How to Loop Lending Positions
Looping is a DeFi strategy where you deposit, borrow, and redeposit the same asset multiple times. This multiplies your exposure to lending yields and rewards.
How Looping Works
- Deposit ETH as collateral
- Borrow ETH against it (e.g., 80%)
- Deposit borrowed ETH
- Repeat until desired leverage
| Loop | Deposited | Borrowed | Net Exposure |
|---|---|---|---|
| . . . | . . . . . - | . . . . . | . . . . . . . |
| 1 | 1 ETH | 0.8 ETH | 1.8 ETH |
| 2 | 1.8 ETH | 1.44 ETH | 2.44 ETH |
| 3 | 2.44 ETH | 1.95 ETH | 2.95 ETH |
Risk Factors
- Liquidation if rates change
- Interest rate volatility
- Smart contract risk
- Gas costs to unwind
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Step-by-Step Instructions
1
Understand the Math
Calculate potential leverage and break-even rates before starting.
Tips
- ✓Max leverage = 1 / (1 - LTV)
- ✓80% LTV = max 5x exposure
- ✓Supply APY must exceed borrow APY
2
Choose Protocol
Aave, Compound, or specialized looping protocols. Check rates first.
Tips
- ✓Same-asset borrowing best for looping
- ✓E-Mode increases possible leverage
3
Initial Deposit
Deposit your base asset. This becomes your collateral.
Tips
- ✓Start with amount you can afford to lose
- ✓Gas costs add up with multiple loops
4
Borrow Against Collateral
Borrow the same asset up to a safe LTV (leave buffer for rates).
Warnings
- ⚠Do not max out LTV
- ⚠Keep health factor above 1.3 minimum
5
Redeposit Borrowed Funds
Deposit the borrowed amount as additional collateral.
Tips
- ✓Each loop increases exposure
- ✓Diminishing returns after 3-4 loops
6
Repeat as Desired
Continue looping until you reach target leverage or efficiency drops.
Tips
- ✓Track total exposure
- ✓Calculate effective APY after costs
7
Monitor Closely
Watch health factor and rate changes. Be ready to unwind if needed.
Warnings
- ⚠Rate spikes can cause liquidation
- ⚠Have exit plan ready