The decentralized finance (DeFi) ecosystem continues to evolve, offering users innovative ways to maximize returns on their digital assets. One of the most powerful combinations in today’s DeFi landscape is the integration of Lido’s stETH and wstETH with Aave, a leading non-custodial lending and borrowing protocol. This guide walks you through how to use stETH and wstETH on Aave, unlock liquidity, and explore advanced yield strategies—all while continuing to earn Ethereum staking rewards.
Whether you're a seasoned DeFi user or new to liquid staking, understanding how stETH and wstETH function within Aave’s ecosystem can significantly enhance your capital efficiency.
Understanding stETH and wstETH
stETH (staked ETH) is Lido’s liquid staking token, representing ETH staked through the Lido protocol. When you stake ETH with Lido, you receive stETH in return, which accrues value as Ethereum staking rewards are added daily. This allows users to remain liquid while still participating in network validation.
wstETH (wrapped stETH) is a wrapped version of stETH designed to maintain a constant balance while increasing in value. Unlike stETH, which rebases (increases in quantity), wstETH keeps the same token amount but grows in underlying worth—making it more compatible with certain DeFi protocols.
Both tokens play a crucial role in DeFi strategies, especially when integrated with lending platforms like Aave.
Aave V2 vs. Aave V3: Key Differences for stETH and wstETH
Aave operates two major versions—V2 and V3—across multiple blockchains including Ethereum, Optimism, Arbitrum, and Polygon. Support for stETH and wstETH varies between versions:
- Aave V2 (Ethereum only):
Users can supply stETH as collateral but cannot borrow stETH. This means you can deposit stETH to borrow other assets like DAI or USDC, but you can’t take out a loan in stETH. - Aave V3 (Ethereum, Optimism, Arbitrum, Polygon):
Supports both lending and borrowing of wstETH. This opens up more flexibility, including the ability to use wstETH as collateral or borrow it directly for leveraged strategies.
👉 Discover how to start using DeFi lending protocols safely and efficiently.
How to Borrow Against stETH or wstETH
Using your staked Ethereum as collateral allows you to access liquidity without unstaking or disrupting your staking rewards. Here's how it works:
Step 1: Supply stETH or wstETH
- Connect your wallet to the Aave app.
- Navigate to the “Supply” section.
- Search for stETH (on V2) or wstETH (on V3).
- Enter the amount you’d like to deposit and confirm the transaction.
Once supplied, your stETH or wstETH becomes collateral for borrowing other assets.
Step 2: Borrow an Asset
After supplying collateral:
- Go to the “Borrow” section.
- Choose a supported asset such as DAI, USDC, or WETH.
- Enter the loan amount—ensuring your loan-to-value (LTV) ratio stays within safe limits.
- Confirm the borrow transaction.
✅ Success: You now have access to liquidity while your original stETH or wstETH continues earning staking rewards.
Note: Always monitor your health factor—a metric that indicates how close your position is to liquidation. A health factor below 1.0 means your collateral may be at risk.
Advanced Strategy: Leveraged Ethereum Staking
One of the most powerful use cases enabled by Aave and Lido’s integration is leveraged staking—a strategy that amplifies your exposure to Ethereum staking returns.
Here’s how it works:
- Supply wstETH as collateral on Aave V3.
- Borrow ETH (or another asset) against it.
- Restake the borrowed ETH via Lido to receive more wstETH.
- Repeat the process to increase your staked position.
Each cycle increases your total staked ETH balance, effectively leveraging your initial deposit. While this boosts potential returns, it also increases risk—especially during market volatility or sharp drops in ETH price.
Managing Risks
- Health Factor Monitoring: Keep your health factor well above 1.0 (ideally above 1.5) to avoid liquidation.
- Gas Efficiency: Repeating this process manually leads to high gas costs and multiple transactions.
- Automated Solutions: Platforms like DefiSaver offer one-click execution for leveraged staking, reducing friction and saving on gas fees.
👉 Learn how automated DeFi tools can streamline complex yield strategies.
Frequently Asked Questions (FAQs)
Do I still earn staking rewards when supplying stETH or wstETH on Aave?
Yes. When you supply stETH on Aave V2, your balance increases after Lido’s daily rebasing event (~12:30 UTC), reflecting accumulated staking rewards. For wstETH, the token balance remains constant, but its underlying value grows over time—so your position gains value even without rebasing.
Why is the supply APY for stETH/wstETH on Aave lower than Lido’s staking APR?
The APY displayed on Aave reflects only the interest paid by the Aave market itself—not Lido’s staking rewards. However, you still earn Lido’s full staking yield separately. The displayed APY is just one component; your total return includes both Aave’s rate and Lido’s rewards.
Can I borrow stETH directly on Aave?
Not on V2. On Aave V2, you can supply stETH but cannot borrow it. On Aave V3, borrowing is only available for wstETH, not raw stETH.
Is leveraged staking safe?
It can be profitable but carries higher risk. If ETH’s price drops significantly, your health factor may deteriorate rapidly, leading to partial or full liquidation of your collateral. Only experienced users should attempt this strategy—with proper risk management.
Which chains support wstETH on Aave V3?
wstETH is supported on Ethereum, Optimism, Arbitrum, and Polygon within Aave V3, allowing cross-chain flexibility for borrowing and lending.
What happens if my position gets liquidated?
If your health factor falls below 1.0, lenders can liquidate up to 50% of your collateral at a discount. This protects the protocol but results in a loss for you—so monitoring is essential.
👉 Stay ahead with real-time portfolio tracking and risk analysis tools.
Final Thoughts
The integration of stETH and wstETH with Aave unlocks powerful opportunities for DeFi users seeking yield optimization and capital efficiency. From simple collateralized borrowing to advanced leveraged staking strategies, these tools allow you to remain fully engaged in Ethereum’s consensus layer while accessing liquidity or amplifying returns.
As always, proceed with caution—especially when leveraging positions. Use trusted interfaces, monitor your health metrics closely, and consider automated platforms to reduce execution costs.
By combining liquid staking with decentralized lending, you’re not just holding ETH—you’re actively growing it.
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stETH, wstETH, Aave, leveraged staking, DeFi lending, liquid staking, Ethereum staking, health factor