Supercharge Your LST Yields With Echelon

Tldr: Loop your LSTs like Thala’s sthAPT and Amnis’s stAPT for additional yields and points

Money markets play a pivotal role in DeFi, empowering users to leverage their assets to access different tokens or liquidity without having to sell their holdings, all while generating yield. This has led money markets, also known as lending protocols, to amass a total value locked (TVL) of over $31 billion. On the other hand, liquid staking protocols, or LSTs, as the largest DeFi vertical with more than $46 billion+ in TVL, have been instrumental in the growth and success of on-chain finance. These two products work closely together provide a capital efficient DeFi ecosystems. To scale Move DeFi, Echelon is starting with a strategic focus on LSTs.

What’s Leveraged Staking or Looping?

Leveraged staking involves the recursive borrowing and lending of liquid staking tokens (LSTs) to amplify yields from a user’s initial deposit. Users can deposit yield-generating LSTs, such as sthAPT or stAPT, and borrow APT to multiply their returns.

Here’s an example of how leveraged staking works:

• Deposit sthAPT into Echelon’s borrow/lend protocol.
• Use the deposited LST to borrow APT against it up to the preferred leverage ratio.
• This effectively gives users a larger notional position size in the LST, which multiplies the base yield for users.

Echelon currently supports two staked assets:

1. sthAPT by Thala
2. stAPT by Amnis

Higher Capital Efficiency, Powered by E-Mode:

The E-mode (High-Efficiency Mode) maximizes capital efficiency when collateral and borrowed assets have correlated prices. For instance, LSTs such as sthAPT are highly correlated with APT, allowing LSTs to possess greater collateralization power when borrowing assets like APT. E-mode is crucial for recursive lending and borrowing strategies, as it enables higher capital efficiency and, consequently, higher yields.

Risks of Looping:

It’s important to note that leveraging comes with its own set of risks, such as liquidation risk. For instance, in the case that an LST depegs, the position can be liquidated if the loan-to-value (LTV) ratio exceeds the liquidation threshold.

However, the risks can be reduced if the price of LSTs is calculated uniquely through a combination of Pyth, TWAP oracles, and on-chain staking rewards calculation. For instance, the price of sthAPT for liquidation is calculated as follows:

sthAPT = APT price [From Pyth] * thAPT/APT [TWAP oracle from Thalaswap] * sthAPT / thAPT [From Thala staking rate calculation]

• The APT price comes from one of the safest and most advanced oracles, Pyth.
• The thAPT/APT pool currently has $21 million of TVL (liquidity).
• sthAPT is calculated as thAPT + staking rewards (on-chain calculations).

The TWAP (Time-weighted average prices) oracle from Thalaswap further smooths the price over a time interval, reducing the risk of slight sudden depegs (i.e., high price deviations for a very small interval). Overall, this aims to reduce the risks of liquidation from LST depegs, while also mitigating any risks of protocol bad debt.

What are the benefits for the Aptos Ecosystem?

1. Supercharge LST Yields: For liquid staking assets such as sthAPT, yields can be significantly increased. Users can now enjoy both ‘staking yield and lending yields’ while maintaining exposure to APT.
2. Increased TVL: Looping strategies contribute significantly to DeFi’s TVL. Instead of lying idle, sthAPT will be utilized in lending and borrowing pools.
3. Increased Utility and a Healthier DeFi: Broadly speaking, this approach will deepen liquidity and enhance the utility of LSTs, leading to a healthier DeFi ecosystem.

Other ecosystems such as Ethereum and Solana have already seen much deeper integration of their LSTs. For example, Kamino Finance on Solana offers a ‘Multiply’ feature, allowing users to leverage their JITOSOL, mSOL, or bSOL to earn additional yields depending on the leverage used. To put numbers into perspective, LSTs alone account for approximately 70% of their TVL. We anticipate a similar flywheel effect for Aptos, contributing to a significant increase in TVL and strategies.

Get started now at: Echelon.Market.