My 90-Day Aave E-Mode Loop: $25K, Real P&L & 2026 Insights

My 90-Day Aave E-Mode Stablecoin Looping Experiment: Actual Results and Hard-Earned Lessons

For months, the chatter around Aave V3’s E-Mode functionality for stablecoins has been inescapable. The promise of super-efficient capital utilization, pushing LTVs to 97% or even higher, always felt like a double-edged sword. On one hand, incredible yield amplification; on the other, an ever-present specter of liquidation. With the market moving sideways, my focus, like many, has been on yield optimization and patience, making stablecoin strategies particularly appealing. I decided it was time to move beyond theoretical models and put some capital through a real-world, 90-day E-Mode looping strategy, documenting everything from P&L to gas costs and, crucially, health factor management.

My primary motivation was to get a fresh perspective on this strategy in early 2026, especially after SENTRA's detailed "Fluid Stablecoin Looping Mechanics, Part 1: Opening and Closing Costs" dropped on February 1st. That analysis underscored the setup complexities, and I wanted to see how those costs, alongside ongoing management, truly impacted net returns in practice. While the theoretical APYs look great on paper, practical execution often tells a different story.

The Setup

Starting capital: $25,000 USDC Time period: November 15, 2025 – February 13, 2026 (90 days) Strategy: Recursive borrowing and lending of USDC on Aave V3's Ethereum mainnet E-Mode Risk tolerance: Medium-High (aware of de-peg risks and smart contract vulnerabilities) Goal: Achieve a net APY exceeding 8% while actively managing liquidation risk.

The Strategy Explained

The core of stablecoin E-Mode looping is straightforward: deposit a stablecoin (e.g., USDC), borrow more stablecoins against it, then redeposit the borrowed amount, and repeat. Aave V3’s E-Mode is designed for assets within the same risk correlation group—specifically stablecoins—allowing for extremely high Loan-To-Value (LTV) ratios. For USDC within the stablecoin E-Mode category, LTVs can reach up to 97%, meaning for every $100 deposited, you can borrow $97. This allows for significant leverage, amplifying both yield and potential risk.

My approach involved using approximately 5x effective leverage. This meant depositing my initial $25,000, borrowing around $24,250, depositing that, borrowing again, and so on, until my total deposited capital was around $125,000 and total borrowed was about $100,000. This created a healthy spread between my collateral and borrow amounts, aiming for a starting health factor above 1.05. I opted for USDC on Ethereum mainnet due to its deeper liquidity and perceived stability, despite higher gas costs compared to L2s, as I wanted a robust baseline for this experiment.

Why this approach?

The rationale behind this high-leverage stablecoin approach is simple: capture higher net interest margins. When the supply APY (what you earn for lending) is consistently higher than the borrow APY (what you pay for borrowing), each loop amplifies that positive spread. With current market conditions—sideways momentum and a general flight to perceived safety in stable assets—stablecoin yields have been relatively attractive, making this strategy theoretically viable. My expectation was that even after accounting for gas and active management, the amplified net interest would surpass my 8% APY goal. However, I knew the primary risks were a stablecoin de-peg, which could trigger rapid liquidations (as seen with the Avalanche USDC de-peg incident where 3 large E-Mode positions caused most of the bad debt, according to ChaosLabs' March 2023 "Evaluating Stablecoin E-Mode" report), or a sudden, unfavorable shift in borrow/supply rates.

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Week-by-Week Breakdown

Week 1: Initial Setup & Observation

• Action taken: Deposited $25,000 USDC. Executed the looping strategy five times, ending with ~ $125,000 deposited and ~ $100,000 borrowed. Used the Aave Position Simulator to model the leverage before committing.
• Market conditions: Stable rates, supply APY averaging 5.8%, borrow APY at 3.5%. Gas prices were moderate, around 25-35 Gwei for complex transactions.
• Portfolio value: $25,000 → $24,940 (after initial gas costs).
• Notes: The opening costs were substantial. My initial setup involved 10 transactions (5 deposits, 5 borrows), costing approximately $60 in gas. My starting health factor was a comfortable 1.058. Monitoring my health factor closely via the Health Factor Calculator became a daily routine.

Week 2: Settling In and Minor Rate Volatility

• Action taken: No direct action. Simply monitored rates and health factor.
• Market conditions: Supply APY edged up slightly to 6.0%, borrow APY remained stable at 3.5%. Market sentiment remained neutral.
• Portfolio value: $24,940 → $24,965.
• Notes: Early days, but the positive spread was accumulating. My health factor fluctuated minimally with interest rate changes, mostly staying above 1.055. This week felt like the calm before any storm, building confidence in the strategy's stability under quiet market conditions.

Week 3-6: Interest Rate Drift & Proactive Management

• Action taken: Mid-Week 4, I noticed the borrow APY on Aave ticked up to 4.1%, while supply APY remained at 6.0%. This tightened my spread, causing my health factor to drift down to 1.049. I executed a small partial repayment of $1,000 to bring the health factor back up to 1.055. This cost another $15 in gas.
• Market conditions: Stablecoin demand saw a slight increase, pushing borrow rates. Overall crypto markets continued to trade sideways, with minor fluctuations in trending assets like World Liberty Financial (WLFI), which held its market cap rank around #34.
• Portfolio value: $24,965 → $25,010 (after repayment, before accrued interest).
• Notes: This was my first active risk management step. It highlighted the importance of not just setting up a position but continuously monitoring and adjusting. Borrowing at max LTV (97% in E-Mode) is a common mistake; it leaves no room for adverse rate movements or minor de-pegs. My initial buffer was just enough.

