I will post these calculations regularly, but currently borrowing rates on @aave are very low, and I haven't mentioned ETH yields in a long time.
So, here's the calculation of the best long-term ETH yield over the past few years:
In short: weETH has an annualized yield (APR) of 16% and can be accumulated indefinitely.
The strategy is quite simple:
➢ Maximize the leverage of @ether_fi's weETH on Aave
Why weETH? Because it offers a 3% annualized yield (APY) instead of the base 2.5% staking yield.
weETH has a maximum loan-to-value ratio (maxLTV) of 93% in E-Mode.
A 93% loan-to-value ratio means we can achieve over 14x leverage on weETH.
The calculation is also straightforward.
➢ Maximum Leverage
= 1 / (1 - Maximum Loan-to-Value Ratio)
14.28 = 1 / (1 - 0.93)
Then, to calculate the net annualized return (APR) of this strategy, we can use another simple formula:
➢ Net Annualized Return (APR)
= Annualized Collateral Yield * Leverage - (Leverage - 1) * Borrowing Costs
Therefore, in this example,
3% * 14.28 - 2 * 13.25 = 16.34%
Very simple. And since this strategy uses a basic oracle, the only liquidation risk is that borrowing costs will be unfavorable to you.
Another risk is large-scale staking withdrawals, which can become difficult to exit during periods of high interest rates.
This strategy is generally best executed long-term, lasting at least one month.
Combined with your usual ETH shorting (on your preferred PERP exchange), it can earn credits and generate over 10% delta-neutral returns.