Modulis 3 · DeFi lending

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Borrowing strategy and looping

We already know what collateral is, how liquidation works, and how Kamino and Aave operate. Now it's time to put it all together. In this lesson you'll learn: how much to borrow, where to put the borrowed money, and what to do every week.

Why 30% LTV — and not more?

The LTV level is the single most important decision you make. It determines:

How much capital you'll have to put to work
How safe your position is
How much stress you'll feel when the market drops

The analogy with driving speed

30% LTV = driving 50 km/h in the city. Safe, you see everything, you can stop. 42% LTV = driving 90 km/h. Faster, but it demands your attention. 55% LTV = driving 140 km/h. One mistake and — a crash.

Comparison with $10,000 of SOL

Parameter	30% LTV	42% LTV	55% LTV
Collateral	$10,000	$10,000	$10,000
Loan size	$3,000	$4,200	$5,500
Capital at work	$3,000	$4,200	$5,500
How far it must fall to reach liquidation	−58%	−41%	−23%
Largest SOL drop (2022, FTX collapse)	>50%	>50%	>50%
Would you have been liquidated?	NO	YES	YES

The 2022 lesson (FTX collapse)

In 2022 (during the FTX collapse), SOL dropped more than 50% in a single week. At 55% LTV the position would have been liquidated; at 42% — also liquidated. At 30% LTV, you would simply have watched that same drop calmly.

Crypto markets can fall 30–50% (or even more) in a week. That's why 30% LTV is the choice that holds up even in the worst-case scenarios.

When is 42% LTV acceptable?

42% LTV only makes sense when:

You have options insurance (a Put spread — a combination of two options contracts that lowers the cost of insurance)
You monitor the position daily
You have extra funds on hand to pay down debt quickly
You have at least 6 months of experience in DeFi

For beginners — always 30% LTV.

Where does the borrowed money go?

Once you've borrowed USDC, you have to decide where to put it to use.

The budget analogy

It's like your paycheck: part goes to rent (protection), part goes to food (earning). You can't spend it all on one category.

Strategy A — allocating $3,000

Part	Share	Amount	For
Insurance	~1/3	$1,000	Deribit Buying options
LP position	~2/3	$2,000	Orca Providing liquidity (earning fees from the exchange)

Strategy B — allocating $4,200

Part	Share	Amount	For
LP position	~76%	$3,200	Orca Single-sided USDC
Insurance	~24%	$1,000	Deribit Options

Why this split?

The LP position earns daily (about $5.95/day on $3,200 — a point-in-time figure that fluctuates). Options provide protection against a drop. The 2/3 + 1/3 split ensures the daily income covers the insurance cost and still leaves a profit.

The weekly cycle — what to do every week

This takes 15–30 minutes a week.

Collect your LP income (Orca/Meteora)

Connect to Orca. Go to your position and click 'Claim Fees'. You'll receive a mix of SOL and USDC.

Collect at least once a week — this is your main source of income.

SOL portion → back into collateral (lower your LTV)

Move the SOL you received back into Kamino as additional collateral. This lowers your LTV and increases your safety margin.

USDC portion → Insurance Vault

Set the USDC you received aside separately. This money is earmarked for renewing your insurance (options) every 90 days.

Surplus → additional collateral

If your income exceeds what you need, add it to your collateral. That creates a growth effect: more collateral → you can borrow more → more income.

Check your LTV and Health Factor

After all the actions, check Kamino/Aave. Make sure LTV hasn't risen above your target (30% or 42%).

If LTV rose because of a SOL price drop — pay down part of the debt.

Weekly income example ($10,000, 30% LTV)

Income source	Per week	Per month	Per year
LP income (conservative assumption: 48% APR on $2,000)	$18.46	$80	$960
Collateral yield (6% on $10,000)	$11.54	$50	$600
Total income	$30.00	$130	$1,560
Options cost	−$6.25	−$27	−$325
Debt interest	−$2.60	−$11.25	−$135
Net profit	$21.15	$91.75	$1,100
Annual return			~11%

The 90-day cycle — renewing insurance

Every 90 days (when 30 days remain on your insurance), do the following:

Put options (protection against a drop)

Deribit

Action	What to do
Sell the old insurance	If the SOL price hasn't moved, the insurance's value has decayed. Sell it for whatever's left.
Buy new insurance	Buy a new 120-day Put spread with an updated strike.
Cost	~$200–400 per cycle (from the Insurance Vault).

