LST Loop Strategy

The LST Loop is the Alpha Layer of the SOL Vault. It uses leveraged staking through Liquid Staking Tokens to amplify staking yield.

Mechanism

Step-by-Step

1. Stake SOL with Dawn Labs' validator → receive dawnSOL

2. Deposit dawnSOL as collateral on Kamino Lend (eMode)

3. Borrow SOL against the dawnSOL collateral

4. Restake borrowed SOL → more dawnSOL

5. Repeat to desired leverage level

6. Net yield = (Staking yield × leverage) − Borrow cost

Two Implementation Paths

	dawnSOL × Kamino	Jupiter Native Stake
How it works	Flash loan → swap → deposit → borrow → repay loop	Direct validator stake used as collateral
Oracle Type	Pyth Push Feed (market price-based)	Theoretical price (stake rate-based)
Max Leverage	~10x via eMode	Varies by protocol
LTV / Liquidation	87% / 88% (1% buffer)	Wider buffer
Liquidation Mechanism	Slot-level partial liquidation (0.1% min penalty)	Standard
Setup Cost	Flash loan fee 0.001%/use + swap slippage	Lower
Best For	Higher yield potential, experienced operators	Lower risk, simpler management

When It Activates

LST Loop is a long-duration strategy — positions are held for weeks to months. Frequent entry/exit incurs swap costs that erode returns.

Condition	Staking	LST Loop	Trigger
Spread Wide	30–50%	50–70%	LST yield − SOL borrow rate > 3% for 1 week
Spread Narrow	80–90%	10–20%	Monitor, maintain existing positions
Negative Spread	100%	0%	Spread < 0% for 2 weeks → gradual unwind

Risks

Risk	Level	Details
Rate Reversal	Medium	SOL borrow rate exceeding staking yield creates negative carry
Liquidation	Medium–High	Tight LTV buffers (especially Kamino at 1%) require careful monitoring
LST Depeg	Low–Medium	Market price deviating from theoretical stake rate
Smart Contract	Low–Medium	Dependency on lending protocol security
Swap Cost	Low	Accumulated costs from frequent loop adjustments

Key Difference from Delta-Neutral

	Delta-Neutral (USDC Vault)	LST Loop (SOL Vault)
Market Exposure	Zero (hedged)	Long SOL (amplified)
Yield Source	Funding rates + staking	Leveraged staking yield
Rebalancing	Daily–Weekly	Monthly
Suitable Market	High funding rate environment	Wide staking–borrow spread