Native Stake Collateral Factor excels at representing fundamental, non-correlated risk because it is tied directly to the underlying validator's performance and slashing penalties. For example, on a network like Ethereum, native staked ETH has a slashing risk of ~0.1-1% of the stake per validator incident, a quantifiable, protocol-level risk. This makes its risk profile distinct from general market volatility, allowing protocols like Aave and Compound to assign it high collateral factors (e.g., 70-85%) as a stable, yield-bearing asset.
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Comparisons
LST Collateral Factor vs Native Stake Collateral Factor
A technical analysis comparing how major DeFi lending protocols (Aave, Compound) value and risk-weight Liquid Staking Tokens versus native staked assets. This guide examines capital efficiency, liquidation risk, and protocol design trade-offs for CTOs and protocol architects.
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introduction
THE ANALYSIS
Introduction: The Collateral Factor as a Risk Signal
A technical breakdown of how collateral factors for Liquid Staking Tokens (LSTs) and native stake differ as risk signals for DeFi lending protocols.
LST Collateral Factor (e.g., for Lido's stETH, Rocket Pool's rETH) takes a different approach by bundling native stake risk with additional smart contract and liquidity risks. This results in a trade-off: while LSTs offer superior composability and immediate liquidity, they introduce dependencies on the LST provider's security and the stability of its peg. The de-pegging event of stETH in June 2022, where it traded at a ~7% discount to ETH, demonstrated this systemic correlation risk, leading protocols to maintain more conservative collateral factors (e.g., 70-80%).
The key trade-off: If your priority is maximizing capital efficiency with a non-correlated, yield-generating asset, native stake is the superior risk signal. If you prioritize composability and liquidity for complex DeFi strategies (leveraged staking, recursive lending), LSTs are the pragmatic choice, albeit with a slightly higher risk-adjusted discount. The decision hinges on whether you value pristine collateral purity or operational flexibility.
tldr-summary
LST vs Native Stake Collateral
TL;DR: Key Differentiators at a Glance
A direct comparison of liquidity-staked token (LST) and native staking collateral factors for DeFi lending protocols. Choose based on your protocol's risk appetite and target user base.
01
LST Collateral: Superior Capital Efficiency
Higher Loan-to-Value (LTV) Ratios: Protocols like Aave and Compound often set LST collateral factors at 75-85%, versus ~50-65% for native staked assets. This unlocks ~20-30% more borrowing power per dollar deposited. This matters for yield farmers and leveraged strategies seeking maximum capital utility.
02
LST Collateral: Deep, Fungible Liquidity
Access to Broader DeFi: LSTs like Lido's stETH, Rocket Pool's rETH, and Coinbase's cbETH are integrated across DEXs (Uniswap, Curve), money markets, and perps. This provides instant exit liquidity and composability, crucial for protocols building complex financial products that require asset mobility.
03
Native Stake Collateral: Lower Systemic Risk
No LST-Specific Slashing or Depeg Risk: Collateralizing natively staked assets (e.g., via EigenLayer, Stader) avoids exposure to the smart contract risk and potential stablecoin-like depeg events of LST issuers. This matters for risk-averse protocols and those prioritizing the security of the base layer.
04
Native Stake Collateral: Direct Yield Capture
No Fee Leakage: Users retain 100% of the native staking rewards (minus protocol fees), unlike LSTs which typically take a 5-10% commission. This results in a higher effective yield for the depositor, a key differentiator for protocols targeting long-term, yield-sensitive capital.
HEAD-TO-HEAD COMPARISON
LST Collateral Factor vs Native Stake Collateral Factor
Direct comparison of risk parameters and capital efficiency for DeFi lending.
| Metric | LST Collateral Factor | Native Stake Collateral Factor |
|---|---|---|
Typical Maximum LTV | 70-85% | 0% |
Capital Efficiency | High (Liquid & Staked) | None (Illiquid & Staked) |
Slashing Risk for Lender | Indirect (via LST Depeg) | Direct (via Validator) |
Protocol Examples | Aave, Compound, Euler | Not applicable |
Yield Source | Staking Rewards + DeFi Yield | Staking Rewards Only |
Unstaking Period | Instant (LST Market) | ~7-28 days (Protocol Queue) |
Oracle Dependency |
pros-cons-a
LSTs vs Native Staking
LST Collateral Factor: Pros and Cons
Key strengths and trade-offs for DeFi lending markets at a glance.
01
LSTs: Higher Capital Efficiency
Higher collateral factors (75-90%): Assets like stETH and rETH are often valued closer to their underlying ETH. This enables superior capital efficiency for borrowers, allowing them to borrow more against their staked position. This matters for leveraged staking strategies and maximizing yield.
02
LSTs: Composability & Liquidity
Deep integration across DeFi: LSTs like wstETH and cbETH are core money-legos on Aave, Compound, and Maker. Their high liquidity (e.g., stETH TVL > $30B) reduces slippage and unlocks strategies like collateralized borrowing for yield farming without exiting the staking position.
03
Native Stake: Maximum Security & Simplicity
Direct validator slashing risk: Native stake (e.g., solo-staked ETH) carries no third-party smart contract or custodial risk from an LST provider. This matters for institutional treasuries and risk-averse stakers prioritizing absolute security over extra yield.
