USDe looping is the highest-yielding stablecoin strategy in DeFi right now. By depositing Ethena's sUSDe as collateral, borrowing stablecoins, and restaking into more sUSDe, you can amplify the base funding rate yield from single digits into double or even triple digits depending on leverage and market conditions.
USDe looping is a leveraged yield strategy where you borrow against staked USDe (sUSDe) to buy and stake more USDe, amplifying your exposure to Ethena's funding rate yield.
This guide covers how USDe generates yield, how looping amplifies it, which protocols support sUSDe collateral, the real risks involved, and how Superlend automates the entire process through Loop Vaults.
How USDe Yield Works
Ethena's USDe is a synthetic dollar backed by a delta-neutral hedging strategy. Unlike USDC or USDT, which are backed by fiat reserves and Treasury bills, USDe generates yield from two sources:
- ETH staking rewards: A portion of USDe's collateral is staked ETH (stETH, cbETH), earning the Ethereum staking yield of roughly 3-4% APY
- Perpetual futures funding rates: Ethena holds short perpetual futures positions against its ETH collateral. When the market is bullish and longs pay shorts, these funding rates generate additional yield – historically averaging 8-15% annualized during favorable conditions
When you stake USDe into sUSDe, you receive these combined rewards. The sUSDe token appreciates in value relative to USDe as yield accrues – similar to how stETH works for ETH staking.
sUSDe yield has ranged from approximately 5% to 25%+ APY. Funding rates were higher in 2024 (averaging ~11% annualized) and have moderated to approximately 5% in more recent periods. The yield is variable and directly tied to crypto derivatives market conditions.
Ethena maintains a reserve fund that absorbs losses during periods of negative funding rates. Historically, the longest streak of consecutive negative funding days was 13 – short relative to the 176-day positive streaks observed during bullish periods.
What Is USDe Looping and Why Does It Work
USDe looping exploits the spread between sUSDe yield and stablecoin borrow costs. If sUSDe earns 10% APY and you can borrow USDC at 4% APY, that 6% spread is your profit per unit of capital. Looping lets you multiply that spread across more capital than you originally deposited.
Here is the cycle:
- Step 1: Deposit sUSDe as collateral on a lending protocol (Aave v3, Morpho Blue)
- Step 2: Borrow a stablecoin (USDC, USDT, or DAI) against your sUSDe collateral
- Step 3: Use the borrowed stablecoin to buy more USDe on a DEX
- Step 4: Stake the new USDe into sUSDe
- Step 5: Deposit the new sUSDe back as collateral
- Repeat steps 2-5 as many times as your risk tolerance and LTV limits allow
Each iteration adds more sUSDe earning yield while adding more borrowed stablecoins as debt. Your effective yield scales with leverage.
Example With Real Numbers
Starting with $10,000 in sUSDe at 10% APY, borrowing at 4% APY, and a 75% LTV ratio:
- No looping: $10,000 earning 10% = $1,000/year
- After 1 loop: $17,500 in sUSDe collateral, $7,500 in debt. Net yield = ($17,500 x 10%) - ($7,500 x 4%) = $1,450/year on $10,000 original capital = 14.5% effective APY
- After 3 loops: Roughly 2.5-3x leverage. Effective APY around 18-22%
- Maximum leverage (Morpho Blue, up to 10x): Effective APY can reach 30-60% during high funding rate periods
The math works as long as sUSDe yield exceeds your borrow cost. When funding rates drop below borrow costs, the loop becomes unprofitable and should be unwound.
Manual Looping vs Automated Loop Vaults
Manual Looping
Manual looping means executing each step yourself. For a full loop cycle, you need to:
- Approve sUSDe for the lending protocol
- Deposit sUSDe as collateral
- Borrow USDC/USDT
- Swap borrowed stablecoins for USDe on a DEX
- Stake USDe into sUSDe
- Re-deposit sUSDe as collateral
That is 4-6 transactions per loop cycle. On Ethereum mainnet, gas for a full cycle can run $50-150. You also need to monitor your health factor, rebalance when rates change, and manage the entire unwind process manually when you want to exit.
