Advanced DeFi – Liquid Staking and Real-World Asset Integration
Hello everyone! I hope you will be good. Today I am here to participate in the contest of Steemit Crypto Academy about the Advanced DeFi – Liquid Staking and Real-World Asset Integration. It is really an interesting and knowledgeable contest. There is a lot to explore. If you want to join then:
Question 1: Understanding Liquid Staking
Explain the fundamentals of liquid staking and how it differs from traditional staking. Discuss its advantages and risks, using relevant examples from platforms like Lido, Rocket Pool, or Frax.
We often listen about the word staking in our daily life but many of us are not actually aware about the correct meaning and working of the staking. Before diving deep into liquid staking I will try to explain staking. Staking in cryptocurrency is holding or locking up the assets to earn rewards. The users participate in the blockchain consensus mechanism through staking. They help in the validation of the transactions and to make the network more secure and trusted.
Liquid staking is the innovation of the blockchain. It allows the users to participate in the staking. In the liquid staking the users are flexible to use their staked assets. In the liquid staking when the users stake their tokens through a liquid staking protocol then they receive derivative tokens. These derivate tokens belong to that network such as stETH, rETH, sfrxETH. These quantity of these assets represents their staked assets and they allow them to earn staking rewards.
The users can easily and freely trade their derivative tokens. These can be used in the decentralized finance or DeFi applications. The users can redeem the tokens for the underlying assets after the completion of the staking period.
How Liquid Staking Differs from Traditional Staking
The major difference in the liquid staking and traditional staking is staking period. In the traditional staking the users are required to lock up their assets for a fixed period of time. In this fixed period of time traditional staking restricts the users to trade or utilise their staked funds. But when we come liquid staking it is completely against this system. Liquid staking provides tokenized representation of the staked assets. It allows the users to access liquidity. The users can still earn staking rewards.
| Feature | Traditional Staking | Liquid Staking |
|---|---|---|
| Liquidity | Funds are locked for specific period | Funds are converted to tokens and they are tradable in DeFi |
| Earning Potential | Rewards are earned but the assets are idle | Rewards are earned while using tokens for yield farming or lending |
| Unstaking Process | It often requires waiting such as exit queue of Ethereum. | Assets can be unstaked via liquidity pools or secondary markets |
| Risk Exposure | Subject to validator slashing risks | Includes additional smart contract and liquidity risks |
| Flexibility | This is not flexible. Assets are limited to use. | This is flexible. The assets are usable in lending, trading, and DeFi strategies |
Advantages and Risks of Liquid Staking
Always there are two sides of each picture. Similarly liquid staking has advantages but there are also some risks associated with the liquid staking. This is the best alternative to the traditional staking. Here are the key advantages and the risks associated with this:
Advantages of Liquid Staking
Here are the advantages of the liquid staking along with the suitable examples on the basis of the different platforms:
1. Unlocking Liquidity While Earning Rewards
Liquid staking is flexible and allows the users to earn rewards with the flexibility to use their assets for the DeFi and lending purposes. It provides derivative tokens that can be freely traded and used in the lending.
Example: Lido is a liquid staking platform and it issues stETH to the users as a derivative tokens for their staked assets. Users can use stETH tokens in lending protocols such as Aave. They can also use stETH for the yield farming on Curve. Instead of these applications they can still earn Ethereum staking rewards.
2. Increased Capital Efficiency
Liquid staking increases the efficiency of the capital. Users can multiply their earnings by using liquid staking in different ways such as a DeFi applications to lend, borrow and for the yield farming.
Example: Frax is a liquid staking platform and it also provides derivative tokens to the users. The derivative tokens frxETH can be used in liquidity pools. On the other hand sfrxETH which are the staked tokens increase the staking yield. It allows the users to increases their rewards.
3. No Long Unstaking Periods
Traditional staking requires long period for unstaking. The traditional staking of Ethereum uses an exit queue for the withdrawals of the staked assets. This exit queue can take weeks. Liquid staking tokens allow the users to sell or swap them at anytime.
Example: The derivative tokens of the Rocket platform are used in the pools. The rETH token of the pool is always liquid. It means the users can exit their staked position by selling their derivative tokens rETH in the open market instead of waiting for unstaking. So Rocket platform assures the flexibility of the liquid staking.
