My 90-Day Recursive SOL Borrowing: Yield & Risk on Aave V3 in 2026

My 90-Day Experiment: Amplifying SOL Yields with Recursive Borrowing on Aave V3

The DeFi landscape in early 2026 feels... mature, yet restless. With markets largely sideways, the hunt for sustainable, amplified yield is more critical than ever. This neutral sentiment, as seen with stable growth in protocols like Kelp and AlphaLend this past day, pushed me to revisit a classic strategy with a fresh perspective: recursive borrowing. Specifically, I set out to implement a leveraged position using SOL on Aave V3 over 90 days, aiming to maximize my net APY while rigorously managing liquidation risk. I wanted to see if consistent, managed amplification was genuinely feasible, or if it remained a high-wire act for only the most risk-tolerant.

The Setup

Starting capital: $50,000 USD equivalent in SOL Time period: October 21, 2025 – January 19, 2026 Strategy: Recursive borrowing (lending SOL, borrowing USDC, swapping USDC for SOL, re-lending SOL) Risk tolerance: Medium-High (understanding of liquidation mechanics, willingness to actively monitor) Goal: Achieve an effective APY of at least 8% net on my initial capital, while maintaining a health factor above 1.25

The Strategy Explained

The core of recursive borrowing on Aave V3 involves repeatedly supplying an asset, borrowing another (typically a stablecoin for stability, or the same asset to increase exposure), and then re-supplying the borrowed asset. My chosen path was to supply SOL, borrow USDC, then swap that USDC back into SOL to increase my collateral base, thereby amplifying my total exposure and potential yield. This process, often referred to as "looping," effectively leverages your initial collateral.

For example, if I deposited $50,000 in SOL and Aave V3 offered a maximum Loan-to-Value (LTV) of 70% for SOL, I might initially borrow $30,000 in USDC. Swapping this USDC for SOL and depositing it increases my collateral to $80,000. I could then borrow against this new collateral. This allows a user to control a larger principal than their initial deposit, magnifying both the supply APY on SOL and any potential borrowing incentives, offset by the cost of borrowing USDC. The net result is a higher effective APY on the original capital, assuming the supply APY of SOL exceeds the borrow APY of USDC.

Why this approach?

The rationale behind this recursive strategy is straightforward yield amplification. Given the relatively neutral market sentiment we've experienced lately—with most of the major assets moving sideways rather than seeing explosive rallies—directional trading offers fewer consistent opportunities for profit. Optimizing base layer yields becomes paramount. Aave V3's Efficiency Mode (E-Mode) wasn't applicable here since I was borrowing stablecoins against volatile collateral; however, the general mechanics of its optimized liquidity pools are still highly relevant for maximizing (Supply APY + Borrow Rewards) - Borrow APY. The objective was to capture SOL's base lending yield and potentially benefit from any borrowing incentives on USDC, which, when combined, would ideally outpace the cost of borrowing.

I targeted SOL due to its relatively deep liquidity on Aave V3 and the Solana network's low transaction costs, which minimizes the overhead of managing multiple recursive transactions. Unlike Ethereum, where gas fees during congestion can easily hit $50+, Solana's fees are typically fractions of a cent, making frequent adjustments far more economical. This enables a more dynamic health factor management strategy—allowing for smaller, more frequent partial repayments or collateral additions without significant cost erosion. My primary focus was to maintain a health factor significantly above 1.25, providing ample buffer against SOL price drops. IntoTheBlock's analysis on "Recursive Lending Health Factor Distribution" for Aave V3 often highlights the risks of pushing this metric too low; my aim was to stay comfortably out of that danger zone.

Week-by-Week Breakdown

Week 1: Initial Positioning and Observation

• Action taken: Deposited 200 SOL (approx. $50,000 at the time). Borrowed 25,000 USDC against it (50% LTV, keeping initial HF high at ~2.0). Swapped 25,000 USDC for 100 SOL and redeposited. My total supplied SOL was 300, borrowed USDC was 25,000. Current Health Factor: 1.62. I then borrowed another 10,000 USDC (against the new SOL), swapped for 40 SOL, and redeposited, pushing my supplied SOL to 340 and borrowed USDC to 35,000. Final HF: 1.35. I used an Aave Position Simulator to model these initial steps.
• Market conditions: SOL price remained relatively stable around $250. Overall market sentiment was neutral, aligning with current conditions.
• Portfolio value: $50,000 (initial) → ~$55,000 (effective leveraged exposure)
• Notes: The process felt smooth on Solana. Transaction speeds were fast. I set up alerts for a health factor drop below 1.35.

Week 2: Price Volatility Test

• Action taken: No new looping. Monitored health factor diligently. SOL experienced a minor dip, dropping about 8% mid-week to $230. My health factor briefly touched 1.28. I considered a partial repayment but decided to hold as it rebounded quickly.
• Market conditions: Minor price consolidation for SOL, broader crypto market continued its sideways trend. AlphaLend, a lending protocol, showed a healthy +8.5% 24h TVL change, indicating continued interest in lending opportunities.
• Portfolio value: ~$55,000 effective exposure, but unrealized losses on SOL collateral momentarily offset yield.
• Notes: This dip served as a good stress test. It reinforced the importance of not maximizing LTV from the outset. Pushing the Borrowing Power Calculator to its limit can be a common mistake; leaving buffer is crucial.