Some users use flash loans to execute multi-loop strategies in a single transaction, but this requires technical knowledge and often relies on third-party tooling from platforms like Contango or DeFi Saver.
Automated Loop Vaults on Superlend
Superlend Loop Vaults condense the entire process into a single deposit. You deposit USDe or sUSDe, and the vault handles borrowing, swapping, restaking, and rebalancing. When you want to exit, a single withdrawal unwinds the loop.
Key differences between manual and automated:
- Transactions per loop: Manual requires 4-6 per cycle. Loop Vaults require 1 deposit.
- Gas costs: Manual compounds gas across every transaction. Loop Vaults batch operations.
- Rate optimization: Manual loopers pick one protocol and stick with it. Superlend aggregates borrow rates across Aave v3, Morpho Blue, and other protocols to find the lowest cost.
- Health factor management: Manual loopers must monitor and rebalance. Loop Vaults automate this.
- Custody: Both are non-custodial. With Superlend, funds flow directly to the underlying lending protocols – Superlend never holds your assets.
Explore Loop Vaults in the Vaults section on Superlend.
Where to Loop USDe: Protocol Comparison
Not every lending protocol supports sUSDe as collateral. Here are the main options, each with different tradeoffs.
Aave v3
Aave v3 is the largest lending protocol by TVL and added sUSDe as collateral in late 2024. The sUSDe liquid E-Mode on Aave v3 enables higher LTV ratios when borrowing stablecoins against sUSDe, improving capital efficiency for loopers.
- Strengths: Deep liquidity, battle-tested contracts, E-Mode for higher LTV on sUSDe-to-stablecoin borrows
- Considerations: Borrow rates can spike during high-demand periods. Governance-controlled parameters can change.
Morpho Blue
Morpho Blue is a permissionless lending primitive where anyone can create isolated lending markets. Several sUSDe/USDC and sUSDe/DAI markets exist on Morpho Blue with varying parameters.
- Strengths: Higher max leverage (some markets allow up to 10x), flexible market parameters, MakerDAO poured $100M+ in DAI liquidity into Morpho Blue USDe markets
- Considerations: Isolated markets mean liquidity is fragmented. Less battle-tested than Aave v3. Parameters vary by market creator.
Over $1 billion in USDe-related positions were locked on Morpho Blue at peak, making it one of the primary venues for USDe looping.
Euler v2
Euler v2 supports customizable lending vaults and has been expanding its collateral support.
- Strengths: Customizable risk parameters, growing protocol with active development
- Considerations: Smaller TVL than Aave v3 or Morpho Blue. Fewer sUSDe-specific markets. Check current availability.
Fluid
Fluid offers stablecoin looping strategies with a focus on gas efficiency.
- Strengths: Low gas costs, approximately 8.9% APY observed on conservative USDe-USDT loops on Arbitrum, 12% liquidation buffer
- Considerations: Newer protocol. Smaller TVL and fewer battle scars than Aave v3.
Which Protocol Should You Use?
The answer depends on your priority:
- Maximizing leverage: Morpho Blue (up to 10x on some markets)
- Deepest liquidity and track record: Aave v3
- Lowest gas costs: Fluid on Arbitrum or other L2 deployments
- Letting someone else optimize: Superlend Loop Vaults, which route across protocols to find the best combination of borrow rate, LTV, and liquidity
For a broader overview of how DeFi lending protocols work and differ, see the complete guide to DeFi lending.
Risk Factors: What Can Go Wrong
USDe looping amplifies yield – and amplifies risk. Every yield farmer considering this strategy needs to understand four specific risks.
