How should I use stEth in other Defi platforms?

Finance
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When I stake ETH with Lido, I received an equivalent amount of stETH in return. To get better rewards, I should use these stEth on other Defi platforms to get more yields. I am new to LSDfi, and I don’t know which plaform/app is best for me. I heard several options, such as providing liquidity on the ETH/stETH-pool on Curve or use stETH as collateral to take out a loan on Aave, etc. But I don’t know which one is better for new LSDfi users. Any suggestion is welcome. Thanks.

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Hi @Cryptman, welcome to the forum. :wave:

There are a number of options to how you can use your stETH throughout the Ethereum ecosystem.

I can’t personally speculate on what’s best for you however, let’s explore the options you’ve mentioned – providing liquidity on the ETH/stETH pool on Curve and using stETH as collateral to take out a loan on Aave.

Providing Liquidity on Curve’s ETH/stETH Pool:

  • Curve is a decentralized exchange that specializes in stablecoin and asset swaps, offering low slippage.
  • Providing liquidity on the ETH/stETH pool can earn you trading fees and CRV tokens, which can enhance your overall yield.

It is relatively user-friendly, making it suitable for newcomers.
However, you should consider things like:

  • Impermanent Loss: Providing liquidity exposes you to potential losses due to price volatility between ETH and stETH.
  • Slippage: Liquidity provision may involve impermanent loss when staking ETH in the pool.

Using stETH as Collateral on Aave:

Aave is a lending and borrowing platform in DeFi, allowing you to deposit stETH and borrow other assets.
You can use those borrowed assets for other DeFi opportunities or simply hold them.
Aave provides a decent amount of flexibility and diverse borrowing options.

However, you should consider things like:

  • Interest Rates: Borrowing typically incurs interest costs, which can affect your overall yield. Be sure to understand the terms.
  • Liquidation Risks: If your collateral value falls below a certain threshold, it may be liquidated to cover the loan.

If you prefer a relatively simpler approach with lower risks (not zero risk) and are willing to earn fees and rewards gradually, providing liquidity on Curve may be a suitable choice.

If you are comfortable with managing more complex strategies and understand the implications of borrowing and lending, using stETH as collateral on Aave could provide a broader range of opportunities.

In both cases, conducting thorough research, and exercising caution are crucial.

For more information you may want to have a look at the Lido F.A.Q’s (on Ethereum specifically) which give more context: Staking with Lido - Frequently Asked Questions (FAQ) and this help article titled ‘What Can I do with my stETH’

Without trying to overcomplicate your original question, I should also mention that you can wrap your stETH into wstETH (wstETH is mainly used as a layer of compatibility to integrate stETH into other DeFi protocols, that do not support rebasable tokens) and thus, opens up a whole host of further possibilities throughout the DeFi ecosystem on Ethereum and Layer 2 networks like Arbitrum, Polygon and so forth.

What is wstETH?

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