Hyperstaking

Boost ETH staking yields using your favorite DeFi lending protocols w/ Definitive.

Definitive’s advanced Hyperstaking strategies are available on 6 chains and consistently achieve 2x-5x the staking yield of ETH through maximal capital efficiency and refined execution (see Execution & Edge below).

Strategy Definition

• Staking ETH at Lido validators generates ~4% APR via rebasing of the liquid staked token wstETH. Over time, the redemption value of wstETH for ETH increases and, naturally, the price of wstETH/ETH also appreciates. (If direct staking is not available on-chain, ETH can be swapped for wstETH at similar rates.)

• wstETH can be collateralized at lending protocols such as Aave and Compound. Once collateralized, additional ETH can be borrowed. (The wstETH as collateral continues to receive staking yield through rebasing.)

• By taking the borrowed ETH and repeating this process up to the maximum Loan-To-Value allowed at the lending protocol, the size of collateralized wstETH can be maximized to achieve a multiple on staking yield.

• The delta between the Lido Staking APR and the ETH borrow rate at the lending protocol drives the yield. As long as the borrow rate of ETH is less than the staking APR, the growth rate of the collateral should outpace the accumulation of debt which generates profit over time.

Risks & Mitigations

There are two main risks for every Hyperstaking strategy.

Risk #1: Elevated ETH Borrow Rate

A sustained ETH borrow rate that maintains above the staking yield APR would cause the leveraged position to lose money over time due to increased borrowing costs.

To mitigate this risk, Definitive’s Effective APR Monitor ensures the trailing 7-Day SMA of the strategy’s effective yield is positive. Should the 7D SMA yield APR become negative, Definitive will automatically unwind the strategy to a degree of leverage where yield is positive once more (reducing the borrow demand and thus reducing the borrow cost).

Risk #2: Depeg in wstETH/ETH Price

Depending on the degree of leverage undertaken by the position, a severe depeg in wstETH/ETH can push the leveraged position held toward the liquidation point configured by the lending protocol.

To mitigate this risk, Definitive’s Leverage LTV Monitor ensures leverage stays within a target range and automatically rebalances the position when that range is breached, preventing any liquidation from occurring while maximizing yield for the client's risk configuration. For example, if the position exceeds the minimum or maximum LTV, Definitive will lever up/down the yield position back to the target LTV.

FACT: The price of wstETH/ETH has not drawn down by more than 0.5% since the Shanghai upgrade on 4/12/23.

Risk #3: Negative Rewards from LSD depeg

Liquid Staking Derivatives (LSD), including assets like stETH, stMATIC, and sAVAX, are often misunderstood as being pegged to the underlying asset while simultaneously appreciating through rebasing. However, LSDs are constantly traded at market prices, although they can be redeemed based on their rebased value. When the market price diverges from the "peg," users may experience temporary negative rewards. This discrepancy presents an arbitrage opportunity for the market to correct and eventually realign the LSD with its intended "peg."

Example of a LSD depegging. User's rewards would be drawn down during these (circled) periods.

Example of a Historical Returns chart. You can access it by navigating to Overview and toggling from Historical Yield within your vault. Typically, the values in this table show an upward trend as you accumulate yield. Occasionally, there might be short-term negative returns due to "depegging," but these fluctuations are only temporary.

Execution & Edge

As with all of Definitive’s advanced strategies, the real alpha is never in the strategy definition, but rather in the fine nuances of the execution where the Definitive Edge keeps you at the front of the pack.

Efficient Entry and Exit

Performing the Hyperstaking strategy manually would require a user to execute dozens of separate transactions to achieve the desired leveraged position at the lending protocol. The gas costs and possibility of human error are often a non-starter (i.e. manual execution costs on Ethereum mainnet would be ~$500 today just to set up the Hyperstaking position).

Definitive is able to perform the position entry and position exit in a single transaction each. What would cost $500 in mainnet gas when done manually now costs just $25. The magnitude in savings is achieved through secure integration of a flashloan into the Hyperstaking strategy’s smart contract, reducing the total number of contract calls and gas spend by over 90%.

Slippage and Price Impact Minimization

Liquidity conditions at on-chain DEXs can often be volatile introducing inconsistencies in swap performance. Definitive monitors every liquidity pool and trade that comes through allowing us to continuously simulate swaps. Ultimately, Definitive discovers the most ideal periods for swapping, minimize slippage, and completely avoid any high price impact.

Full Utilization of On-chain Liquidity

Instead of relying on any single DEX or pool of liquidity, Definitive has integrated multiple DEX aggregators in the execution engine to ensure every swap utilizes all available on-chain liquidity. The advantage for the end-user is effectively a best execution guarantee on the price of their swaps.

Real-time Economic Monitors and Automation

Mentioned above, Definitive’s real-time monitors automatically manage the economic risks that can impact the Hyperstaking strategy, enabling clients to set more aggressive and capital efficient configurations to achieve even more competitive yields.

Configurable Risk Model

Finally, everyone has their own risk preferences when it comes to Hyperstaking. Definitive supports bespoke alternative leverage and monitoring configurations through the Dedicated Vaults service, where Hyperstaking strategies are deployed and permissioned just for individual clients.