# Looping: where the leverage hides inside a four percent spread

URL: https://www.caijing188.com/looping-hidden-leverage/
Published: 2026-10-24T06:09:39+08:00 | Updated: 2026-10-27T22:09:55+08:00
Verified: 2026-10-27

## Quick answer
Looping turns a four point lending spread into a leveraged position: supply, borrow, supply again. Three steps on an 80% loan-to-value gives 2.44 times leverage and a health factor of 1.40, leaving about 28.5% of collateral fall before liquidation, as of October 2026. The spread sizes the trade; the health factor decides whether you keep it.

## Summary
Supplying, borrowing and re-supplying converts a four point spread into a leveraged position whose leverage is invisible on a page showing the spread. Three steps at an 80% LTV produce 2.44 times leverage, 2,440 supplied against 1,440 borrowed on 1,000 of equity, and a health factor of 1.40. The exit is the weak point, because unwinding needs withdrawable liquidity the pool does not have when the trade is crowded.

## Key takeaways
- Three loop steps at an 80% LTV give 2.44 times leverage and a 59% blended LTV
- At 2,440 supplied and 1,440 borrowed, an 82.5% liquidation threshold allows about a 28.5% fall
- Carry at an assumed 8% supply and 4% borrow is 137.6 on 1,000 of equity, or 13.8%
- Looping adds no capital, so every extra point of carry is bought with borrowed money

## FAQ
Q: Is looping the same as leverage?
A: Yes, with different collateral and a different liquidation mechanism. The borrowed asset is re-supplied, so position size grows while equity stays fixed. Leverage equals total supplied divided by equity, which is 2.44 times after three steps in the example here.
Q: Why is the blended loan-to-value lower than the maximum?
A: Because only the last tranche is borrowed at the maximum. Earlier tranches were borrowed against collateral that has since been counted again, so total debt over total supply sits below the cap. Adding steps pushes the blended figure toward the maximum, which is why loop counts converge.
Q: What breaks a looped position first, price or liquidity?
A: Price sets the health factor, so a sharp collateral fall is what triggers a liquidation. Liquidity determines whether you can deleverage before that happens. In practice the two arrive together, because a collateral fall usually accompanies the utilisation spike that removes the withdrawable balance.