Mechanics of Leveraged Short/Long Strategy
Last updated
Last updated
The One-Click Leveraged Short/Long Strategy provides the opportunity for farmers to gain extra profit from price effect based on token price prediction.
Leveraged Short/Long Strategy is built on leveraged yield farming, with a specifically designed ratio of borrowing between stable and / or non-stable tokens. The composition of the Long portion and Short portion in a yield farming position generates the Net Long/Short effect on the non-stablecoin. For basic Long & Short concepts, please revisit Mechanics of Pseudo Market-Neutral Strategy.
We will go through the Leveraged Short Strategy with an example of a $10,000 principle with 4x leverage.
To start, supply a principal in stablecoin (e.g. 10,000 USDC) and leverage the farming position with 100% non-stable coin (e.g. borrow $30,000 worth of CRO).
Once the farming position is started, a Net Short position of 50k CRO (~$10k, which is 1x of the principal thus it is exposed to 1x net short exposure) is created. In this case, the farmer benefits from price effect if the price of CRO drops, before accounting for the transaction fees and platform yield earned.
On the other hand, we will demonstrate the Leveraged Long Strategy with an example of a $10,000 principle with 3x leverage.
To start, supply a principal in stablecoin (e.g. 10,000 USDC) and leverage the farming position with 100% stablecoin (e.g. borrow $20,000 in USDC).
There is no CRO debt per above illustration, thus a Net Long position of 75k CRO (~$15k, which is 1.5x of the principal thus it is exposed to 1.5x net long exposure) is created. The farmer benefits from price effect if the price of CRO raises, before accounting for the transaction fees and platform yield earned.
No one knows for sure when the next trends will start. If you think the price ceiling or price floor has been reached, it is best to open a position with Leveraged Short/Long Strategy instead of Perpetual Futures Contract. In case the market stands still, you are not wasting the time value of your tokens, as ultimately this is a yield farming position and you are earning stable fees and yield.
The performance of the Leveraged Short/Long Strategy is positively correlated to the passing of time. The net income from the position gained over time further shifts the payoff curve up, extending the profitable range of the strategies. Unlike traditional tools, the Leveraged Short/Long Strategy is time-resistant.
The safety level of the strategy is empowered with our unique USD-based Capital Protection Bot. This risk-concerned tool helps farmers control the overall risk exposure and performance of their portfolio, allowing them to rest assured that their assets are protected.
The P&L here is only from Price Effect, while the net fee and yield generated would further shift the payoff curve up, extending the profitable range.
E.g. The profit from Price-Effect of a strategy with 1x net short position (red curve) will be around 17.8% if the token price drops by 20%.
E.g. The profit from Price-Effect of a strategy with 2x net long position (yellow curve) will be around 38.2% if the token price rises by 20%.
