand the risks before you add the next level. Each extra loop pays less than the one before, while your margin for error keeps shrinking.
The Main Types of Loops
Most looping strategies fall into four groups.
Liquid staking loop
You stake ETH or SOL, deposit the staking token, borrow the base asset, and stake again. This is the loop I run. Because both assets move together, price risk is low, but peg risk remains. Compare tokens on our staking and restaking platforms page.
Stablecoin loop
Here you deposit a yield-bearing stablecoin and borrow a regular stablecoin against it. Then you swap and redeposit. Exposure stays in dollars, so this suits farmers who want no price risk. However, the yield-bearing token can still lose its peg.
Leveraged long loop
In this version, you deposit ETH or BTC, borrow stablecoins, and buy more of the same asset. That is a leveraged bet on price rather than a yield strategy. Therefore, it carries the highest liquidation risk of the four.
Restaking and points loop
Some farmers loop restaked tokens to stack staking yield, restaking rewards, and points. Rewards can be high, but you also stack several protocols on top of each other. If one of them fails, the whole loop fails with it.
One-Click Looping Tools
Manual looping takes many transactions, so fees add up fast on Ethereum mainnet. Because of that, most farmers now use tools that build the loop in one click.
- Aave E-Mode raises borrowing limits for matching assets, such as staked ETH and ETH.
- Kamino Multiply on Solana opens a looped position in a single transaction.
- Fluid and DeFi Saver offer similar leverage features on Ethereum and Layer 2s.
These tools also let you unwind in one click, which matters when markets move fast. Still, convenience does not lower the risk. A leverage slider makes it easy to go deeper than you should.
On HyperEVM, lending markets work the same way. Our guide on how to farm stablecoins on HyperEVM walks through a full setup. You can open a Hyperliquid account to get started there.
Risks of Looping
Looping can feel like free yield, but the risks are real.
- Liquidation risk: when collateral falls too far against your debt, the protocol sells it at a penalty.
- Peg risk: staking tokens and yield-bearing stablecoins can trade below their fair value.
- Oracle risk: a wrong price feed can trigger liquidations that the real market never justified.
- Rate risk: borrow rates can spike and turn a profitable loop into a losing one.
- Smart contract risk: each protocol in the loop adds another point of failure.
- Exit risk: in a panic, unwinding costs more and takes longer.
October 10, 2025 showed how fast this goes wrong. Roughly $19 billion in leveraged positions got liquidated within a day. During that crash, USDe and a wrapped staked ETH token briefly traded far below their value on Binance. Traders who used them as collateral with thin buffers lost their positions in minutes.
So keep leverage low and buffers wide. Our risk management tips apply here as much as in trading.
Step-by-Step Starter Plan
- First, pick a blue-chip asset, such as ETH or a major staking token.
- Next, compare the borrow rate with the yield. The yield has to be higher.
- Then set a conservative loan-to-value, at 50% or lower.
- After that, do one loop and stop.
- Also write down your health factor and your liquidation level.
- Finally, check the position every few days and after every big market move.
When you want to exit, unwind in reverse. Withdraw part of the stake, repay the loan, and then withdraw the rest.
Looping and Airdrops
Protocols reward usage, and looping creates plenty of it. You deposit, you borrow, and you hold both positions for months. As a result, loopers often rank high on points leaderboards.
However, points only matter if the token ends up worth something. Therefore, the loop should make sense on yield alone, with the airdrop as upside.
For the wider plan, start with our airdrop farming guide. If the basics are still new, read our crypto airdrops explainer first. Then browse the latest airdrops and filter on staking to find protocols worth looping.
Where Looping Fits in Your Farming Stack
Looping is one tool among several. For example, you can hedge price exposure with delta neutral farming, which is still my bread and butter. Similarly, you can earn trading fees with liquidity pool farming.
After that, pick a chain and go deeper with one of these guides.
Keep This Content Free
Running the liquidation math before you loop can save a whole position. If this guide helped you do that, consider signing up on OKX or Bybit through our referral links. Your support keeps this content free.
Final Words
Looping strategies multiply yield and airdrop points by putting the same capital to work more than once. Used lightly, they are a steady addition to any farming setup.
However, depth is where the danger lives. One loop gives you most of the benefit with a wide safety buffer. Seven loops give you a little more yield and almost no room for error. I stay at one, and I recommend beginners do the same.
If you enjoyed this blog, you may want to check our other farming guide on funding rate arbitrage.
As always, don’t forget to claim your bonus below on Bybit. You can also check the latest Bybit promotions here. See you next time!
FAQ
What is looping in DeFi?
Looping is a strategy where you deposit collateral, borrow against it, and redeposit the borrowed funds. Each round increases your position, your yield, and your risk.
Is looping safe?
It depends on depth. A single loop at low loan-to-value leaves a wide buffer. Deep loops can get liquidated by small price moves, peg slips, or oracle errors.
How many loops should a beginner do?
One. It captures most of the extra yield and points, while keeping liquidation far away. Add more only when you fully understand the health factor.
What is a health factor?
It measures how safe a loan is. The number compares your collateral, adjusted for the liquidation threshold, with your debt. Below 1, the protocol liquidates you.
Does looping help with airdrops?
Yes, because many protocols award points on both deposits and borrows. A looped position therefore earns more points than the same capital sitting idle.
