Hey Edge readers,

If you’ve been staking ETH or holding liquid staking tokens (LSTs) like stETH or rETH, you might have noticed your yield slowly shrinking over time.

Staking rewards, once a reliable 4-5%, have quietly compressed over the years. And it’s not by accident. This drop reflects a deeper shift in Ethereum’s economic design, and it’s pushing yield seekers to rethink their strategies.

In this week’s issue, we’ll break down why ETH staking yields are falling, where that yield is going, and how you can stay ahead by repositioning into smarter ETH-based strategies.

Stay sharp. 🫡

-The Exponential team

Too much staked ETH, too little yield

When Ethereum transitioned to Proof-of-Stake (PoS), it introduced staking rewards as the backbone of network security. The more ETH staked, the more secure the chain. But this also meant lower yields per validator.

Fast forward to today, over 34M ETH is now staked, or more than 28% of the total supply. That number continues to rise, which results in the network adjusting rewards down to maintain equilibrium and avoid over-incentivizing staking. As a result, staking yield has dropped from around 5% post-Merge to under 3% today.

But that’s not the only reason:

• Blockspace demand is down: Transaction fees (which boost staking rewards) are lower in today’s market compared to the 2021 bull cycle. The rise of Layer 2 rollups has also contributed to lower fees earned by validators.

• MEV revenue is flattening: With fewer arbitrage and liquidations, the MEV boost to staking APY has diminished.

• Staking is easier than ever: New tools and liquid staking platforms have made it frictionless to stake ETH, accelerating adoption and diluting returns.

So what can you do about it? Let’s dig in.👇

1️⃣ Liquid restaking tokens (LRTs)

This is the simplest way to enhance your ETH yield as they work almost identically to LSTs. Platforms like ether.fi and Renzo offer “restaked ETH” exposure with added yield from EigenLayer and other AVS systems.

LRTs like ezETH, eETH, and rsETH currently yield 4–6% APY, combining base ETH staking rewards with restaking incentives.

⚠️ Note: LRTs come with added risk, including greater slashing and additional smart contract exposure. The restaking ecosystem is still early, so yields may fluctuate based on adoption and protocol performance.

2️⃣ Lend ETH to borrowers on Morpho

Morpho offers isolated lending markets, where each pool is curated with specific collateral and borrower parameters.

Yields can range anywere from 2% to over 15% APY, depending on the vault strategy and demand for leverage. Because each market is isolated, you only lend ETH against one collateral type, allowing for more targeted risk and often better returns than traditional pooled lenders like Aave.

🧠 Pro alpha: If you’re comfortable interacting with smart contracts, you can supply directly to borrower markets instead of using vaults. This unlocks more customized yield opportunities but requires more hands-on management as rates and utilization constantly shift.

3️⃣ Pendle ETH fixed yield

Pendle lets you lock in fixed yields by purchasing Principal Tokens (PT) for stETH, rETH, and other yield-bearing ETH assets. These tokens are separated from their future yield, which traders can speculate on through Yield Tokens (YT).

Current PTs are trading at discounts that reflect 4–10% APY, depending on the asset and lock duration.

💡 Keep in mind: The fixed yield is only realized if you hold the PT until maturity. If you exit early, you may take a loss if yields have risen, since the market will discount your lower fixed return.

4️⃣ Leverage loop ETH staking

Platforms like Fluid, Gearbox, and Contango let you amplify ETH staking yield by leveraging your exposure (“looping”).

Here’s how it works in practice:

Deposit stETH as collateral → borrow ETH against it → use the borrowed ETH to buy more stETH → repeat.

This recursive loop can raise returns to 10–12% or much higher, depending on how many loops you take, current staking yields, and borrow rates.

‼️ Just be cautious: Leverage magnifies both gains and losses. You’re exposed to liquidation risk if your collateral (i.e. stETH) falls in value relative to ETH, or if yields compress, so monitor your health factor closely.

5️⃣ Provide ETH liquidity on DEXs

You can pair ETH with LSTs/LRTs (i.e. wstETH or ezETH) on DEXs like Aerodrome, Balancer, or Uniswap to earn trading fees and liquidity incentives. Since these assets track ETH closely, they minimize the risk of impermanent loss.

Depending on trading volume and incentive programs, LPs can earn 8–20% or more.

🎯 Active management required: Constant rebalancing and shifting incentives mean this strategy requires regular monitoring as positions can quickly move out of range and stop earning rewards.

6️⃣ A simpler way: yoETH

If all of the above feels like a lot of work just to earn better ETH yield, you’re not alone. That’s why yield optimizers exist—to help you access the best opportunities without managing everything yourself.

YO is one of the leading protocols solving this problem. Its first vault, yoETH, aggregates strategies like the ones above and automatically allocates to those offering the best risk-adjusted yield.

In the news 🗞️

• Trump repeals IRS DeFi reporting rule. President Trump signed a bill nullifying IRS regulations that classified decentralized finance platforms as brokers for tax reporting purposes. This move removes the requirement for DeFi platforms to issue Form 1099-DA, alleviating compliance burdens and potentially fostering innovation in the DeFi sector.

• Curve founder unveils Yield Basis to eliminate impermanent loss. Michael Egorov introduced Yield Basis, a new protocol designed to eliminate impermanent loss, rethink token emissions, and capture BTC-native yield. The protocol aims to provide LP positions that behave like spot BTC exposure, potentially launching a new phase of DeFi innovation.

• Citrea deploys bridge to tackle Bitcoin DeFi collateral bottleneck.

  Citrea, a project aiming to expand Bitcoin’s utility, has deployed its Clementine Bridge on the Bitcoin testnet. The bridge uses the BitVM2 programming language to provide a trust-minimized way to bridge BTC for use in DeFi environments, addressing a significant bottleneck in Bitcoin DeFi.

Trending 📈