What is a Leverage Loop?

This advanced capital efficiency strategy leverages composable lending markets. You deposit core assets into primary lending protocols like Aave V3, Compound V3, Morpho, Spark, or Maker / Sky (functional across Ethereum, Base, Arbitrum, Polygon, BSC, Avalanche, and Gnosis). You then borrow against that collateral, recursively depositing the borrowed funds back into the protocol to artificially hyper-extend your deposit magnitude, effectively stacking governance token rewards and deposit yields.

However, this multi-layered debt accrues algorithmic interest and your entire collateral mass can be forcibly liquidated if the margin health declines. Our simulator calculates these compounding architectural risks precisely.

Strategy metrics breakdown:

Net APY

This is your actual final annualized profit. It mathematically accounts for all deductions from borrowed interest owed to the smart contract and adds in all isolated bonuses generated by your amplified gross deposit.

Multiplier (Leverage)

Indicates how many times you have augmented your baseline capital. If your multiplier is 2.5x, it means that deploying your base $1,000 allows you to control a $2,500 position inside the protocol.

Health Factor

The most critical metric. This parameter defines the safety resilience of your cascading loan structure. If the factor fundamentally dips beneath 1.0, your underlying deposit triggers an open liquidation. Maintaining a value securely above 1.5 is standard.

Liquidation Price

The exact quantitative price barrier of your core collateral that immediately initiates a margin call. If depreciation drops the asset base to this specific mark, algorithmic liquidation engines will systematically seize collateral to cover insolvency.

Leverage Loop