Ethereum News Today: DeFi Looping Drives 7.5 Yield in Tokenized RWA Ecosystem

DeFi looping is emerging as a pivotal strategy in the tokenized real-world assets (RWA) ecosystem, offering institutional-grade risk-adjusted returns with transparency and efficiency. This technique, which involves recycling yield-bearing assets through lending and staking cycles, has demonstrated its viability in capital markets and is expected to play a central role in on-chain portfolio design as RWAs gain traction [1].

The mechanics of looping typically revolve around yield-bearing tokens such as staked ETH derivatives, synthetic stablecoins, or tokenized private credit assets. A common example is EtherFi’s weETH, which is deposited into a lending protocol to borrow ETH, which is then restaked into yield-generating platforms and redeposited as collateral. This cycle repeats, capturing yield spreads and compounding returns. With a 3% annual yield on weETH and 2.5% borrowing costs on ETH, a looping strategy using a 90% loan-to-value ratio and repeated cycles can potentially amplify returns to over 7.5% annually [1].

The adoption of looping strategies is already significant. Contango estimated in Q3 2024 that 20–30% of the $40+ billion in DeFi money markets and collateralized debt positions were linked to looping, translating to $12–15 billion in open interest. Considering that leverage-based trading volumes often exceed open interest by a factor of ten, annual looping transaction volumes may now surpass $100 billion [1].

Beyond native crypto assets, looping is being applied to non-crypto yield sources, such as tokenized private credit funds. On platforms like Morpho, tokenized assets like Apollo’s ACRED (via sACRED) can be used to borrow stablecoins like USDC, which are then converted back into yield-bearing instruments and redeposited. While these structures offer more predictable yield profiles than crypto-native assets, they are subject to the performance of the underlying credit portfolios [1].

Institutional interest in looping is growing, particularly as RWAs are tokenized and integrated into DeFi infrastructure. Platforms like RedStone provide price feeds that enable transparent and auditable looping strategies. Examples of emerging use cases include tokenized private credit funds such as Hamilton Lane’s SCOPE, cash-and-carry strategies like Spiko C& C, and reinsurance-linked securities with historically low default rates [1].

Looping’s appeal lies in its ability to bridge traditional and decentralized finance. It transforms fixed-income-like strategies into continuously liquid and automated instruments, with collateralization metrics and risk models that are transparent and programmable. This makes it an attractive tool for institutions seeking higher yields without sacrificing risk control. As tokenized RWAs mature, looping is expected to become a foundational element of on-chain portfolio construction, reinforcing the convergence between DeFi and traditional finance [1].

Source: [1] The Era of Real-World Assets DeFi Looping is Here (https://www.coindesk.com/coindesk-indices/2025/08/20/the-era-of-real-world-assets-defi-looping-is-here)