> For the complete documentation index, see [llms.txt](https://resources.vaults.sentora.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://resources.vaults.sentora.com/smart-vaults/smart-vault-strategy.md).

# Smart Vault Strategy

## Supervised Loans

Supervised lending is a strategy designed to generate yield on blue-chip assets that typically have limited native yield in DeFi, such as WBTC. Instead of relying on direct yield opportunities for the asset itself, the strategy uses it as collateral to borrow a more productive asset, which is then deployed into another yield strategy.

The strategy is composed of two legs: a borrowing position (S1) and a secondary deployment strategy (S2).

#### **Primary Strategy (S1)**

In the first leg, the vault deposits a blue chip asset such as WBTC as collateral in a lending protocol like Aave, Morpho, or Euler.

Against this collateral, the vault borrows another asset, typically ETH or stablecoins. The collateral itself may earn a small amount of yield, but the main objective of this step is to create borrowing capacity. The borrow rate depends on market conditions, but for the strategy to remain profitable, the borrowing cost must stay lower than the yield generated in the second leg of the strategy.

#### **Secondary Strategy (S2)**

In the second leg, the borrowed assets are deployed into a higher yield strategy, such as lending markets, liquidity pools, or other DeFi yield strategies.

This approach allows assets like WBTC, which typically have limited native yield opportunities in DeFi, to generate higher effective returns. Instead of relying only on the yield available directly on the collateral asset, the strategy borrows more productive assets and deploys them into other DeFi strategies where capital can be used more efficiently.

For a deeper explanation of the strategy and its associated risks, see our detailed article:

<a href="https://medium.com/sentora/exploring-institutional-defi-supervised-loans-bf4250b05d9b" class="button primary">Exploring Institutional DeFi: Supervised Loans</a>

## Leveraged Loops

Leveraged loop strategies use yield-bearing assets as collateral and borrowing correlated assets against it, then reinvesting the borrowed asset back into the same or similar yield source. This structure applies broadly across DeFi whether looping staked ETH assets like wstETH or weETH with WETH, or looping stablecoin yield assets such as sUSDe or Pendle PTs with USDC or USDT.

At a high level, the mechanics are:

1. **Supply yield-bearing collateral:** Deposit wstETH into a lending protocol such as Aave, Morpho or Euler.
2. **Borrow a correlated base asset:** Borrow WETH against the wstETH collateral.
3. **Redeploy the borrowed asset:** Convert the borrowed WETH into additional wstETH.
4. **Loop:**  The newly acquired wstETH can be supplied again as collateral, allowing the position to grow through multiple iterations to reach a target leverage ratio.
5. **Monitor continuously:** Manage LTVs, liquidation thresholds, collateral prices, borrow rates, and protocol-specific risk factors.

The result is a larger exposure to the ETH staking yield while still maintaining an ETH-based position.

For a more detailed explanation of how leveraged loop strategies work and the associated risks, see our article:

<a href="https://sentora.com/research/articles/exploring-institutional-defi-leveraged-loop-strategies" class="button primary">Exploring Institutional DeFi: Leveraged Loop Strategies</a>

<br>


---

# Agent Instructions
This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com.

## Querying This Documentation
If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://resources.vaults.sentora.com/smart-vaults/smart-vault-strategy.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.