04
Native Stake: No Depeg or Oracle Risk
1:1 ETH redemption guarantee: Native stake is the underlying asset, eliminating exposure to LST depeg events (e.g., stETH/ETH trading below 1.0) and reliance on price oracles. This is critical for long-term, high-value collateral positions where stability is paramount.
pros-cons-b
LSTs vs. Native Staking
Native Stake Collateral Factor: Pros and Cons
Key strengths and trade-offs for DeFi lending protocols and users choosing collateral types.
01
LST Collateral Factor: Higher LTV & Capital Efficiency
Higher Loan-to-Value ratios: Protocols like Aave and Compound often assign LSTs (e.g., stETH, rETH) collateral factors of 75-85%, versus ~50% for native staked ETH. This enables ~50% more borrowing power for the same collateral value. This matters for leveraged yield strategies and maximizing capital efficiency in DeFi.
02
LST Collateral Factor: Composability & Liquidity
Deep DeFi integration: LSTs are ERC-20s, enabling seamless use across DEXs (Uniswap, Curve), money markets, and yield aggregators. This creates a liquid secondary market, allowing users to exit positions without unbonding delays. This matters for active traders and protocols building complex, cross-protocol strategies.
03
Native Stake Collateral Factor: Zero Counterparty & Slashing Risk
Direct validator security: Native staking (e.g., via EigenLayer, Rocket Pool Minipools) involves no smart contract risk from an LST issuer. The slashing risk is transparent and protocol-defined, not dependent on a third-party's node operations. This matters for risk-averse institutions and protocols prioritizing maximal security guarantees over yield.
04
Native Stake Collateral Factor: Protocol Alignment & Rewards
Direct economic security: Using natively staked assets as collateral (e.g., in EigenLayer AVSs) directly secures the underlying protocol, aligning staker and network incentives. Users may earn additional rewards (restaking points, AVS fees) on top of base staking yield. This matters for protocols building new cryptoeconomic systems and users seeking maximal long-term alignment.
CHOOSE YOUR PRIORITY
Decision Framework: When to Choose Which
LST Collateral Factor for DeFi
Verdict: The default choice for maximizing capital efficiency and composability. Strengths:
- Higher Capital Efficiency: LSTs like Lido's stETH, Rocket Pool's rETH, and Coinbase's cbETH are designed as DeFi primitives. They typically achieve collateral factors (CF) of 75-85% on major lending protocols like Aave and Compound, unlocking significant borrowing power.
- Deep Composability: LSTs integrate seamlessly across the DeFi stack—used as collateral in lending, liquidity in DEX pools (e.g., Curve stETH/ETH), and yield-bearing assets in yield aggregators.
- Liquidity & Proven Security: Major LSTs have multi-billion dollar TVL and have undergone extensive smart contract audits, reducing protocol risk.
Native Stake Collateral Factor for DeFi
Verdict: A niche option for ultra-conservative, validator-aligned protocols. Strengths:
- Eliminates LST Protocol Risk: Removes dependency on third-party LST issuers, appealing for protocols prioritizing maximal decentralization.
- Direct Validator Rewards: Rewards accrue natively, simplifying the yield stream. However, the CF is severely limited (often 0% or very low) due to the 32 ETH unbonding period and slashing risk, making it poor for leverage.
Use Case Example: A lending protocol like Aave uses high-CF LSTs for general markets. A niche staking derivative protocol might accept native stake directly to mint a wrapped version, but it remains a complex, low-liquidity path.
LST VS NATIVE STAKE
Technical Deep Dive: Oracle Design & Slashing Risk
A critical analysis of how Liquid Staking Tokens (LSTs) and native stake are valued as collateral, focusing on the underlying oracle mechanisms and the distinct slashing risks each presents to lending protocols.
Native stake is fundamentally more secure as collateral due to direct slashing accountability. When a user deposits native stake (e.g., 32 ETH), the validator's private key is custodied by the protocol (like Lido or Rocket Pool), creating a direct, non-transferable slashing liability. LSTs (like stETH or rETH), as transferable tokens, rely on oracle price feeds to reflect their underlying value, introducing a dependency and potential latency in risk assessment.
verdict
THE ANALYSIS
Final Verdict and Strategic Recommendation
Choosing between LST and native stake collateral factors is a strategic decision balancing capital efficiency against protocol security and simplicity.
LST Collateral Factors excel at maximizing capital efficiency and composability because they leverage the deep liquidity and secondary market value of assets like Lido's stETH, Rocket Pool's rETH, or Coinbase's cbETH. For example, platforms like Aave and Compound have implemented high Loan-to-Value (LTV) ratios (often 70-80%) for major LSTs, enabling significant borrowing power against staked positions. This creates a powerful flywheel for DeFi, where staked capital can be simultaneously deployed in lending, liquidity provision, or leveraged yield strategies.
Native Stake Collateral Factors take a fundamentally different approach by valuing the stake based on its eventual withdrawal value within the native protocol, as seen with EigenLayer's restaking model. This results in a trade-off of lower immediate capital efficiency—often with a 100% collateral factor, meaning it can only secure its own value—for unparalleled security alignment and elimination of third-party token risk. The value is not in liquidity but in providing cryptoeconomic security to Actively Validated Services (AVSs).
The key trade-off: If your priority is leveraging existing DeFi liquidity for higher yields and borrowing, choose LSTs. Their integration with money markets like Aave and their role in protocols like MakerDAO's DAI minting make them ideal for active portfolio management. If you prioritize maximizing the security utility of your stake and participating in nascent restaking ecosystems with a focus on protocol-native rewards, choose Native Stake. This path is critical for teams building or depending on AVSs that require robust, natively-aligned security guarantees.
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