Concept - Leverage Lending

Understanding Leveraged Yield Farming with Kriya

Leveraged Yield Farming is a strategy that optimizes your asset utilization by increasing your leverage in lending protocols. Here's a simplified explanation of how it works:

  1. Leverage Basics: Suppose you have 100 SUI and deposit it in a lending protocol with a 75% Loan-to-Value (LTV) ratio. You can borrow 75 SUI, making your account leverage 1.75x (175 SUI supplied / (175 SUI - 75 SUI borrowed)).

  2. Iterative Borrowing: You can continue depositing borrowed SUI to increase your leverage. For example, if you borrow another 75 SUI and deposit it, your total supplied becomes 225 SUI, borrowed is 150 SUI, and leverage increases to 3x. This allows you to earn yield on a larger balance.

  3. Leverage Limitations: However, you cannot increase leverage indefinitely as the account approaches a liquidation threshold, typically around 5x leverage in the SUI pool.

At Kriya, instead of actually lending and borrowing multiple times, we utilise flashloans to build the leveraged position more efficiently. Here's a glimpse of the interface:

Here’s how it works:

  • Implementing Leveraged Yield Farming with Flash Loans: Instead of manually lending and borrowing, Kriya employs flash loans to build a leveraged position efficiently. Here's how it works:

Initial State
supplied_i = 0 SUI
borrowed_i = 0 SUI

Initial Deposit (principle_capital) = 100 SUI
target_leverage = 2.5x

We can calculate end state of the account basis these 2 equations:
supplied - borrowed = principle_capital
supplied / (supplied - borrowed) = target_leverage

End State
supplied_t = 250
borrowed_t = 150
  • Take a flash loan worth (supplied_t - principle_capital), i.e., 150 SUI from Scallop.

  • Supply 250 SUI on Navi and borrow 150 SUI.

  • Return the 150 SUI flash loan to Scallop at the end of the transaction.

By using this strategy, you can earn yield on a larger balance while maintaining a manageable level of risk. Kriya simplifies this process, making it accessible to users who want to optimize their asset utilization and maximize returns.

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