4. Enhanced Network Security & Decentralization
Network security and decentralization are the key components in this era which everyone prefers. Everyone wants high security with decentralization. Liquid staking encourages higher participation in the staking to strengthen the security of the blockchain. Some platforms also support decentralized validator setups. Due to the blockchain technology it provides transparency and security.
Example: Rocket Pool allows anyone to become a node operator. To become a node operator it requires just 8 ETH. This makes it more decentralized as compared to Lido. Because Lido has a limited number of validators.
Risks of Liquid Staking
Here are the risks associated with the liquid staking with the examples:
1. Smart Contract Vulnerabilities
We know that liquid staking uses blockchain technology and smart contracts integration for the automation and without the involvement if the third party. There is the risk for the vulnerabilities of the complex smart contracts. If the smart contracts are exploited then it will lead to loss of funds.
Example: If the smart contracts of Lido is compromised or hacked by the hackers then all the assets available in the smart contracts will be drained out from the protocol. This hack can also make the sETH of the users worthless.
2. Validator Slashing Risk
Validator slashing is also a risk for the liquid staking. If a validator of the network behaves maliciously then the rewards can be reduced. If the validator remains offline for more time then the portion of the staked funds can also be slashed in the form of the penality.
Example: In this regard I can relate the working of the Rocket liquid staking platform. Rocket pool distributes the risk across the multiple node operators and validators. But still they face the problem if rewards slashing because of the penalties if the validators do not meet the staking requirements.
3. Price Volatility & Depegging of LSTs
Price volatility and Depegging of the liquid staking tokens is another major risk. Low liquidity can cause price manipulation. The liquid staking tokens do not always trade at 1:1 peg with the underlying assets. According to the demand of the assets or panic selling can cause high volatility in the prices.
Example: During the high market stress stETH traded at a discount price than ETH. It caused liquidity concerns for all the users who relied on it for the leverage.
4. Centralization Concerns
Centralization is also a big risk in the liquid staking platforms. Indeed these are decentralized but if a single authority or company controls more quantity of the staked ETH than other all participants then it can cause centralization risk for the assets.
Example: Lido liquid staking platform currently controls over 30% of all staked ETH. And this leads to centralization and concerns for the network. On the other hand Rocket pool promotes decentralization because it allows anyone to become a validator.
So liquid staking offers flexibility and efficiency of the capital which makes it powerful innovation on the DeFi ecosystem. But it also has some risks such as smart contracts vulnerabilities, rewards reductions, depegging problems and centralization. There are different platforms for the liquid staking which offers different liquid staking models to reward the users.
Question 2: Opportunities in Real-World Asset Tokenization
Analyze how tokenization of real-world assets is changing DeFi. Provide examples of platforms enabling RWA tokenization and discuss potential benefits and challenges.
Real-world asset tokenization is the process of converting physical and traditional assets into digital tokens on the blockchain. Physical and traditional financial assets include real estate, commodities, bonds and invoices. This process enable the trading and fractionalization of these assets. They can be used in the decentralized finance applications which increase the liquidity and accessibility in the market.
RWA is transforming the DeFi ecosystem by integrating the traditional finance with the integration of the blockchain technology. It helps the investors to unlock new opportunities for the investors. It opens more ways for the assets owners and financial market.
How RWA Tokenization is Changing DeFi
Real-world assets are changing the DeFi ecosystem greatly. Here is the complete information how it is changing the DeFi:
1. Liquidity for Traditionally Illiquid Assets
There are many assets which does not have liquidity traditionally. This allows the assets to have liquidity in the market for the easy trading and DeFi applications. Tokenization allows the liquidity for the illiquid assets. It converts the real estate assets or fine arts into smaller parts in the form of the tradeable assets or tokens. If a user cannot buy the complete real estate or fine arts then the user can buy the part of that asset just because of real-world assets tokenization. So it increases the liquidity.
Example: RealT is a platform which allows tokenization of the real-world assets. It tokenizes real estate properties. It enables the investors to buy fractional shares of rental properties. In this way they hold the part of the real estate assets which enables them to earn passive rewards from rent payments in the stablecoins according to their share in the property.
2. Accessibility
We know that we need a lot of capital to invest in the real-world assets such as in the real estate, private equity or commodities but we cannot afford those high capital requirements. Here comes tokenization of the assets which lowers the entry barriers by enabling the fractional ownership. It increases the accessibility of the real-world assets to a wider audience.
Example: In the digital world Goldfinch is a platform which provides credit access to businesses in emerging markets. It allows access by tokenizing real-world loans. In this way the DeFi users can invest through this platform by providing the funds and they can earn yield on the basis of their invested funds.
