Lending (Passive ETH Yield)

Lenders earn passive yield coming through interest charged from leveraged Liquid Restaking strategies.

Within the Loop ecosystem, lenders, or creditors, play a crucial role by providing Ethereum (ETH) for others to leverage, receiving lpETH as a receipt token. This Yield backed Ethereum Derivative (YED) serves as a high-yielding index for various restaking strategies, diversifying lenders' earning-sources while being nominated in ETH.

Staking

Lenders engage in a passive earning strategy by staking lpETH, which collects yields from different leveraged restaking strategies employed by active participants known as Loopers. Loopers utilize the ETH provided by lenders to multiply their exposure to Loop Restaking Tokens (LRT) and pay interest. This interest is accumulated in a pool and continually distributed to both dLP lockers and lpETH stakers, thus rewarding lenders with a share of the protocol revenue.

When staking lpETH users receive slpETH.

• Users do NOT need to do anything but hold slpETH to receive yield.

• Yield is not paid directly to slpETH holders; rather, it accumulates within the staking contract, which results in the "value" of slpETH rising over time. Users are able to unstake their slpETH at any time, at which point they receive an amount lpETH reflecting the staked amount plus any increase in value of slpETH from the time the user staked until unstaking.

• The amount of slpETH a user will receive when staking lpETH will depend on the current value of slpETH. At launch the value will be 1 slpETH = 1 lpETH, but slpETH is expected to slowly increase in value as protocol yield is transferred into the Staking smart contract.

Action Overview

• lpETH can be minted with ETH

• lpETH can be traded on DEXes

• lpETH can be staked (for slpETH) to receive borrowing interest

• lpETH can be locked in the dLP to unlock the Boost or receive borrowing interest

• lpETH can be provided as liquidity on various DEXes

• lpETH can be locked

• lpETH can be redeemed for ETH

Risks

An inherent risk within the Loop ecosystem arises when an looped collateral experiences rapid depegging. If the value of an underlying collateral depegs more swiftly than liquidation mechanisms are triggered, this can lead to scenarios where lpETH becomes undercollateralized. In such cases, the protocol could accumulate bad debt, jeopardizing the stability and security of the pooled assets. This risk underscores the importance of vigilant monitoring and responsive adjustment of liquidation thresholds to maintain the integrity and safety of the lending system.

An additional risk involves the potential depegging of lpETH. Should the concentrated liquidity for lpETH prove insufficient, selling pressure could affect the lpETH to ETH exchange rate. While this scenario would not directly trigger liquidation events on the Loop platform, it could cause such events on other protocols where lpETH is accepted as collateral. Additionally, a depeg could impact the realization of rewards from staking lpETH.