While much of crypto is chasing volatility, the most capital -efficient assignments from 2025 are hiding in sight: looping. These structured strategies recycle billions through the same assets, which transforms modest yields spreading to large, risk -adjusted returns. Essentially, they are on-chain-moving to Tradfi’s Repo and Carry Trades, now improved by tokenized assets in the real world.
What is defi looping and how does it work?
Defi Looping is a dividend amplification mechanism built on correlated security and debt. The essence of looping is yield-hired assets symbols that grow in value over time. Good examples include Liquid Staking -Tokens like Lidos Wsteth, Synthetic Dollars like Ethena’s Susde or Tokenized Private Credit Funds as Hamilton Lane’s extent. The process begins by depositing such the yield asset, e.g. Weeth, to a money market account that borrows a closely related asset against it, e.g. One that allocates the borrowed amount back to the dividend -bearing version, e.g. Setting ETH on Etherfi and then redistributing it as security — it is a full loop. One of the most adopted looping structures is Weeth (Etherfi is wrapped wrapped ether) Paired with ETH on lending platforms like Spark.
Asset Design: Weeth accrues to the stack of rewards, so a device is gradually worth being more Eth over time. Here at Etherfi protocola launch 1 Weeth corresponded to 1 ETH. Now that equals 1,0744 ETH.
Weeth / ETH -Price Assessment Over Time Via Liquid Resting Yield Periodization, Source: Redstone
Risk Correlation: If Weeth gives ~ 3 percent annually and ETH loans are 2.5 percent, each loop catches a spread of 0.5 percent. With 90 percent loan-to-value conditions and 10 loops that spread connections, potentially increasing the return to approx. 7.5 percent annually.
Market size in 2025 and growth potential
Contangos Q3 2024 estimates suggested that 20 to 30 percent of $ 40 billion plus locked in money markets and security positions could be attributed to looping strategies. This involved $ 12-15 billion in open interest or approx. 2-3 percent of the total defi Tvl at that time.
Today, this scale is probably much larger: Aave alone has close to $ 60 billion in Tvl. Given that trade volumes in gearing -based strategies typically exceed open interest rate by a factor of ten, the annual transaction volume from looping can already surpass $ 100 billion.
In addition to ETH: stable output assets
Looping can also be applied to asset pairs that are not necessarily crypto -natives. A practical example is holy / USDC looping on Morpho. Here a token representing a tokenized private credit fund (Apollos Acred via Sacred Vault) is deposited to borrow USDC, which is then converted to holy and reduced. While the dividend profile is designed to be predictable, it depends on the benefit of the underlying private credit portfolio and is not as inherently stable as ETH -tackle wage.
RWA Looping strategy on Morpho secured by Redstone Price Feeds, Source: Gauntlet.
Future Instructions: Tokenized Means such as Loop Security
Institutions bring RWAs on-chain partly because looping can reinforce returns with transparent, modelable risks and auditory parameters. Probable growth lanes include:
- Private Credit Vehicles, e.g. Hamilton Lane’s scope, made available via Securitize with daily on-chain NAV supplied by Redstone and on-demand redemptions, placed for a stable monthly yield per day. Issuer material.
- Cash-and-bear strategies Like Spiko C&C, capture of predictable term Premia.
- Reinsurance -bound securitiesLike Memberscap MCM Fund in, historically, has been associated with low standard prices and consistent payouts.
Why this matters to institutions
Looping enables more effective use of capital by transforming dividend -legitimate positions into repeated, security instruments. The risk return profile is similar to traditional fixed-income and money market market, but here it comes with 24/7 liquidity, transparent security metrics and automated position control.
It is one of the defense most combat -tested strategies with clear appeal for traditional funding: higher yields within a framework for transparent, well -defined and actively monitored risks. As a tokenized RWAS scale, looping is ready to become a basic building block of on-chain portfolio construction, which further narrows the gap between traditional and decentralized funding.
