While much of crypto chases volatility, the most capital-efficient allocations of 2025 are hiding in plain sight: looping. These structured strategies quietly recycle billions through the same assets, transforming modest yield spreads into outsized, risk-adjusted returns. In essence, they are the on-chain counterpart to TradFi’s repo and carry trades, now enhanced by tokenized real-world assets.

What is DeFi looping and how does it work?

DeFi looping is a yield amplification mechanism built on correlated collateral and debt. The essence of looping is yield-bearing assets — tokens that grow in value over time. Good examples include liquid staking tokens like Lido’s wstETH, synthetic dollars like Ethena’s sUSDe or tokenized private credit funds like Hamilton Lane’s SCOPE. The process begins by depositing such a yield-bearing asset, e.g. weETH, into a money market account, borrowing a closely related asset against it, e.g. ETH, allocating the borrowed amount back into the yield-bearing version, e.g. staking ETH on EtherFi and then redepositing it as collateral — that is one full loop. One of the most widely adopted looping structures is weETH (EtherFi’s wrapped staking ether) paired with ETH on lending platforms such as Spark.

Asset design: weETH accrues staking rewards, so one unit gradually becomes worth more ETH over time. Here, at EtherFi protocol launch 1 weETH equalled 1 ETH. Now, it equals 1.0744 ETH.

weETH / ETH price appreciation over time via liquid restaking yield accrual, Source: RedStone

Risk correlation: If weETH yields ~3 percent annually and ETH borrow rates are 2.5 percent, each loop captures a 0.5 percent spread. With 90 percent loan-to-value ratio and 10 loops, that spread compounds, potentially increasing returns to roughly 7.5 percent annually.

Market size in 2025 and growth potential

Contango’s Q3 2024 estimates suggested that 20 to 30 percent of the $40 billion-plus locked in money markets and collateralized debt positions was attributable to looping strategies. This implied $12–15 billion in open interest, or roughly 2–3 percent of total DeFi TVL at the time.

Today, that scale is likely much larger: Aave alone holds close to $60 billion in TVL. Given that trading volumes in leverage-based strategies typically exceed open interest by a factor of ten, annual transaction volume from looping may already surpass $100 billion.

Beyond ETH: stable-yield assets

Looping can also be applied to asset pairs that are not necessarily crypto native. A practical example is sACRED / USDC looping on Morpho. Here, a token representing a tokenized private credit fund (Apollo’s ACRED via sACRED vault) is deposited to borrow USDC, which is then converted into sACRED and redeposited. While the yield profile is designed to be predictable, it depends on the performance of the underlying private credit portfolio and is not as inherently stable as ETH staking rewards.

RWA looping strategy on Morpho secured by RedStone price feeds, Source: Gauntlet.

Future directions: tokenized funds as loop collateral

Institutions are bringing RWAs on-chain partly because looping can amplify returns with transparent, modelable risks and auditable parameters. Likely growth lanes include:

Why this matters for institutions

Looping enables more efficient use of capital by turning yield-generating positions into repeatable, collateralizable instruments. The risk–return profile is similar to traditional fixed-income and money market desks, but here it is delivered with 24/7 liquidity, transparent collateralization metrics and automated position management.

It is one of DeFi’s most battle-tested strategies, with clear appeal for traditional finance: higher yields within a framework of transparent, well-defined and actively monitored risks. As tokenized RWAs scale, looping is poised to become a foundational building block in on-chain portfolio construction, further narrowing the gap between traditional and decentralized finance.

- Marcin Kazmierczak, co-founder, RedStone

Emails race across the globe in milliseconds, yet money still moves at a crawl. It can take days to make payments, especially cross-border —  longer over weekends or holidays. The result? Trillions of dollars are trapped where they can’t earn yield.

This inefficiency is more than an inconvenience — it is a systemic drag. For companies and financial institutions, delayed access to liquidity means higher costs, constrained working capital and a structural handicap in a world that expects everything in real real-time.

Stablecoins as the catalyst

The advent of stablecoins proved that money could move at the speed of the internet. Today, trillions of dollars’ worth of transactions settle instantly on blockchain rails, with stablecoins providing the dollar liquidity that powers crypto markets, payments and remittances. But stablecoins themselves only solve half the problem.

Source: https://visaonchainanalytics.com/

They provide speed, not yield. Stablecoin balances, in aggregate hundreds of billions of dollars, typically earn nothing. Contrast that with tokenized treasury assets and money market funds, which are low-risk, yield-bearing instruments that pay the risk-free rate. The challenge is that subscriptions and redemptions into and out of these products still run on asynchronous, often T+2 timelines locking out investable capital needed in the immediate term.

Convergence and composability

The industry now stands on the cusp of convergence. The world’s leading asset managers now offer tokenized money market funds, with BlackRock’s BUIDL for example topping $2 billion in assets under management.

Source: https://app.rwa.xyz/assets/BUIDL

These tokenized funds can transfer and settle instantly, including atomically, against other tokenized instruments like stablecoins. As stablecoin activity increases, so do cash and treasury management needs for which tokenized treasuries are the optimal solution.

What’s missing is the connective tissue. Without neutral infrastructure to enable atomic, 24/7 swaps between stablecoins and tokenized treasuries, we are only digitizing old constraints. The true breakthrough comes when institutions can hold risk-free assets and instantly convert them to cash at any hour, without intermediaries, delays or price slippage.

The stakes

The stakes are enormous. In the U.S. alone, non-interest-bearing bank deposits total nearly $4.0 trillion. If even a fraction were swept into tokenized treasuries and made instantly convertible to stablecoins, it would unlock hundreds of billions of dollars in yield while preserving full liquidity. That is not a marginal efficiency — it is a structural shift in global finance.

Critically, this future requires open, neutral and compliant infrastructure. Proprietary walled gardens may deliver efficiency for one institution, but systemic benefits only emerge when incentives align across issuers, asset managers, custodians and investors. Just as global payment networks required interoperable standards, tokenized markets need shared rails for liquidity.

The path forward

The liquidity gap is not a technical inevitability. The tools exist: tokenized risk-free assets, programmable money and smart contracts capable of enforcing trustless, instant settlement. What is needed now is urgency — by institutions, technologists and policymakers — to bridge the gap.

The future of finance is not merely faster payments. It is a world where capital is never idle, where the trade-off between liquidity and yield disappears and where the foundations of financial markets are rebuilt for an always-on, global economy.

That future is closer than most realize. Those who embrace it will define the next era of financial markets; those who hesitate will be left behind.

-  Will Beeson, founder and CEO, Uniform Labs

As always, get the latest crypto news from coindesk.com and market updates from coindesk.com/indices.

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