LST Lending Rates vs Native Stake Lending Rates

Simultaneous yield + leverage: LSTs like Lido's stETH or Rocket Pool's rETH can be deposited as collateral to borrow stablecoins or other assets, enabling leveraged staking strategies. This matters for DeFi power users and protocols seeking to maximize yield on a single capital base.

Deep, integrated markets: LSTs are natively supported across major lending protocols (Aave, Compound, Euler) and DEXs (Uniswap, Curve). This matters for traders and arbitrageurs who need instant exit liquidity and the ability to deploy capital across multiple DeFi primitives without unbonding delays.

No smart contract exposure for staking: Assets remain in the validator's custody, avoiding risks associated with LST provider smart contracts (e.g., slashing bugs, upgrade governance). This matters for institutional validators and risk-averse stakers prioritizing security over extra yield.

No middleman fees: Earn the full native staking reward (e.g., ~3-4% on Ethereum) without sharing a fee with an LST protocol (typically 5-10% of yield). This matters for large-scale stakers where basis points matter and total cost of capital is a primary concern.

• Active DeFi Strategies: Leveraged staking, yield farming, and collateral recycling.
• Need for Immediate Liquidity: Avoiding unbonding periods (e.g., 27 days on Cosmos, 7-21 days on Solana).
• Protocols Building on Yield-Bearing Collateral: Like MakerDAO's use of wstETH in its DAI minting module.

• Security-First Capital Preservation: Minimizing smart contract and counterparty risk.
• Long-Term, Passive Holdings: "Set and forget" staking with maximum yield.
• Regulatory Clarity: Some jurisdictions may view direct staking more favorably than synthetic derivatives like LSTs.

Unlocks DeFi Composability: LSTs like Lido's stETH, Rocket Pool's rETH, and Frax's sfrxETH can be used as collateral across protocols (Aave, Compound, Maker) while still accruing staking rewards. This enables leveraged staking strategies and boosts effective yield.

Key Metric: LSTs often provide 70-85% Loan-to-Value (LTV) ratios on major lending markets, allowing significant capital reuse.

No Unbonding Periods: LSTs can be instantly traded or used as collateral, bypassing the native staking unlock delay (e.g., 7-28 days on Ethereum). This is critical for protocols requiring agile treasury management or users seeking exit flexibility.

Use Case: Ideal for active traders, hedge funds, and protocols using staked assets for on-chain liquidity provisioning or as emergency collateral.

No Protocol Fees: Direct staking (e.g., via solo staking, SSV Network, or Obol) captures the full consensus and execution layer rewards without the 5-10% fee typically charged by LST providers like Lido.

Key Metric: On Ethereum, this can mean a ~0.5-1% higher APR before leverage, a critical difference for large, long-term holders like DAO treasuries or institutional validators.

No LST Depeg Exposure: Eliminates smart contract and liquidity pool risks associated with LSTs (e.g., potential stETH/ETH depeg events). The asset is the native token itself.

Use Case: Mandatory for risk-averse institutions, regulatory-compliant funds, and protocols where capital preservation is paramount over composability gains.

Active DeFi Strategies: If you need to use staked capital in money markets (Aave), liquidity pools (Curve stETH-ETH), or as collateral for stablecoin minting (Maker).

Examples: Hedge funds running delta-neutral strategies, DAOs leveraging treasury assets, or users seeking to hedge validator slashing risk via diversification.

Maximizing Long-Term, Passive Yield: If you are a large holder (32+ ETH) with a low time preference, prioritizing security and fee minimization over liquidity.

Examples: Foundation treasuries, endowment funds, or individual validators using services like StakeWise V3 or Rocket Pool's solo staker model for maximum reward capture.

Yield Stacking: LSTs like stETH or rETH can be lent on platforms like Aave or Compound to generate ~3-8% APY on top of the base staking reward (~3-5%). This creates a combined yield of 6-13% APY, significantly exceeding native staking alone. This matters for funds maximizing absolute return on idle collateral.

Unlocked Utility: Lending LSTs provides immediate liquidity and leverage. A stETH position can be used as collateral to borrow stablecoins (e.g., USDC) for further deployment, avoiding the 7-28 day unbonding period of native staking. This matters for active treasury management and hedging strategies on Ethereum or Solana.

Direct Security Contribution: Native stakers (e.g., via Lido node operators or solo staking) secure the base layer directly, facing only consensus-layer and slashing risks. This avoids additional smart contract and depeg risks inherent in LST protocols like Lido or Rocket Pool. This matters for risk-averse institutions prioritizing asset custody and base-layer alignment.

No Middleman Fees: Native staking typically involves only the validator's commission (0-10%) or pool fee. LST lending adds lending protocol fees and potentially LST protocol fees (e.g., Lido's 10% staking fee). This results in a more predictable, often lower, cost structure. This matters for large-scale validators minimizing operational overhead and fee leakage.