RWA Looping Gains Traction as DeFi Strategy Amplifies Yields Through Tokenized Asset Leverage

TLDR: RWA looping multiplies exposure by depositing tokenized assets, borrowing stablecoins, and repeating. Base yields around 8% can reach 15-20% through leverage, but liquidation risk increases with loops. PRIME tokens backed by home equity loans demonstrate real applications on platforms like Kamino Finance. Smart contract risks, depeg events, and duration mismatches pose significant dangers to looped positions. RWA looping represents a leverage mechanism where users deposit tokenized real-world assets as collateral in lending protocols. Borrowers receive stablecoins against their collateral, purchase additional RWA tokens, and repeat the process. This strategy amplifies exposure to underlying yields from assets like home loans, private credit, and government bonds. The technique has gained traction on platforms such as Kamino, where users can access automated looping features. However, the approach carries substantial risks alongside potential rewards. Mechanics and Yield Enhancement Through Repeated Collateralization The strategy operates through a simple deposit-borrow-buy cycle within decentralized lending platforms. Users supply RWA tokens that represent tokenized versions of cash-flowing real-world instruments. These protocols accept specific tokens as collateral based on liquidity profiles and risk assessments. Borrowers receive USDC or other stablecoins against their deposited assets. They convert these borrowed funds into more of the same RWA token. The process continues as users deposit newly acquired tokens as additional collateral. Each cycle increases total exposure to the underlying asset’s yield generation. Base yields around 8% can expand to mid-teens or higher through multiple loops. Partners like Hastra Finance and PRIME on Kamino demonstrate popular implementations of this mechanism. These platforms integrate deeply with lending infrastructure to enable smooth operations. Capital efficiency drives much of the appeal behind this strategy. The...