Leveraged positions on decentralized lending platforms
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arXiv
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| Format: | Preprint |
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2026
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| _version_ | 1866912835066396672 |
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| author | Baude, Bastien Danos, Vincent Khalloufi, Hamza El |
| author_facet | Baude, Bastien Danos, Vincent Khalloufi, Hamza El |
| contents | We develop a mathematical framework to optimize leveraged staking ("loopy") strategies in Decentralized Finance (DeFi), in which a staked asset is supplied as collateral, the underlying is borrowed and re-staked, and the loop can be repeated across multiple lending markets. Exploiting the fact that DeFi borrow rates are deterministic functions of pool utilization, we reduce the multi-market problem to a convex allocation over market exposures and obtain closed-form solutions under three interest-rate models: linear, kinked, and adaptive (Morpho's AdaptiveCurveIRM). The framework incorporates market-specific leverage limits, utilization-dependent borrowing costs, and transaction fees. Backtests on the Ethereum and Base blockchains using the largest Morpho wstETH/WETH markets (from January 1 to April 1, 2025) show that rebalanced leveraged positions can reach up to 6.2% APY versus 3.1% for unleveraged staking, with strong dependence on position size and rebalancing frequency. Our results provide a mathematical basis for transparent, automated DeFi portfolio optimization. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2601_14005 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Leveraged positions on decentralized lending platforms Baude, Bastien Danos, Vincent Khalloufi, Hamza El Mathematical Finance We develop a mathematical framework to optimize leveraged staking ("loopy") strategies in Decentralized Finance (DeFi), in which a staked asset is supplied as collateral, the underlying is borrowed and re-staked, and the loop can be repeated across multiple lending markets. Exploiting the fact that DeFi borrow rates are deterministic functions of pool utilization, we reduce the multi-market problem to a convex allocation over market exposures and obtain closed-form solutions under three interest-rate models: linear, kinked, and adaptive (Morpho's AdaptiveCurveIRM). The framework incorporates market-specific leverage limits, utilization-dependent borrowing costs, and transaction fees. Backtests on the Ethereum and Base blockchains using the largest Morpho wstETH/WETH markets (from January 1 to April 1, 2025) show that rebalanced leveraged positions can reach up to 6.2% APY versus 3.1% for unleveraged staking, with strong dependence on position size and rebalancing frequency. Our results provide a mathematical basis for transparent, automated DeFi portfolio optimization. |
| title | Leveraged positions on decentralized lending platforms |
| topic | Mathematical Finance |
| url | https://arxiv.org/abs/2601.14005 |