Vanilla Ether (ETH) staking is generating eye-catching returns for crypto hopefuls amid the broader market crisis, with returns for most fixed-income crypto products dropping to as low as 0%.
The operations of centralized crypto credit companies such as Genesis and Circle have been caught in the contagion risks stemming from the FTX exchange over the past few weeks. Withdrawals were suspended at Genesis, while returns on customer stablecoin deposits at Circle dropped to 0%.
The decentralized finance (DeFi) market is getting stronger. Users who simply stake staked ether (stETH) at the Lido staking service earn up to 10.7% – an all-time high since the Merge event – with even higher returns for holders as value of stETH increases.
stETH is a token representing an equivalent amount of ether that has been staked. Staked tokens are locked for an extended period to provide liquidity to the staked ether.
“Recently, the liquid staking protocol also had to increase rebasing oracle limits from 10% to 17.5% to allow stETH token holders to increase rewards,” Delphi Digital analysts said in a statement. Friday note. Rebase, or rubber band, tokens are cryptocurrencies that automatically adjust supply levels to maintain a constant value.
Rising rewards have led to related borrowing strategies offering returns of up to 25.5% on the interest-bearing compound ether (icETH) product offered by Index Coop.
Due to the increased rewards, the return earned by recursive borrowing strategies such as icETH also reached an all-time high of 25.5% since the merger. It stands at 24.05% at the time of writing.
The Interest Compound ETH Index (icETH) enhances staking returns through a leveraged staking strategy. The strategy uses a user’s stETH tokens as collateral on the DeFi lending service Aave to borrow wrapped ether (WETH) – a token that tracks ether – which is in turn used to purchase additional stETH tokens .
This effectively takes advantage of the amount of collateral provided to Aave and uses it to increase the returns for traders.
The data show some $21 million worth of icETH tokens are currently on the market, of which $12 million is used on Aave to generate additional returns for holders.
However, there are some caveats to these high yields.
“In addition to smart contract risk, investors in icETH should consider the liquidation risk of borrowing ETH from Aave,” Delphi analysts said. “And the interest rate risk related to the spread between the cost of borrowing and the return on staking.”