How to use it
- Enter your starting capital in CAD.
- Enter the share of each deposit you borrow (the loop LTV) and the number of loops.
- Enter the liquidation threshold, supply APR, borrow APR and any reward APR on supplied funds.
- Enter the gas cost per loop.
- Compare leverage, health factor and net APR on capital, then check how equity changes with price.
How a loop builds leverage
Each loop borrows a fraction L of the latest deposit and deposits it again. Starting from capital C, total exposure after k loops is a geometric series: C × (1 − L^(k+1)) ÷ (1 − L). The debt is exposure minus capital. However many loops you run, leverage can never exceed 1 ÷ (1 − L), which is 3.33× at a 70% loop LTV.
The calculator assumes the supplied asset is volatile and the debt is a stable, CAD-valued asset, so a fall in the asset's price shrinks the collateral while the debt stays fixed. It does not include the swap fees and slippage of buying more of the asset on each loop.
Worked example
Illustrative inputs: $10,000 of capital, a 70% loop LTV, an 80% liquidation threshold, a 3% supply APR, a 1% reward APR on supplied funds and a 5% borrow APR.
Because the 5% borrow rate is higher than the 4% the supplied asset earns, every extra loop lowers the yield on capital while raising the risk. Loops only add yield when supply plus reward APR exceeds the borrow APR, and that spread is often thin and variable. At three loops, yearly income is $246.70 on $10,000, and building and unwinding the loops costs $24 of gas at $4 per loop each way.
| Loops | Leverage | Health factor | Price fall to liquidation | Net APR on capital |
|---|---|---|---|---|
| 0 | 1.00× | no debt | — | 4.00% |
| 1 | 1.70× | 1.94 | 48.53% | 3.30% |
| 2 | 2.19× | 1.47 | 32.08% | 2.81% |
| 3 | 2.53× | 1.32 | 24.35% | 2.47% |
| 5 | 2.94× | 1.21 | 17.50% | 2.06% |
| 10 | 3.27× | 1.15 | 13.26% | 1.73% |
Price moves are amplified
At three loops, the position holds $25,330 of the asset against $15,330 of debt. Every 10% move in the asset changes equity by $2,533, which is 25.33% of the starting capital.
These equity figures ignore liquidation. Once the price falls past the liquidation point, liquidators repay debt and take collateral at a discount, so real equity would be lower than shown, and the position may be partly closed before any recovery.
- Price +10%: equity $12,533
- Price −10%: equity $7,467
- Price −20%: equity $4,934
- Price −30%: equity $2,401 on paper, but liquidation starts after a 24.35% fall, so the position would already have been partly liquidated
What else can go wrong
Borrow rates are variable and can jump when a market's funds are almost fully lent out, turning a positive spread negative overnight. Reward programs end. Unwinding a loop takes several transactions, and in a fast market the gas and slippage can be far higher than the figure entered here. Use the borrow health calculator to stress test the final position.
Every loop puts a larger amount behind the same protocol's smart contract risk and oracle risk.
Canadian context
Canadian securities regulators' requirements for crypto trading platforms operating in Canada include a prohibition on offering margin, credit or other forms of leverage to clients. Leverage loops built on decentralized protocols sit outside that registered framework and without its investor protections; see regulation.
CRA lists financing purchases with debt among the factors that can indicate business income rather than capital gains. A leveraged strategy that is adjusted often may be treated differently from buying and holding; see capital vs business income.