3. Transparency & Security
Tokenization is carried out using the blockchain networks. Blockchain networks are transparent and more secure than the traditional financial system. In the blockchain all the data is visible to everyone and can be accessed at anytime anywhere. The immutable nature of the blockchain does not miss any records to be added in the ledger. We can know all the transactions and ownership of the assets. It reduces the chances of the fraud and improves the verification process.
Example: There is a TradeFi platform Centrifuge. It tokenizes trade finance assets such as invoices. It allows the small businesses to access the liquidity. And the investors can earn yields from the real-world credit markets.
4. Bridging Traditional Finance & DeFi
Real-world tokenization is the way to eliminate the gap between the traditional markets and decentralized finance. The tokens of the real-world assets can be used as a collateral in different lending protocols. So in this way it merges DeFi with the traditional financial markets.
Example: The biggest example to bridge traditional finance and decentralized is MakerDAO. It has integrated tokenized U.S. Treasury bonds as collateral to back its DAI stablecoin. It is very popular platform. It has stabilized its DeFi with the real-world value.
Similarly here are some other famous platforms which enables RWA tokenization:
Ondo Finance
Ondo finance is one of the famous platforms which enables RWA tokenization. It tokenizes the treasury bonds of United States. By tokenization it allows the decentraized finance users to invest in the government securities while maintaining the accessibility of the blockchain.
Maple Finance
Maple finance is another platform which enables the RWA tokenization. It focuses on the tokenized institutional credits market. In this way it brings real world lending system on the blockchain and decentralized finance.
Potential Benefits of RWA Tokenization
Here are some potential benefits of real-world asset tokenization:
Greater Market Efficiency
The real-world asset tokenization on the blockchain networks enable easy trading and global access to the market. It is far better than the traditional markets where we can trade for the limited hours.Reduced Intermediaries & Costs
Real-world asset tokenization eliminates the third parties from the transactions and it also reduces the transaction costs. Smart contracts automate the settlement processes. Due to the involvement of the smart contracts all the transactions are carried out automatically when certain conditions are met. These are the smart contracts which eliminates the intermediaries such as banks or brokers.Diversification for DeFi Users
The tokenization of the real-world assets brings diversification for the decentralized finance users. With the tokenization of the assets such as bonds, real estate and invoices decentralized finance offers safe options for the investment than the volatile cryptocurrencies.Programmability & Automation
The tokens of the real-world assets can be controlled by using programming tecniques. In the smart contracts programming is used to build the orders and other protocols such as lending and borrowing. This automation controls the automatic orders for these transactions of lending and borrowing and for joining any pools. It improves the efficiency of the capital.
Challenges & Risks in RWA Tokenization
Here are some risks and challenges associated with the real-world assets tokenization:
1. Regulatory Uncertainty
For the security and trust from the government the real-world assets tokenization faces regulatory problems. Governments and the financial regulators are working on the polixies for the tokenized assets. It leads to the uncertainty for the platform and for the investors because at anytime any new regulation policy can appear which can impact the platforms and investors in a negative way.
Example: The SEC's scrutiny of tokenized securities affects how platforms operate within legal frameworks.
2. Counterparty & Legal Risks
Real-world asset tokenization is not like the crypto assets. They depend upon the off-chain entities such as real estate firms and loan issuers. These off chain entities implement enforcement and make the ownership rights more complex.
3. Liquidity & Market Adoption
Real-world tokenized assets rely on the sufficient demand in the decentralized finance markets. When there are no enough buyers and sellers then liquidity remains a challenge. Let suppose if a investor buys the tokens of RWA and he wants to sell his tokens but there are no buyers in the market who are willing to buy the tokens then the investor's money will become worthless.
4. Price Oracles & Trust Issues
Real-world asset tokenization is new in the market and it faces the trust issues. Real-world assets require trusted data sources such as oracles to verify the valuations and ownership of the assets. It increases the reliance on the external data providers.
RWA tokenization is revolutionizing DeFi by bridging traditional finance with blockchain technology. It is providing liquidity, accessibility, and efficiency for the real-world assets. There are different platforms such as RealT, Centrifuge, Goldfinch, and Ondo Finance which allow the users to invest in the real-world assets. There are also some challenges associated with the tokenization of the real-world assets.