Week 7-10: De-peg Scare & Health Factor Recovery

• Action taken: Late Week 9, a large sale order on a decentralized exchange briefly caused USDC to de-peg to $0.998 on some aggregators. This immediately dropped my health factor to a concerning 1.028. I quickly deposited an additional $500 USDC as collateral to boost my health factor back to 1.045. This emergency deposit cost $20 in gas, driven by higher network congestion.
• Market conditions: A brief moment of fear in stablecoin markets. General market data showed Mantle Bridge TVL at $0.24B, up 10.8% in 24 hours, indicating some movement, but not directly impacting my stablecoin decision.
• Portfolio value: $25,010 → $25,030 (after collateral top-up and accrued interest).
• Notes: This was the most stressful period. It reinforced the "big risks" associated with E-Mode when facing de-peg events. The collateral top-up was a quick fix, but I spent considerable time afterwards assessing my Liquidation Price Calculator to understand my true exposure. I considered removing some liquidity but decided against it, banking on USDC's rapid re-peg.

Week 11-13: Stable Accumulation & Winding Down

• Action taken: No major actions. Continued monitoring. Initiated closing the position on the final day.
• Market conditions: Rates stabilized again, supply APY at 6.1%, borrow APY at 3.6%. The de-peg scare passed, and USDC traded firmly at $1.00.
• Portfolio value: $25,030 → $25,185.
• Notes: The last few weeks were smooth, allowing the positive spread to accrue. Winding down required the reverse of the setup: multiple repay/withdraw transactions. This final sequence of 10 transactions cost another $70 in gas, primarily due to higher-than-average Gwei values on February 13th.

The Results

Note: Gross Yield is calculated based on total deposited capital (~$125,000) over 90 days at an average net spread of 2.2% (6% supply - 3.8% borrow, factoring in borrow costs on borrowed capital).

My net profit after 90 days was $260. While positive, the effective APY of 4.16% fell short of my 8% goal. The main culprits were higher-than-expected gas costs and the period where the borrow APY compressed my spread.

What Went Right

1. Effective Risk Management: My proactive response to both the borrow rate increase (partial repayment) and the brief USDC de-peg (collateral top-up) prevented liquidation. This hands-on management, informed by constantly checking the E-Mode Calculator, was critical. Many less active participants, especially those who ignore the DeFi Lending Guide's warnings about neglecting health factors, would likely have faced liquidation.
2. USDC Stability (Post-De-peg): Despite the brief scare, USDC quickly re-pegged, saving my position from further stress. This highlights the resilience of major stablecoins compared to the catastrophic failure of projects like UST in May 2022.

What Went Wrong

1. Underestimated Gas Costs: My initial gas budget was too optimistic. While individual transactions on Ethereum can be reasonable during off-peak hours, the sheer number of transactions required for looping, opening, closing, and rebalancing adds up significantly. During periods of network congestion, individual gas fees on Ethereum can easily hit $50+. This really ate into the gross yield. Next time, I might consider an L2 like Arbitrum or Optimism for similar E-Mode strategies if the liquidity is there, to drastically reduce transaction costs.
2. Compressed Interest Rate Spreads: The period where the borrow APY increased more than the supply APY significantly reduced my profitability. While I mitigated the health factor risk, the yield erosion was unavoidable. This taught me that even small shifts in rates, when leveraged, have a magnified impact on P&L.

Would I Do It Again?

Yes, but with significant modifications. For smaller capital (under $50,000), the gas costs on Ethereum mainnet simply make this strategy less profitable than simply holding stablecoins in a high-yield savings account or a simpler, lower-frequency yield farm. The time commitment for active monitoring, combined with the gas costs, made the net APY too low for the risk taken.

However, for larger capital, or if executed on a more gas-efficient Layer 2 with deep stablecoin liquidity, the equation changes dramatically. I'd also consider using flash loans for opening and closing positions to reduce the number of individual transactions and thus total gas fees, as discussed by SENTRA in their recent "Fluid Stablecoin Looping Mechanics" article. The key is to optimize for gas and minimize rate exposure, perhaps by using fixed-rate borrowing if available for stablecoins, though that often comes with its own premium.

Key Takeaways

• Gas is a silent killer for leveraged strategies on Ethereum mainnet: Always factor in a substantial gas budget for opening, closing, and potential rebalancing. L2s are increasingly attractive for these types of high-frequency DeFi interactions.
• Active health factor management is non-negotiable: A health factor below 1.05 is dangerous, especially in E-Mode. Minor de-pegs or rate shifts can rapidly push you towards liquidation. Use monitoring tools and be prepared to act quickly.
• The effective APY often differs significantly from theoretical models: Accounting for gas, management fees, and variable interest rate spreads is crucial for accurate P&L calculation.
• E-Mode amplifies both gains and losses: While powerful for capital efficiency, it demands a higher degree of vigilance and a clear understanding of liquidation mechanics.
• Always have an emergency fund: The $500 collateral top-up was essential. Never run your positions without some accessible dry powder for unexpected events.

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Disclaimer: This content is for educational purposes only and should not be considered financial advice. DeFi protocols carry inherent risks including smart contract vulnerabilities, market volatility, and potential loss of funds. Always do your own research and never invest more than you can afford to lose.

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