Lido stETH Leverage Strategies Pose Liquidation Risk as Aave LTV Hits 95%

According to crypto.news analysis published on July 7, Lido's stETH leverage loops carry hidden liquidation risks that most yield guides fail to quantify. Leverage strategies on the liquid staking token push returns to 8% to 15% annually through recursive borrowing and restaking, versus the base reward of 3.2% to 3.5%. Aave's Lido Prime Instance offers loan-to-value ratios up to 95% on wstETH, leaving only a 5% margin before positions face liquidation.

A temporary stETH depeg would trigger forced liquidations that deepen the price decline in a self-reinforcing spiral. Historical precedent came in 2022, when stETH traded at a five-cent discount to Ether during a market crisis, resulting in over $180 million in liquidations across DeFi protocols, according to Bitget research.