Question 3: Practical Applications of Liquid Staking in DeFi
Demonstrate how liquid staking can be incorporated into yield farming or leveraged in DeFi protocols. Use an example of a strategy involving liquid staked tokens (e.g., stETH, rETH) and describe potential risks.
I have mentioned it earlier that staking plays an important role in DeFi. It enables the users to earn staking rewards while having the ability to use their assets in other activities. I will explain here to incorporate liquid staking into yield farming and DeFi protocols. There is a popular strategy in the DeFi which involves the use of stETH to increase the yields with yield farming and lending protocols. It is given below:
Step-by-Step Example Strategy:
1. Stake ETH on Lido and Receive stETH
In order to use Lido's liquid staking in the first step the users needs to deposit ETH to get stETH which is staked ETH.
A user deposits 10 ETH in Lido and they give 10 staked ETH or stETH. It allows the users to start earning staking rewards.
2. Deposit stETH into Aave as Collateral
Now the user can deposit stETH as a collateral in Aave platform. For this purpose the user supplies 10 stETH to Aave. It allows the users to borrow assets against this. On the other hand when the user deposits stETH on Aave the users starts earning a deposit yield.
3. Borrow Stablecoins Against stETH
Users can borrow stablecoins such as USDC and DIA by using stETH as a collateral. The user borrows a 5000 USDC at a safe loan to value ratio of 50% to avoid liquidation risks.
4. Deploy USDC into Yield Farming
The borrowed stablecoin USDC can be used in additional way for the yield farming. The user can deposit 5000 USDC which he borrowed with stETH in the stablecoin pools of Curve, Convex, or Yearn Finance. It will help the user tomeatm additional yield.
On the other hand the user can use USDC to buy more ETH. And then the user can restake ETH in Lido to loop the process. It is a leveraged staking strategy.
5. Earnings Breakdown:
Here is the earning breakdown of the complete loop:
stETH Rewards: The initial staked ETH allows the user to continuously earn staking rewards with 5% APY.
Aave Deposit Yield: The user can earn passive earnings in Aave. When the user deposits stETH to Aave it allows the user to generate 1 to 2% APY.
Yield Farming APY: The user can earn extra yield farming APY by using USDC on Curve or Convex like platforms. The user can earn 5 to 10% APY.
So instead of holding 10 ETH and only earning 5% staking APY the user can do multiple staking and earn more than just 5% of staking rewards. In this way the overall return is increased.
Risks & Challenges in This Strategy
There are different risks and challenges in this strategy which are given below:
1. Liquidation Risk
If the price of ETH drops significantly then the loan to value ratio will be increased. This will cause liquidation of the stETH collateral.
Prevention: It is highly recommended to always keep loan to value ratio 50% below. And continuously monitor the movements of the market.
2. Depegging of stETH or rETH
Another challenge of this strategy is the depegging of stETH or rETH. stETH is not always pegged at 1:1 ratio with ETH. If it starts trading at a discount price or face selling pressure or if it is used to repay the loans then it may lead to losses.
Example: In 2022 the crypto market crash led to depegging of stETH. After this depegging stETH started trading at the price of 0.95 ETH. It affected the leveraged position.
3. Smart Contract & Protocol Risks
Another challenge of this strategy is smart contracts and protocol risks. The liquid staking platforms such as Aave, Lido or Curve can fall prey to hack. The smart contracts can be failed. There may be governance attacks. All these factors lead to the loss of the funds.
Prevention: We should always use reliable and highly secured protocols which have passed through the strong security audits.
4. Interest Rate & Borrowing Costs
The borrow interest rate of Aave fluctuates. If they rise then borrowing USDC will become unprofitable.
Prevention: We should choose fixed and stable borrowing rates when they are available. Do not choose changing borrow rates.
So liquid staking allows efficient strategies for the DeFi ecosystem. It allows the users to earn staking rewards with the additional opportunities of yield farming. The investors can multiply their returns with borrowing and lending. But the investors should always be carefully to manage the associated risks such as liquidation, depegging and volatility of the market. Proper risk management and conservative leverage are important techniques to increase the profits while ensuring safety in DeFi.
Question 4: Building a DeFi Strategy with Liquid Staking and RWAs
Design an investment strategy that integrates both liquid staking and RWA tokenization. Explain how this strategy can optimize yield, reduce risk, and adapt to different market conditions.
