For long-term holders of Ethereum, simply holding ETH is only one strategy. Because Ethereum operates on proof of stake, investors can earn yield through staking, decentralized lending, liquidity providing, and more advanced DeFi strategies.
Returns range from modest, lower risk approaches like staking and lending to higher yield strategies involving leverage and incentive programs. Each method offers a different balance between risk, complexity, and potential reward allowing investors to choose how actively they want to grow their ETH over time.
Lending For Ethereum Yield: DeFi Lending & Private Credit
Lending ethereum in decentralized finance is among the safer onchain strategies, but it typically delivers relatively modest yields. That tradeoff helps explain why long term holders often borrow against their ethereum when deploying capital through protocols such as Aave. Leveraged strategies involving ETH are discussed later on this page.
Providing liquidity to institutional borrowers in private credit markets is another way to generate yield on ethereum. Protocols such as Wildcat facilitate these arrangements, where lenders have historically earned annualized returns in the mid single digits, typically around 3% to 6%.
Ethereum Staking & Restaking
Ethereum staking secures the blockchain through proof of stake. As a long term investor, the choice comes down to control vs convenience when staking ETH. If you prefer control, running the ethereum validator is the best option. If you prefer the convenience of staying liquid to earn more yield in DeFi then liquid staking tokens are your best option.
That difference in choice also affects the yearly APR. Operating the ethereum validators will average 2-3% APR. However, just holding an ETH liquid staking token would produce the same. As an investor, you have some options with the liquid staking token. Deposit into a restaking protocol. The ETH produced from the validators will be reinvested into more validators producing more yield while you’re still liquid with a liquid staking token to be used in decentralized finance.
Liquidity Providing: Correlated ETH Pairs Only
Decentralized exchanges depend on liquidity providers to facilitate onchain trading. With a growing array of ethereum liquid staking tokens in circulation, pairing ETH with those assets has become a profitable strategy for earning trading fees. Returns often average between 4%-8% annually, combining staking rewards, swap fees and, in some cases, additional token incentives.
Advanced DeFi Strategies For Ethereum Yield
We’ve outlined the core strategies for generating yield on ETH. What follows are more advanced approaches designed to enhance returns and grow long-term ethereum holdings. Each lesson below is intentionally concise and practical, allowing investors to apply the strategies repeatedly as opportunities arise.
Leveraging ETH Liquid Staking Tokens For Higher Returns
A relatively hands off way to boost returns from Ethereum staking is to leverage liquid staking tokens. Investors deposit ETH into a liquid staking or restaking protocol, then deposit the resulting token into a lending platform such as Aave. By borrowing ETH against that collateral and repeating the process, they can increase exposure to staking yields until it matches their desired risk profile. The strategy is only semi-passive, however: profitability depends on closely monitoring borrowing costs and interest-rate spreads.
Maximizing Ethereum Returns With Yield Farming
When Layer 1 or Layer 2 networks introduce incentive campaigns funded by native token emissions, they create a time-bound opportunity that lasts only for the duration of the program. These campaigns can be used strategically by deploying ethereum as collateral to borrow the incentivized asset, then allocating that asset into on-chain activities that qualify for reward distributions. Tools such as Merkl.xyz are widely used to track which protocols, liquidity pools and actions are currently receiving emissions.
Under this framework, there are two common methods for increasing ether exposure:
Lower-risk approach (typically on L1 networks): These typically involve decentralized exchanges offering incentives on closely related asset pairs, such as a token and its liquid staking equivalent. This setup maintains optionality, if returns compress, positions can be exited efficiently with minimal friction. Any net increase in ETH holdings generally occurs after the incentive period concludes, once borrowed amounts and accrued interest are repaid and remaining assets are converted into ETH.
Higher-risk, higher-upside approach: Some decentralized exchanges distribute incentives on token/ETH liquidity pools. In this case, the borrowed asset is deployed directly into the pool using zap tools, providing exposure to both swap fees and emission rewards. Yield compounding can be automated through platforms like Beefy, while single-sided liquidity tools such as Krystal, vFat, Revert and Aperture allow for more hands-on position management. Over the course of the incentive period, rewards and fees may offset a portion of the borrowed amount, with the objective of exiting the strategy holding a larger amount of ethereum.
Zero Cost Basis Strategy: Stablecoin Collateral, Ethereum Returns
For more conservative investors focused on capital preservation while maintaining exposure to ethereum, one approach involves using stablecoins as collateral to borrow ETH and pursue modest yield opportunities. Borrowing costs for ether are often relatively low 1-3%. Which can create a positive carry for certain yield structures.
Borrowed ETH may then be allocated to correlated liquidity strategies, including auto-compounding vaults on platforms such as Beefy, or to custom liquidity positions on decentralized exchanges like Uniswap, where price ranges are selected to manage risk and capital efficiency. Depending on market conditions, protocol incentives and execution, returns have historically ranged from approximately 4% to 8% on an annualized basis.
When managed prudently, these structures can allow participants to increase their ethereum exposure over time, with net gains realized after loan principal and interest are repaid. The approach is often viewed as a capital-efficient way to maintain ETH exposure while seeking incremental yield, though outcomes depend on market dynamics and risk management.