"DISCLAIMER: These are PangolinK's personal views, and his handler has told him that using leverage is inherently risky. Bruv. If you ain’t in it to win it. Don’t read it. Go back to DCAing into the S&P 500. Remember, ‘‘Everything is high risk if you’re a pussy.’’

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Leverage is a fucking beautiful thing lads. Too much will wreck you. Too little will cuck your upside. But the right amount is bloody golden.

Pango on leverage

For all my small stack homies (or as tardfi would say, less capitalized investors), leverage is a tool you absolutely should be using this cycle. Spot and chill. Yeah, yeah, yeah. We are here to hit big fucking home runs. What is leverage? The best I can give you is using someone else’s money to make more money. Can it amplify the downside? Yes. But don’t be afraid to dream. You gotta believe in something. We are approaching the market phase where retards with massive balls outperform nerds and theses. And that has always been the way.

Only two roads to making money in this space: use your brain, or have an enormous pair of cojones. Which way western man?

The best alpha is leveraged beta.

Beta is the benchmark performance of an asset class. In tardfi, the S&P 500 is beta, and anything that outperforms it is alpha. I repeat, the best alpha in the world is leveraged beta. Everyone wants to have some market-breaking contrarian thesis. Bruv. Come off it. You make all the real dough with leveraged beta gains.

Boomers love leverage

The only time normoids use leverage in their lives is to buy a house. How many boomers wax on about how buying property is a great investment? Real estate is simply a convenient avenue. What boomers really mean to say is that buying assets and using leverage is a great way to amplify wealth. When anybody goes to the bank and gets a mortgage, they are simply using leverage. That is the great secret behind all these coffin dodgers who advocate buying land/ property. Real estate is actually looking pretty cooked now. Good trade last generation but poor trade this generation imo.

Crypto will transform financial markets and infrastructure at almost every level in the coming decade. It will facilitate the greatest transfer of wealth. You want to be leveraged up to maxxxx your exposure. You only get one shot at this. In the words of Degenspartan.

‍‘‘Your biggest risk is being underallocated to the industry you log into every single damn day to talk about since you know its gonna go up again eventually but not having enough coins because you’re a lil bitch.’’

I am not going to tell you where we are- only offer some helpful hints. Over 40% of American adults now own crypto, and the CEO of the world’s largest asset manager is on television shilling your bags to boomers. Each cycle comes with diminishing returns and while crypto assets will perform spectacularly over the next decade, we are in the soldier’s minute for cranking up returns to the max.

Hopefully, these passages have impressed upon you at least a flavor of why you may want to employ leverage this cycle. Now, onto the good bit: how, where, different strains, and future potentials. Please note that the avenue that suits you best depends on your time preference.

In a nutshell:

‍Looping (Long Burner)

‍Looping on a general-purpose protocol is a slow burner game where positions can be left open for months/ years.

‍Flash Loan Borrowing + Credit Facilities  (Quick Burner)

‍These are for juicing yield/ point accumulation/ and short-term swings. You are just margin trading but paying to borrow stablecoin instead of funding rates.

Don’t get your time horizons and goals in a scramble boys. This has killed more people than anything else this cycle.  

The Basis Trade

One of the most glaring arbs and leverage trades is the ETH basis trade. If you can borrow ETH at a lower rate than the staking rewards you get from holding an LST (Liquid Staking Token), you are making free money. How does it work? Deposit chosen LST, borrow ETH, swap to LST, and repeat until cheeks are clenched. Strategy profitable if staking yield eclipses borrow rate.

Watch out for variable interest rates on lending platforms and there really isn’t much juice left to squeeze in this trade. Lido paying out 2.99% currently, and the average borrow rate for ETH (on Arbitrum markets) runs you 2.45%. It ain’t worth it.

Currently $2.78 billion of ETH borrowed on Aave V3 Ethereum. Betting at least 80%, if not more, is engaged in this trade. Only makes sense with the current profit margins to do it in size- not to forget all the people who will still have this trade open from the heydays.  

Levering up on general-purpose protocols

This is the bread-and-butter strategy for leveraging up on majors and is applicable across all chains.

1. Deposit collateral (typically LST or perhaps base asset)
2. Lend stables
3. Swap stables into the collateralized asset
4. Deposit as collateral
5. Loop until you fear god

In Pango’s eyes, this strategy is S-tier and absolutely undefeated. It is simple and allows you to juice up exposure. What more do you want?

This was the state of my own exposure before the market gods smiled upon me and pumped us off the lows. I am not just advocating this strategy. I live, breathe, and eat it. Most lending markets have progressed towards isolated pools which simply means a chosen set of assets are used for collateral against one another. Way safer than cross-collateral pools. Here are some of the best places to lever up.

‍Silo Finance

Silo is the king of risk-isolated market lending and supports a wide variety of tokens, especially on Arbitrum. Reading between the lines- yes you can deposit your altcoins and leverage up on them as well.

Why is Silo a beauty? Deposit your collateral, chance that you earn base yield here or boosted incentives (OP Superfest currently ongoing/ and still a glut of ARB stimmy cheques floating around), borrow USDC or ETH (please borrow in stable bros), swap into collateral, and deposit again to make sure your health meter is nice and cushty. Silo supports the broadest range of assets and allows you to leverage up on anything. A-star protocol for general purpose levering up.