This strategy combines the liquid staking with the real-world asset tokenization to form a high yield and diversified investment approach. Liquid staking is the yield from the crypto assets and real-world asset tokenization is the yield from the traditional finance. With the combination of the rewards of staking with the stability of RWAs the investors can increase the returns while reducing the risk of exposure. It also helps the investors to adapt to the different market trends.
Investment Strategy
1. Stake ETH to Receive Liquid Staking Tokens
In the first step deposit we need to deposit 10 ETH into the liquid staking platform such as Lido which gives stETH tokens. Similarly if the user stakes at Rocket Pool then this platform gives rETH and Frax ETH gives sfrxETH.
This staking of ETH enables continuous 5% staking rewards for the investor. On the other hand these derivative tokens are used to maintain the liquidity of the pool. Unlike the traditional staking liquid staking tokens can be used in DeFi without losing staking rewards.
2. Use Derivative Tokens into DeFi
Now the investors can use the derivative tokens in the DeFi. If the user gets 10 stETH for staking then the user can use these 10 derivative tokens for the DeFi yield farming. There are 2 different options for the DeFi yield farming:
- CASE 1: Supply stETH to Aave & Borrow USDC/DAI
The investors can use these derivative tokens to use at Aave and to borrow USDC or DAI. User can deposit stETH into Aave or Spark to earn extra 1 to 2% APY. The user can also borrow stablecoins such as USDC or DAI with the help of stETH at the 50% loan to value ratio. This is the safe leverage ratio. This allows further investments without selling stETH.
- CASE 2: Yield Farming with stETH
Instead of borrowing with the derivative tokens they can also be used for the yield farming. The investors can join stETH/ETH pool at Curve to earn the trading fees as well as CRV tokens. They can also deposit into Convex Finance for the auto compounded returns. It provides additional yield along with the staking rewards.
3. Allocate Stablecoins into Tokenized RWAs for Passive Income
The users can allocate stablecoins to the real-word asset tokenization to earn passive income. So if you have borrowed stablecoins then utilize them by investing them in the tokenized RWAs. You can invest in different markets such as:
You can use your stablecoins in Ondo Finance & Maple Finance. In this way you invest in the tokenized United States Treasuries with an APY of 4 to 6%. Similarly you can use your stablecoins to invest in RealT & Tangible. By investing in these platforms you can earn rental income from tokenized real estate assets with an APY of 5-8%.
Similarly you can invest your stablecoins in Centrifuge & Goldfinch. Through these platforms you invest in the real-world credit markets and in the business loans and you can earn 8-10% APY. These real-world assets generate stable yield in contrast with the crypto volatility.
4. Dynamic Market Adjustments to Optimize Returns
This strategy is not static and it adjusts on the basis of the market conditions. Here is the change in the strategy according to the different market conditions to avoid losses:
- Bull Market (ETH Rising):
In the bull market when the price of ETH rises then increase exposure to the DeFi yield farming. Also focus to leverage the staking strategies for the higher returns on the investment.
- Bear Market (ETH Falling):
Keep an eye on the market when the price of ETH is decreasing. In the bearish market use your capital in the low risk real-world assets such as United States Treasuries and real estate for the stability in the assets. If the borrowing rates of DeFi rises then reduce leverage and hold more RWAs.
Why This Strategy Works
Here are some points which highlight why this strategy works:
Multi-Layered Yield: This strategy is a multi-layered yield farming. It allows to earn staking reward, lending of the assets, borrowing and yield farming at the same time.
Balanced Risk Exposure: This strategy reduces the volatility of combining DeFi with the real-world assets.
Capital Efficiency: This strategy uses liquid staking derivatives to keep the assets working instead of staying idle. Each way there is a win win opportunity.
Adaptive Strategy: This is an adaptive strategy as it shifts itself between the high growth crypto and stable real-world assets as the market fluctuates up and down.
Potential Risks & Mitigation Strategies
Here I have combined the risks, their impacts and the mitigation of those risks:
| Risk | Impact | Mitigation |
|---|---|---|
| Liquidation Risk | If ETH price drops then the collateralized loans may be liquidated. | Maintain low loan to value such as below 50% and monitor the price movements. |
| Depegging of stETH/rETH | stETH may trade below ETH. It reduces the borrowing efficiency. | Diversify across differet RWAs such as rETH, sfrxETH. You can also hedge with ETH futures. |
| RWA Default Risk | Tokenized assets may fail to generate expected returns. | Invest in regulated & audited RWA platforms like Ondo and Maple. |
| Regulatory Uncertainty | The change in the regulatory laws can impact the accessibility of RWA. | Use compliant and trusted platforms and adjust allocation accordingly. |
So by merging liquid staking rewards with stable RWA income this hybrid DeFi strategy provides increased yield, risk diversification as well as adaptability of the market. The ability to dynamically shift between DeFi native staking and real-world financial assets ensures long term sustainability and optimized portfolio performance.
