Liquid Staking Tokens (LSTs) in DeFi: The Best Strategies for stETH and More
Liquid staking tokens like stETH earn staking yield AND can be used in DeFi. This guide covers the best strategies for deploying LSTs across lending, LPs, and restaking to stack yields.
Liquid Staking Tokens (LSTs) solve a fundamental problem: native ETH staking locks your capital while earning yield. LSTs (stETH, rETH, mSOL) earn staking yield AND remain usable in DeFi. This creates "stacked yield" opportunities that can double or triple your base staking return.
Top LST Strategies
- stETH as Aave V3 collateral: earn 3.5% staking yield + borrow USDC to deploy elsewhere
- stETH/ETH Curve pool: earn 3.5% staking + 3–5% LP fees (correlated pair = minimal IL)
- wstETH → Pendle PT: sell variable yield for fixed yield; lock in guaranteed 10–12% APY
- stETH → EigenLayer restaking: earn staking + AVS rewards for additional 2–5% APY
Looping Strategies (Advanced)
Loop: deposit stETH on Aave → borrow ETH → stake borrowed ETH → get more stETH → repeat. This creates leveraged staking exposure. A 3x loop at 3.5% staking yield = ~10.5% gross APY on ETH exposure. Risk: if ETH drops, LTV rises rapidly. Gas costs make this viable only for $50,000+ positions.
LST Depeg Risk Management
- Monitor stETH/ETH ratio daily: should stay within 0.2% of parity
- Significant depeg (>2%) signals liquidation cascade or smart contract concern — consider exit
- Diversify across Lido (stETH) and Rocket Pool (rETH) to reduce single-protocol LST risk
- Keep a portion (20%+) in native ETH to maintain flexibility