Aave V3

Aave remains the king, and for good reason. It is the flagship lending protocol on DeFi and attracts by far the most liquidity. Aave’s TVL coming in strong at $21.72 billion versus second place (not including JustLend because scammy Justin Sun product with fugazi numbers) is Spark with $3.9 billion TVL. It is a game of degrees, and Aave is an obtuse angle ahead of its competitors.

What does that mean in realpolitik terms for you my good friend? The borrow APYs you pay will be low, and you can loop with SIZE. One of the worst things about using smaller lending protocols is lack of liquidity which can cause utilization rates to spike. Then you get left paying a disgusting borrow APY eating into your sweet future profits.

Aave’s ace in the hole? It features collateral swaps, and this is fucking turbo bruv. Want to change your deposited collateral? No problem. Want to swap your borrowed capital from USDC to USDT to pay a lower rate? No problem. Overall, for general-purpose leverage, nothing even comes close to Aave. Pure flexibility, good rates, and arguably the lowest smart contract risk with a beautiful lindy effect in play.  

Look at current rates. Deposit LST of choice, borrow USDT at 8.41% annualized (this will fluctuate due to dynamic supply-driven rates), swap to LST, and let it rip. Any price appreciation above 8.41% is pure schmoney profit.

If I have not mentioned your favorite lending protocol, get creamed bro. This is a hands-on guide for leveraging up with the intention of helping you build your stack- not lose it. Please don’t fall for the Radiant scam like I did. Also, for anyone yapping about how it is confusing to work out your liquidation point, here is an Excel template: Liquidation Calculator put together by one of the space’s leading yield nerds, Stephen (DeFi Dojo), an absolute beast in the game. Worth noting here is that the same strategy can be applied on Solana on Kamino + MarginFi but stablecoin borrows are already at capacity, and unfortunately, you are late to this trade. Thank the lord you can go long on animal tickers to leverage SOL exposure eh.

Will I get Liquidated?

That is all on you bucko.

‍But we want to avoid liquidation at all costs.

LTV (Loan-to-Value) ratios differ and are fully dependent on the asset and Aave’s risk parameters. wstETH has an LTV of 70% on the V3 Arbitrum market. In simple language, if you deposit 1 wstETH, you can borrow 0.7 worth of wstETh against it.

The liquidation threshold is 79% meaning that when your loan value reaches 80% of your collateral value, the buggers start to liquidate you. Please realize and drum into your skull that  (while essential to the good health and functioning of the protocol) liquidators are your enemy. They are snakes looking to swipe your loot and are actively incentivized to liquidate as much of your collateral as possible. The more they liquidate, the bigger their reward. In the event of liquidation, they can yeet enough of your position to pay 50% of the borrowed amount.

We do not want liquidators to win- we want you, the borrower, to win. Drawdowns of up to 35% are common in bull markets and stay well outside of this range. Want to avoid headaches, anxiety, and position monitoring? Keep your loan health above 2. This is stress-free, easy money.

Stablecoin Leverage

Stablecoin leverage is another flavor of leverage popularized by MakerDAO's introduction of CDPs (Collateralized Debt Positions), and this is another elite way to juice your stacks’ potential. Broadly speaking, outside of a few players, Pango hates this method. And he will explain why in a minute- first a special shout-out to Spark’s Sandbox mode.

Spark

‍Spark is part of the MakerDAO Endgame plan which involves packaging everything off into a subDAO with its own token. Big supporter of Spark, which allows you to borrow DAI at a flat rate of 8%, and you can use the sandbox mode to pre-run your strategy and find all the important numbers. Less flexible than general purpose but supercharged for leveraging up wstETH only big downside is that you can only originate loans on Ethereum.

‍crvUSD & GHO

‍Again, both can only be originated on Ethereum. In the case of crvUSD, current borrow rates are daylight robbery, and GHO literally never trades at peg. I know somebody smart is thinking what if I borrow GHO, swap it into another stable, and then pay it back when it's underpeg. I wish you luck because liquidity is thinner than an anorexic supermodel.

Remember bros when we were all shouting about LSTfi last year? How long ago that feels. We have seen an entire host of people try it, and it just never works. The broad idea behind it was to take LST deposits, mint a new decentralized stablecoin against it, and, in some cases, distribute yield. However, this was a fucking fugazi in the first place. Most of the protocols took the staked yield from YOUR deposited collateral and drip-fed back into the pool.

Don’t care if I tread on toes at this point, but remember Raft Finance? Got turbo rekt by an Aave flash loan. Exploiter borrowed 6,000 cbETH, minted a crap ton of unbacked R tokens, and yeeted them into the open market. Big depeg and depositors get shafted. Bunch of protocols like Lybra and Prisma that never went anywhere.

‍‘But bro, my new protocol is different, I promise. It’s way better than any general-purpose lending because you only pay a mint fee at the point of origin.’

