🔥Ethereum DeFi trader earns US$ 120 million using a high-risk, high-reward strategy called “looping”.
- Looping Strategy: A high-risk, high-reward technique in the DeFi (Decentralized Finance) space that involves lending and sourcing the same asset repeatedly to maximize returns.
- 👉Associated Risks:
- Liquidation: If the value of the asset drops significantly, the user may be liquidated, losing part or all of their initial deposit.
- Impermanent Loss: When providing liquidity, there is a risk of loss if the price of the loaned asset changes adversely in relation to the deposited asset.
- Smart Contract Bugs: Smart contracts are prone to bugs, which can be exploited, resulting in financial losses.
- Simplified Example:
- Initial Deposit: Alice deposits 100 ETH and earns 10 ETH and 5 LOOP in interest.
- First Loan: She borrows 80 ETH, increasing her deposit to 180 ETH and potentially earning 18 ETH and 9 LOOP in interest, but must pay back 6.4 ETH and 3.2 LOOP.
- Looping: Alice repeats the loan process, increasing her exposure and potential returns, but also her risks and interest payable.
- ✨Important Considerations:
- Risk Management: It is crucial for traders to understand and manage the risks associated with looping.
- Market Volatility: Market fluctuations can drastically affect looping strategies, both positively and negatively.
- Regulations: Changes in cryptocurrency regulations may impact the viability and risks of looping.
