Loop Vaults
Overview
Loop Vaults are designed for users who want to earn high fixed yields by leveraging interest rate arbitrage in a fully automated and capital-efficient manner.
Built for stablecoin holders, these vaults harness advanced DeFi primitives like Pendle’s PT tokens and Morpho and Aave's lending markets to generate leveraged returns—without requiring users to manage positions manually.
If there are any idle funds within the contract users are able to withdraw them at any time. In case there are not sufficient idle funds to execute a withdraw, users can create a withdraw request. The request locks in the rate at the time of creation. Requests are expected to be fulfilled within 1-3 days.
How It Works
When users deposit funds (typically stablecoins) into a Loop Vault, the vault’s allocator performs a sophisticated looping strategy:
Buys Pendle PT Tokens Deposited stablecoins are used to purchase Pendle’s Principal Tokens (PTs), which provide a fixed yield until maturity.
Supplies PTs to Morpho/ Aave The purchased PTs are then supplied as collateral into Morpho or Aave's lending market, unlocking borrowing capacity.
Borrows More Stablecoins Against the PT collateral, the vault borrows more stablecoins from Morpho/ Aave.
Loops the Position The borrowed stablecoins are again used to buy more PT tokens, which are then re-supplied to Morpho/ Aave—repeating the cycle several times to increase capital efficiency and yield exposure.
Why It Works
This strategy takes advantage of a key DeFi inefficiency:
The fixed yield on PT tokens is typically higher than the borrowing rate on Morpho.
By looping this difference multiple times, the vault executes a form of leveraged interest rate arbitrage, allowing users to:
Earn outsized returns on their stablecoins.
Maintain exposure to a fixed yield, rather than volatile farming rewards.
Avoid active management, rebalancing, or reinvestment—everything is automated by the vault logic.
Benefits
Higher Yields: Significantly higher than standard lending protocols due to the spread between PT fixed yield and Morpho borrow rates.
Capital Efficiency: Uses looping to multiply yield on a single deposit without requiring user intervention.
Simplicity: All complex DeFi operations are abstracted away. Users simply deposit, and the vault does the rest.
Risks
While Loop Vaults offer strong upside potential, they also involve leveraged strategies and should be understood clearly:
Interest Rate Risk: If borrowing rates on Morpho rise above PT fixed yields, the strategy becomes unprofitable.
Smart Contract Risk: Exposes users to underlying protocols (Pendle, Morpho).
Liquidation Risk: If the value of PT tokens falls, positions could be liquidated.
Who It's For
Users comfortable with moderate to high DeFi risk in exchange for higher returns.
Stablecoin holders seeking capital-efficient fixed income strategies.
DeFi-native participants who want exposure to interest rate arbitrage without manual complexity.
Protocol Fee
Loop Vaults currently have a 6% performance fee.
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