Get to fuck ya weasel. Smart contract risk is the greatest risk in crypto, and we are not putting our hard-earned premium collateral into these randy new protocols. Most people forget that if you can permissionlessly make money, you can also permissionlessly lose money.

LST focused leverage

This is where shit gets groovy. Special shoutout to Gearbox for all its leveraged farming strats, but the golden child has to be Contango, which has been absolutely mopping up and is savagely abusing the OP Superfest to pull into first place. Put some respect on the name.  

Tangoing with Contango

‍The beauty of Contango is that it sidesteps the greatest weakness of lending looping. Each time you do it, the exposure gains get dampened dramatically. But plug in a flash loan, and everything purrs. Remember boys here we are margin trading but without paying extortionate funding rates. Plus, with all the OP Superfest stimmies going on, you can find some hella decent rates.

Pick your poison from the above and open a position. When you go long, Contago makes a flash loan on your behalf. Let’s run through what happens under the hood.

- You use DAI as margin collateral

- Contango flash loans DAI and swaps it for ETH on spot markets

- Lends freshly acquired ETH on a money market and borrows DAI

- It uses this DAI to repay the flash loan

Pretty cool eh? When you close the position, Contango does these steps in reverse.Contango is a leverage layer built on top of all the leading money markets and is constantly integrating more aggregating over $40 billion of capital from money markets. A perfect place when you’ve got a whistling feeling in your balls that the market is going to make a short-term move.

The frontier of leverage

It would be criminal to not include Rain.fi in this piece. When it comes to innovation in leverage they are pushing the envelope.

Rain.fi allows you to do margin trading but with peer-to-peer capital pools. If you’ve got the chops and keep your eyes open for current offers, you can absolutely swipe some steals here. A solid outlet on Solana for anyone who wants to juice their returns and trade short-term price action.

In a sentence, Rain.fi lets you purchase tokens, paying only a small upfront cost while you borrow the rest, and you can insta sell at any point, pocketing the difference, or pay back the loan and gain ownership of the tokens. Branded as going long without liquidation is slightly disingenuous because you still lose your down payment, which is the exact same thing as your margin collateral. But shout out composable DeFi layers plugging market actors together in new novel ways.

Llama stays winning

Llama recently proposed a lending protocol that would achieve the ‘holy grail’ of higher rates for borrowers and depositors, sidestepping the risk of bad debt (technically immune to bad debt) by using highly correlated assets aka redeemable assets. Certainly worth a read, and a giga charged place to leverage if it comes to fruition. The only lingering doubt is who is going to want to supply raw ETH.

Special shout out to Ion Protocol, which is live and an implementation drawing on some of the above. It is a price-agnostic lending platform that allows you to borrow ETH against LRTs and LSTs. The genius in the idea is that you cut out oracle price feeds (and thereby any risk of liquidation) because assets are redeemable. And if assets are redeemable price difference between them does not matter. Note how sick market efficiency can become when dealing with assets with similar behavior types, aka lending ETH against LSTs or liquidity provision with stablecoins.

Being careful

Lindy, lindy, and lindy lads. Don’t go out on a limb supporting any new LST or lending protocol. That extra 1% of yield you’re juicing ain’t worth it. I repeat. IT AIN’T WORTH IT. Remember the great ezETH depeg in April and the absolute devastation of loopers? If not, you can get up to speed here: What happened to ezETH in April?

This piece is intended as a practical guide for ramping up your returns via leveraging beta. Use dependable, battle-tested assets and dependable protocols. Honestly, wstETH as collateral & Aave as the lending venue are undefeated. Liquidators are infidels and our key enemy. Do not give them a chance to snatch your collateral.  

Margin trading vs looping: Same shit?

The end result of cranking returns on initial capital is the same, but the roads traveled are distinct. Personally, I prefer looping over margin trading. The flexibility is way greater due to the ability to deposit more collateral and pay back loans whenever you want- to boot you earn all the bonus yield from the looped collateral.

On time

This cycle, so many people have chopped themselves to death and become schizo fucks over intraday price action. Understand what time frame you operate on. I premise that looping is better for long-term plays and have personally been looping since mid-2023 with plans to unwind in 2025. Stablecoin borrow rates undercut annualized funding rates but do not allow for as extreme leverage as margin trading. The economics of these strategies tell you the same thing I am saying. Margin trade for short-term moves where you want leveraged exposure, and use the slow, steady method of looping for longer plays.

Wrapping it up

Lads. You only get one shot. Don’t fumble it. How you position in the coming weeks and your net gains over the next twelve months are full butterfly effect mode. DeFi lets you do the same shit rich tradfi bros do but on a smaller scale. It is tardfi money hacks but for plebs- that is the true utility of DeFi. If you are holding any LSTs idle, crank the leverage baby, and let it rip.

Pango advocates for using Aave V3 due to consistent borrow APYs and keeping a loan health ratio comfortably above 1.6. Eek every bit of life you can get out of your portfolio.

This week, the Ethereum ETF launches and Trump will speak at the Bitcoin conference in Nashville. Going into this week, flat, non-leveraged is for pussies G. Never catch me doing something so pathetic. Believe in something. This is the fabled golden bull run. Good luck selling the top bros.