Looping is an advanced DeFi earning technique: a complete beginner's guide to Web3

Looping is one of the most debated topics in the world of decentralized finance. Many newcomers hear about this strategy but don’t understand what it is or why it sparks so much discussion among crypto enthusiasts.

DeFi Farming Basics: Where Income Starts

Let’s start with the basic concept. Yield farming is a strategy to earn in Web3 by depositing your crypto assets into decentralized protocols and earning rewards in the form of interest or tokens. The idea is simple: instead of just holding ETH or SOL in your wallet, you send them to protocols like Venus, Aave, Compound, or Lido and start earning passive income.

Practical example: if you deposit 1 ETH into Venus on BSC, you’ll receive regular interest payments. It’s similar to a traditional bank deposit but without intermediaries. Today, with ETH around $2,150, such deposits can generate attractive returns.

Looping is a combined strategy for experienced traders

Now, let’s move to the main topic. Looping is a technique that allows you to increase potential income by repeatedly using the same asset. The looping mechanism works as follows:

1. Deposit your asset (e.g., ETH) into a protocol
2. Borrow a portion of that asset (usually 50-80% of the deposited amount)
3. Re-deposit the borrowed asset into the protocol
4. Repeat the process several times in a row

Result? Your total asset position increases, and so do the interest payments you receive, multiplying your earnings. That’s why looping is an attractive strategy for those looking to maximize returns.

Why is looping a risky strategy and how to manage risks

However, you must be extremely cautious. Looping is a high-risk tool, especially due to liquidation risk. If the value of your asset drops too quickly, the protocol may forcibly sell your entire position to cover the risk.

Main risk management rule: always keep your Loan-to-Value (LTV) ratio significantly below the maximum allowed—preferably no higher than 50%. This provides a safety buffer if the market moves against you.

Let’s compare strategies:

• Simple farming: deposit ETH → earn interest. Minimal risk, modest returns.
• Looping: deposit ETH → borrow → deposit borrowed ETH → borrow again. Higher returns but also enormous risks.

Safe farming strategy for beginners

If you’re just entering the DeFi world, here’s a proven approach that minimizes risks:

Step 1: Choose reliable protocols

Use only protocols that have undergone independent audits and have a good reputation:

• Venus (BSC) — suitable for ETH and SOL
• Aave (Polygon and Ethereum) — the safest choice
• Lido — specialized for ETH staking
• Marinade — a safe solution for SOL staking

Step 2: Start with simple deposits, no borrowing

Don’t rush into looping. Focus on just depositing your assets. This will protect you from liquidation risks and help you understand how it works.

Step 3: Start with small amounts

Don’t invest all your savings at once:

• For ETH: deposit Rp10,000-50,000 weekly
• For SOL (currently $89.97): deposit Rp10,000-40,000 weekly

Accumulate enough before moving to more aggressive strategies.

Step 4: Check results monthly

Track:

• How much interest have you earned?
• Has your total portfolio value increased?
• Is it worth it compared to just holding in your wallet?

Practical examples: how it works in practice

Scenario 1: Simple farming without looping