Question 5: Lessons from Real-Life DeFi Innovations
Discuss a real-life or hypothetical scenario where liquid staking or RWA integration significantly impacted a trader’s success or failure. Reflect on key takeaways for future investors.
Success and failures are both different things which go side by side in different scenarios and this success and failure is followed by the strategies which we use in the different market conditions. Here I will explain hypothetical examples for both the cases where liquid staking or RWA integration lead to success as well as failure.
Hypothetical Case of Success
In this case I will maximize the yield through staking and RWA diversification.
Faisal is an experienced DeFi investor. He works on maximizing the passive income while reducing the risk exposure. He does not only rely on the crypto based yield farming but he combines liquid staking and tokenized RWAs. In this way he creates a balanced investment strategy.
Approach used by Faisal
Here is a step by step approach which Faisal used to maximize the profits while reducing the risk:
Liquid Staking for ETH:
Faisal staked 20 ETH on Lido platform and got derivative tokens stETH. And in this way he started earning 5% APY. In this way instead of just holding stETH passively Faisal deposited derivative tokens to Aave as a collateral.
DeFi Lending for Capital Efficiency:
To increase th efficiency of his assets he borrowed 50% of stETH value in USDC which becomes approximately $20,000. He used a safe loan to value ratio below than 50% to prevent himself from being liquidated.
Investing in RWAs for Stability:
Then Faisal used borrowed USDC to invest inOndo Finance. He invested in United Stated Treasuries to get yield of around 5%. He also used his assets to buy tokenized real estate shares via RealT. It enabled him to earn additional 6% rental yield.
Additional Profits:
Moreover Faisal deposited stETH into Curve and joined stETH/ETH pool. In this way he started earning trading fees as well as CRV tokens. Then he reinvested passive income earned from real-world assets into more DeFi opportunities to increase his returns.
Outcome:
Here is the outcome of this strategy:
Total Portfolio Yield:
By using this hybrid strategy Faisdal earned 12-15% yield from staking, RWAs, lending and yield farming instead of 5% staking rewards. It increased his rewards upto 3x.
Resilience in a Bear Market:
In the bear market even when the price of ETH dropped by 20% the steady yield from RWAs managed this loss in the bear market.
Hypothetical Case of Failure
In this hypothetical case there is a user Aslam who is a risk trader. He attemted to increase his gains by aggressively leveraging staked ETH.
Approach used by Aslam
Aslam staked ETH via Rocket Pool and got rETH. But he did not stop there.
He deposited rETH to Aave and he borrowed USDC by using high loan to value ratio at 70%.
Then he invested his borrowed USDc into high risk DeFi yield farming for 30% APY.
He ignored the volatility of the market. The price of ETH was crashed by 30% which reduced the value of rETH.
In this approach due to high loan to value caused liquidation for Aslam. It wiped out majority of the funds of Aslam.
Key Takeaways for Future Investors
From the above two case studies I can conclude these key takeaways for the future traders:
Risk Management:
Risk management is the most critical point of any investment especially when it comes to crypto and real-world assets tokenization along with liquid staking. Do not overleverage in the liquid staking. Because it can lead to the liquidation if the market does not go in your expectations. Always use low leverage for the sustainability in the volatile market.
Diversification Matters:
Diversification is also important while investing. Do not invest all of your money in one asset but diversify your portfolio by investing in different assets. So use mix of the staked assets and real-world assets to balance the risk and the rewards for your investment.
Low LTV:
It is highly recommended to use low loan to value ratio because using higher can put your assets to higher risk and you can loose your assets due to market volatility. Always keep loan to value ratio less than 50%. It prevents from the sudden liquidations during the price swings.
Yield Isn’t Everything:
While investing please understand that yield is not everything. The assets with the high APY comes with higher risk. High APY cannot guarantee sustainable returns on your investment. Use secure and low APY pools. Real-world assets backed income can generate more stability.
The smart investors use hybrid technique where they use DeFi staking with RWAs for the sustainable yield. Always prioritize the efficiency of the capital, diversification and adaptive risk management to ensure the long term success.
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