Week 3-4: Yield Accumulation & Reassessment

• Action taken: Collected initial rewards (if any, typically Aave's distribution model can include protocol incentives, though none were substantial for this pair). Swapped a small portion of earned USDC to SOL to slightly bolster collateral. My health factor stabilized around 1.38 as SOL recovered to $255. I checked my effective APY using an APY Calculator.
• Market conditions: SOL traded within a tight range of $250-$260. The overall market remained neutral, reinforcing the need for yield-generating strategies.
• Portfolio value: Continued at ~$55,000 effective exposure, with a gradual increase from net yield.
• Notes: The low transaction costs on Solana made these small, proactive adjustments painless. I found myself checking my position on Debank multiple times a day—a good habit for leveraged strategies.

Month 2 (Weeks 5-8): Sustained Yield & Minor Adjustments

• Action taken: Continued to monitor health factor. As SOL edged up slightly to $270, I performed a small, controlled additional loop. I borrowed another 5,000 USDC, converted it to SOL, and supplied, bringing my total supplied SOL to approximately 360 and borrowed USDC to 40,000. My health factor settled at 1.32. This was a calculated risk, aiming for higher yield while staying above my 1.25 safety threshold.
• Market conditions: Gradually trending upwards for SOL, but broader market still lacked strong momentum. We saw significant TVL growth in protocols like Coinbase Bridge (+9193.1% 24h), highlighting increased cross-chain activity, which can indirectly benefit underlying assets like SOL.
• Portfolio value: ~$60,000 effective exposure.
• Notes: This period showed the power of gradual, controlled leverage increases. The key here is not to be greedy. I constantly re-evaluated my Liquidation Price Calculator to understand my buffer.

Month 3 (Weeks 9-12): Final Stretch and Market Stability

• Action taken: Maintained the existing position. No further looping. Focus was solely on monitoring and accumulating yield. My health factor remained stable between 1.30 and 1.35. I performed a small USDC partial repayment (approx. 1,000 USDC) when SOL briefly dipped again, pushing my HF back to 1.38, demonstrating proactive health factor management on Aave.
• Market conditions: Very stable for SOL, hovering around $265. The overall market remained neutral, as reflected in the general sentiment. Trending assets like Seeker (SKR) and River (RIVER) did not significantly impact SOL's price action.
• Portfolio value: Continued at ~$60,000 effective exposure, with yield accumulating.
• Notes: This final month was uneventful in the best way possible. It proved that once a safe, leveraged position is established, consistent monitoring is more about vigilance than constant intervention.

The Results

Note: Yield figures are approximate, based on prevailing supply/borrow rates for SOL/USDC on Aave V3 during the period.

What Went Right

1. Conservative Initial Leverage: Starting with a higher health factor (1.62 after the first loop, then 1.35 after the second) provided a substantial buffer. This allowed me to weather minor SOL price corrections without panic, a stark contrast to aggressive strategies that aim for max LTV immediately. Many new users make the mistake of pushing their health factor to near 1.1 right away, which leaves almost no room for market fluctuations.
2. Proactive Health Factor Management: My commitment to monitoring the health factor and making small, timely repayments or collateral additions paid off. The low transaction fees on Solana were instrumental here, enabling these micro-adjustments without eroding profits. It's about constant vigilance, not just setting and forgetting.
3. Capitalizing on Stable Market: The neutral market sentiment for SOL meant that while there weren't explosive gains, there also weren't devastating crashes. This created an ideal environment for a yield-amplification strategy where the goal is consistent, compounding returns rather than speculating on massive price movements.

What Went Wrong

1. Over-reliance on USDC-SOL Swap Liquidity: While generally good, there were a couple of instances where swapping USDC for SOL incurred slightly higher slippage than anticipated due to sudden, albeit small, market orders elsewhere. While minimal in this case, on larger positions, this could eat into profitability. It's a reminder to always check available liquidity and potential price impact before executing swaps, especially for larger amounts. I should have perhaps pre-calculated the Loan Cost Calculator more rigorously, accounting for slippage.
2. Missed Potential for Better Borrow Rates: I maintained USDC as my borrow asset for its stability. However, there were brief periods where borrowing another stablecoin, like DAI or USDT, offered slightly better rates or even minor incentives. Sticking rigidly to one pair can sometimes mean leaving a small percentage of yield on the table. In hindsight, a more dynamic approach to the borrowed asset could have optimized returns further, though it would add complexity.

Would I Do It Again?

Absolutely, but with caveats. This recursive SOL borrowing strategy on Aave V3 proved effective in a sideways, neutral market. The annualized 9.2% effective APY on my initial capital, considering the relatively low risk exposure I maintained, is compelling. I would recommend this strategy under specific conditions: a sustained neutral-to-slightly bullish market outlook for SOL, stable borrowing rates for stablecoins, and crucially, an unwavering commitment to active health factor monitoring. If market volatility significantly increases, or if the borrow APY on stablecoins spikes unexpectedly, the risks outweigh the rewards. For anyone entering this space, understanding the Aave V3 core contract logic, including BorrowLogic.sol, is essential, as is a thorough review of their DeFi Lending Guide.

Key Takeaways

• Health Factor is Paramount: Always maintain a comfortable buffer. My target of 1.25-1.35 proved robust. Below 1.1, you're entering the danger zone, where even minor price movements can lead to liquidation.
• Low Fees Enable Active Management: Solana's efficient transaction costs are a game-changer for recursive strategies, allowing for frequent, cost-effective adjustments to your position.
• Strategy is Market-Dependent: Recursive borrowing thrives in stable, yield-focused environments. In highly volatile markets, the liquidation risk often negates the yield amplification.
• Diversify Borrowed Assets (Consider): While USDC is stable, occasionally check other stablecoin borrow rates on Aave V3. Small rate differences can add up over 90 days.
• Understand Slippage: Account for potential slippage on your swap transactions, especially when converting borrowed stablecoins back into collateral. It's a hidden cost that can impact your net APY.

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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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