Leverage Strategies
Advanced techniques to amplify returns using borrowed funds. High reward potential comes with high risk - understand both before proceeding.
Risk Warning
Leverage amplifies both gains AND losses. A 20% price drop can wipe out your entire position. Only use leverage with funds you can afford to lose, and always have an exit strategy.
What is Leverage?
Leverage means using borrowed money to increase your position size beyond what you could with your own capital alone.
Example: 2x Leverage on ETH
- • You have $10,000 in ETH
- • You borrow $10,000 USDC against it
- • You buy $10,000 more ETH with the USDC
- • Now you have $20,000 of ETH exposure with $10,000 of your own money
The Looping Strategy
“Looping” is a common DeFi technique to achieve higher leverage than a single borrow allows:
Your starting collateral
Conservative borrow to maintain safe HF
Swap borrowed USDC for ETH
Now you have 16 ETH collateral
Each loop gives you more exposure (and more risk)
After a few loops, you can achieve 2-3x leverage while maintaining a reasonable Health Factor. But remember: your liquidation price is now much closer to current price.
Leverage Levels Explained
| Leverage | Gain if +20% | Loss if -20% | Liquidation at |
|---|---|---|---|
| 1x (no leverage) | +20% | -20% | N/A |
| 1.5x | +30% | -30% | ~-45% |
| 2x | +40% | -40% | ~-30% |
| 3x | +60% | -60% | ~-17% |
| 5x | +100% | -100% | ~-10% |
When to Use Leverage
Good Conditions
- • Strong conviction in direction
- • Low volatility period
- • You can monitor positions
- • Have capital to add if HF drops
- • Clear exit strategy in mind
Bad Conditions
- • High volatility (major events)
- • FOMO - chasing pumps
- • Using money you need
- • Can't monitor for days
- • Already emotionally invested
Risk Management Rules
1. Set Your Maximum Loss
Before opening a position, decide the maximum you're willing to lose. If you deposit $10,000, accept that it could go to zero.
2. Know Your Liquidation Price
Calculate exactly what price triggers liquidation. Set alerts well above it (e.g., at HF 1.3 and HF 1.5).
3. Keep Dry Powder
Always have extra capital ready to add as collateral if HF drops. Don't use 100% of your funds in leveraged positions.
4. Have an Exit Strategy
Know when you'll take profits and when you'll cut losses. Write it down before opening the position.
Exit Strategies
When your target is hit, unwind the loop: Sell extra ETH → Repay USDC → Withdraw collateral. Consider taking partial profits along the way.
If price moves against you: Either add collateral to maintain HF, or close the position before liquidation. A 10% loss is better than losing everything to liquidation + penalty.
If HF is dropping fast: Immediately add collateral or partial repay. Don't wait hoping for a bounce - act decisively.