The promise of looping, MEV, and the one number that makes it all happen

The promise of looping is simple to understand: take your yield-bearing liquid staking token (LST) collateral, borrow more tokens against it, and use that borrowed liquidity to boost your LST position's size and yield potential. Sounds great, doesn't it?

Tonight, I tried to do just that, and my borrowing position was shut down within seconds: in fact, you'll see that the market made it clear that anyone attempting such a maneuver would find themselves very quickly in negative territory overall, and thus have to liquidate. Let me explain my thought process and what convinced me in this particular market environment.

The three-part recipe

A liquid staking token (LST). In the example of jitoSOL that follows, it takes SOL staked on the Jito chain and converts it to jitoSOL, which compounds the value of the stake (with the increase reflected in the LST's price).

MEV - Maximal extractable value. The value captured and distributed to validators from the prioritization of certain transactions: the value captured by Jito protocol, then distributed to stakers as an additional yield source, is the reason for the additional yield of jitoSOL over regular SOL staking.

Looping is the act of depositing your jitoSOL as collateral for a leveraged SOL borrow position, which would then be converted back to jitoSOL in order to increase your LST position's liquidity size and yield.

A safe arbitrage opportunity

The only situation where looping one's LST collateral into the same underlying asset is a safe move is when the said asset is perfectly correlated with the LST's value, as is the case with jitoSOL and SOL. This is a critical observation, as it's the only reason for leveraged positions in the space to have value at all.

If SOL's price dropped by, say, 50%, then both the value of the collateral deposited in jitoSOL would drop by 50%, too, as would the value of the liquidity borrowed - the LTV would stay about the same across the board, and thus the position wouldn't be subject to liquidation. This is the entire reason why the jitoSOL-SOL leverage loop is a leveraged position worth considering.

How the math works

For the purposes of leverage, one only has to consider the following three yields:

Earn: Yield on your LST long (jitoSOL yield)

Pay: Yield on your SOL borrow position

Net: The difference between the two, applied to your leveraged LTV

Three loops with 8% of effective spread on a 13% base yield would give a practitioner a 13 - 14% effective yield, significantly better than the base, and well worth the risk of a leveraged position.

What stopped me

Prior to proceeding to any kind of open position, I checked the relevant numbers on Project 0:

SOL borrow APY: 5.82% SOL utilization: 92.59%

jitoSOL supply APY: 0.15% jitoSOL utilization: 10.80%

With a borrow rate of 5.82%, and a supply rate of 0.15%, the effective yield for a leveraged position would be 0.15 - 5.82 = -5.67%, before any loops. I checked whether the market price of a trade using mSOL or bSOL as LST collateral would be better - all positions in the alternative LSTs offered on the platform had supply rates higher than jitoSOL's 0.15%, so I had no options.

My analysis suggested that the market in this exact moment had priced this very position as effectively paying about 5.67% to the market for the right to execute this trade.

There is nothing wrong with the numbers - in fact, I've seen similar rates on Aave, Kamino, and MarginFi, so the rates reflected the general state of the market. Nothing peculiar to the SOL jam.

Still, let's inspect why the supply and borrow rates are where they are at the moment: what gives?

The supply/borrow rates, dissected

The utilization of 92.59% of SOL on this market is extremely high, and the reason for this is simple: most SOL deposited has been borrowed in the meantime, and the demand for borrowing has pushed the rate upwards to match. This is the classic two-slope interest rate curve found on most lending protocols, and there is nothing wrong with this in isolation.

It simply means that the market has reached the point where further deposits will cause the supply rates to rise steeply - and there is no further incentive to deposit, because there is already capacity to borrow in high demand.

Meanwhile, jitoSOL utilization at 10.80% is extremely low, so low in fact that there really is no practical reason to borrow jitoSOL, given that one can mint it directly by staking in the first place. The lack of demand for jitoSOL borrowing has pushed its supply rate down to practically the lowest possible level.

And this is, in brief, why the market has priced the leveraged jitoSOL/SOL position to pay 5.67% to the market overall, for the right to open that position, before any loops - and why I didn't proceed. It's much better to liquidate in such a scenario, where an open position would simply lose money overall, and I would lose said money because I didn't understand why.

What the MEV actually gets you

MEV should be discussed separately here, and I feel this is crucial: the value captured by MEV in this scenario is captured directly from other market participants, and should be viewed as a revenue channel.

MEV is value captured by prioritizing certain transactions, which are detrimental to other ones' outcomes - the trader whose order was executed at a worse price. For jitoSOL staking, it gets redistributed to stakers, rather than captured at the validator level, but it's no less a source of income, and it's worth remembering that someone has to be the one to suffer the loss for you to benefit personally.

What I learned tonight

The system works the same regardless of the result, and I'm glad to have at least verified that the process does in fact operate as intended. The critical observation is still the one mentioned at the beginning of the section: one must always evaluate the spread before actually executing any market position - and this, specifically, is what I proceeded to do the next time, having had the chance to learn the lesson.

A profitable loop operation demonstrates that the system works, but I think it's much more valuable to be able to reject an option, especially a self-harming one. Being able to do so is a result of checking the spreads for the market, and I think this is a valuable exercise in itself, with benefits to the participant's knowledge regardless of the result.

TL;DR

It's crucial to verify the yields in a leveraged position before taking it on, as they may be significantly different to what the practitioner expects.

Sources

• Jito Labs, MEV and validator tipping mechanism documentation — jito.network
• Project 0 live lending dashboard, SOL/jitoSOL market rates (accessed September 2026)
• Aave, Kamino, MarginFi documentation on interest rate curves and utilisation-based pricing