Scenario: looping a lending position three times
Jordan supplies $10,000 of a volatile token, borrows a stablecoin at 70% of the deposit, buys more of the token and supplies it again, three times. The protocol pays 3% on supply plus a 2% incentive, and charges 4% to borrow (illustrative rates).
The assumptions
| Input | Value |
|---|---|
| Capital | $10,000 in the volatile token |
| Borrow per loop | 70% of each new deposit |
| Liquidation threshold | 80% |
| Rates | Supply 3% + 2% incentive, borrow 4% (illustrative) |
Step by step
- No loops. Just supplying earns 5.00% on capital, and there is no debt to liquidate.
- One loop. Borrowing $7,000 and re-supplying it makes exposure $17,000 (1.70×). Net rate on capital: 5.70%. Liquidation if the token falls 48.5%.
- Three loops. Exposure $25,330 (2.53×) against $15,330 of debt. Net rate on capital: 6.53%. Liquidation if the token falls just 24.3%.
- A 10% fall. With three loops a 10% fall costs about $2,533 of Jordan's $10,000 equity, versus $1,000 unlevered.
Each loop at 70% LTV
| Loops | Exposure | Debt | Drop to liquidation | Net rate on capital |
|---|---|---|---|---|
| 0 | $10,000 | $0 | 100.0% | 5.00% |
| 1 | $17,000 | $7,000 | 48.5% | 5.70% |
| 2 | $21,900 | $11,900 | 32.1% | 6.19% |
| 3 | $25,330 | $15,330 | 24.3% | 6.53% |
| 4 | $27,731 | $17,731 | 20.1% | 6.77% |
| 6 | $30,588 | $20,588 | 15.9% | 7.06% |
Questions people ask
What is the most leverage a loop can reach?
With a borrow ratio L, infinite loops approach 1 ÷ (1 − L): 3.33× at 70%.
What if the borrow rate rises?
Net yield falls quickly because the debt is large relative to capital. Test higher borrow rates in the calculator.
Names, rates and prices in this scenario are illustrative and computed for education. They aren't forecasts, quotes or recommendations.
Keep exploring
Leverage loops
How recursive borrowing multiplies exposure and shrinks your buffer.
CalculatorLiquidation price
Health factor, liquidation price and the drop you can absorb.
Risk hubLiquidation risk: how a collateralized loan gets closed for you
A worked example of DeFi liquidation: health factor, liquidation price, penalty and interest drift, plus how leverage loops shrink the cushion before a sale.
Scenarioa crypto-backed loan meets a 30% price drop
Ten units of collateral, a $15,000 stable loan, an 80% liquidation threshold. Watch the health factor through a 30% fall, interest and a liquidation.
Next scenario: staking for six months with a 21-day unbonding period