Looping (recursive leverage)

Looping, or recursive leverage, works by cycling the same capital through a lending market. A user deposits staked ETH, borrows ETH against it, swaps the borrowed ETH for more staked ETH and deposits that too, repeating until reaching the desired leverage. Many protocols and vaults now do the loop in a single transaction using flash loans.

The goal is to amplify a spread. If staked ETH yields 3% and borrowing ETH costs 2%, looping several times turns a thin margin into a larger net return. Looping exploded alongside points programs and airdrop campaigns, because rewards often scale with the amount deposited or borrowed, and it is common with yield-bearing stablecoins and liquid restaking tokens.

Leverage cuts both ways. If the borrow rate rises above the yield, the position loses money every day; if the collateral depegs from the borrowed asset, it can be liquidated quickly. Exiting large loops also requires deep liquidity, and crowded loops can unwind together, amplifying sell-offs.