What Is the Recursive Nesting Yield Strategy? The Risks Behind DeFi's High APY
The recursive nesting yield strategy is an operating model where DeFi users repeatedly stake and borrow across multiple yield protocols to amplify returns. It is commonly found in public chain DeFi yield sectors and is not recommended for non-professional investors to blindly participate in.
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Specific Steps of the Recursive Nesting Yield Strategy
- Prepare a crypto wallet for the corresponding public chain, transfer sufficient native chain gas fees and the planned base principal in advance, and confirm the wallet address has no errors.
- Choose a DeFi protocol that supports looping lending and mining, deposit the base principal into a liquidity pool, obtain the corresponding LP token, then stake the LP token in the lending module to borrow the equivalent base asset of the same value.
- Deposit the borrowed base asset back into the liquidity pool, repeat the staking and borrowing operations until the maximum leverage ratio allowed by the protocol is reached. After all operations are completed, you can receive compounded mining rewards daily.
Prerequisites and Common Failure Reasons
Before operation, prepare the wallet address for the corresponding public chain and sufficient gas fees, and also check the public audit report information of the target protocol in advance.
A common failure reason is users ignoring gas fee fluctuations, causing multi-step transactions to fail midway, so that the staked assets cannot enter the mining status in time.
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Core Risks Behind High APY
- Contract risk: Among the multiple nested protocols, if any one has a vulnerability and is hacked, all of the user's invested principal will be wiped out directly.
- Liquidation risk: When crypto asset prices fluctuate violently, the leveraged collateral will be liquidated by the protocol at a low price, and the user's final remaining assets may be less than 10% of the initial principal.
- Compliance risk: Some nesting project teams have no public audit information and are essentially Ponzi schemes. After investing principal, users may face the project team running away with funds at any time.
After completing operations, you can check all authorized protocol permissions on the wallet's authorization record page, verify asset value changes every 24 hours, and confirm the status of yield arrivals.