Funding Rate Reversal
sUSDe yield depends on perpetual futures funding rates being positive. When crypto markets turn bearish and shorts outnumber longs, funding rates flip negative – meaning Ethena's positions pay rather than receive.
Historically, funding rates averaged approximately 11% annualized in 2024 and approximately 5% in 2025. The longest observed streak of consecutive negative funding days was 13. Ethena's reserve fund absorbs losses during negative periods. However, a prolonged bear market with sustained negative funding would erode sUSDe returns.
If your sUSDe yield drops below your borrow cost, the loop becomes a net loss. At 3x leverage, even a small negative spread compounds quickly.
USDe Depeg Risk
In October 2025, USDe briefly traded at $0.65 on Binance due to an exchange-level oracle issue. On decentralized venues like Uniswap, the peg held. This was not a protocol failure, but it demonstrated that price dislocations can happen – and leveraged positions are especially vulnerable.
A meaningful, sustained USDe depeg would cause sUSDe collateral values to drop, health factors to deteriorate, and potentially trigger liquidations across looped positions.
Liquidation Risk
Leverage means a smaller price movement can wipe out your position. If your health factor drops below the liquidation threshold – because sUSDe value decreases, borrow rates spike, or both – your collateral will be liquidated.
Higher leverage means a thinner margin of safety. A 3x loop has more room to absorb shocks than a 10x loop. Know your liquidation price before entering any leveraged position. For practical strategies to protect your positions, see our guide on how to avoid liquidation.
Smart Contract Risk
USDe looping involves multiple layers of smart contracts – Ethena's staking contract, the lending protocol (Aave v3, Morpho Blue, Euler v2), swap contracts, and potentially Superlend's vault contracts. Each layer introduces its own smart contract risk. All major protocols in this stack have been audited, but audits reduce risk rather than eliminate it.
For more on assessing DeFi risks, see our guide on stablecoin yield strategies.
How Superlend Simplifies USDe Looping
Superlend is a non-custodial DeFi lending aggregator connecting users to 350+ money markets across 11+ chains. For USDe looping specifically, Superlend adds value in three ways.
Cross-protocol rate discovery. Superlend aggregates borrow rates from Aave v3, Morpho Blue, Euler v2, Compound, and Fluid in real time. Instead of checking each protocol individually to find the cheapest stablecoin borrow rate for your sUSDe loop, Superlend surfaces the best option on a single dashboard.
Loop Vaults for one-click execution. Rather than executing 4-6 transactions per loop cycle, depositing into a Loop Vault on Superlend automates the entire strategy. The vault borrows at optimal rates, acquires more sUSDe, manages health factors, and rebalances as conditions change. Explore available strategies in the Vaults section.
Portfolio tracking. Once you have active positions – whether through Loop Vaults or manual lending – Superlend's portfolio view shows all your DeFi lending positions across protocols and chains in one place. No switching between tabs.
Frequently Asked Questions
What is the minimum amount needed to loop USDe? There is no protocol-enforced minimum, but gas costs on Ethereum mainnet make small positions impractical for manual looping. On L2s like Arbitrum, gas is negligible. Loop Vaults batch operations to reduce per-user gas overhead.
Can I lose more than I deposited? No. Lending protocols liquidate your collateral before your debt exceeds its value. You can lose your entire deposit to liquidation, but you will not owe additional funds.
What happens if funding rates go negative for a long time? Your sUSDe will accrue reduced or zero yield while your borrow costs continue. The loop becomes unprofitable. You should monitor funding rates and be prepared to unwind your position.
Is sUSDe the same as USDe? No. USDe is Ethena's synthetic dollar. sUSDe is the staked version that earns yield. You need to stake USDe to receive sUSDe before it can be used as yield-bearing collateral.
Leveraged positions carry additional risk of liquidation. Rates are variable and subject to change. Past performance does not guarantee future results. Not financial advice. DeFi involves risks including smart contract vulnerabilities and potential loss of funds. DYOR.