Call options (extra income)

Deribit

Action	What to do
Wait for expiry	Do NOT roll the Covered Call. Wait until it expires.
After expiry	If the SOL price didn't reach the strike — the option expires worthless. You keep the premium.
Sell a new one	Sell a new Covered Call with a 120-day term and a strike = 2x the current price.

The whole process from scratch — an example

Day 1 — Getting started

Action	Amount	Where
Deposit 113.6 SOL ($10,000)	$10,000	Kamino
Borrow USDC (30% LTV)	$3,000	Kamino
Move $1,000 to insurance	$1,000	Deribit
Open an LP position	$2,000	Orca
Buy a Put spread	−$300	Deribit
Sell a Covered Call	+$100	Deribit

After 12 months

Metric	Value
Starting capital	$10,000
LP income (after costs)	+$960
Collateral yield	+$600
Options, net	−$525
Debt interest	−$135
Net profit	~$900
Annual return	~9–11%

Risk summary

Risk	Likelihood	How to manage it
SOL −30% sudden drop	Medium	30% LTV buffer
Protocol bug (hack)	Very low	Audited protocols
LP loss (IL)	Medium	Single-sided position
Solana outage	Low	Backup position on Aave
Rising debt interest	Medium	Monitor it, refinance if > 10%

Daily checklist

What to check	Where	Healthy value
SOL price	CoinGecko, Jupiter	Watch the change
LTV	Kamino/Aave	< 30% (or < 42%)
Health Factor	Kamino/Aave	> 1.5
LP position	Orca	In range
LP accrued fees	Orca	> $0 (collect weekly)
Options expiry	Deribit	> 30 days (if not — renew)
Insurance Vault balance	Wallet/Deribit	Enough for the next cycle

In short

30% LTV — the safest starting level
Split your borrowed capital: ~2/3 LP + ~1/3 insurance
Every week: collect LP income → reinvest → grow
Every 90 days: renew your options
The LP needs to generate at least ~46% APR for the strategy to work — the current ~68% is enough (1.48x coverage)
Annual result in the example calculation: ~9–11% of the full portfolio (depends on market conditions — not a promise)
Watch daily: LTV, Health Factor, LP range, options expiry

DeFi Risk OS automatically calculates your LTV and liquidation price, and sends alerts when you're approaching danger zones.

Manage your LTV in real time on the platform

Looping and leverage — for advanced users

Looping (or recursive borrowing) is a technique where money you've borrowed is used again as collateral for a new loan. It increases leverage (the size of your position relative to your own capital). You'll understand it fully so you can see for yourself why our strategy leaves it on the shelf.

A simple analogy

Imagine you pledged a house (100,000 EUR) to a bank and borrowed 70,000 EUR. Then you used that 70,000 EUR to buy another property and pledged it to the bank too. And borrowed another 49,000 EUR...

While prices are rising, the profit gets bigger. When prices fall, all your layers move down together — which is why looping has to be managed through a very low overall LTV. We choose not to take on that leverage.

How does looping work?

Step by step

Starting collateral

100 SOL (worth $8,800) deposited into Kamino as collateral.

First loan

You borrow $6,160 USDC (LTV 70%). You keep a portion for fees.

Conversion + second deposit

USDC → SOL → back into Kamino as collateral. Now you have more collateral.

Second loan

From the new collateral you borrow USDC again. You convert it to SOL again...

Each cycle increases your effective leverage.

Repeat

The process repeats 3–5 times. Each time the amounts get smaller, but the overall position keeps growing.

The numbers

Cycle	Collateral	Debt	Effective leverage
0 (start)	100 SOL	0	1.0x
1	100 SOL + 70 SOL	$6,160	1.7x
2	170 SOL + 49 SOL	$10,472	2.2x
3	219 SOL + 34 SOL	$13,474	2.5x
5 cycles	~280 SOL	~$15,840	~2.8x

Why do people do this?

Bigger returns — if SOL rises 10%, with 2.8x leverage the profit = 28%
Token rewards — some protocols hand out extra tokens for borrowing
Farming — looping combined with token incentives can produce a very high APY

What does looping require you to manage?

Looping has four things you need to learn to manage. Each one has a specific lever — which is why you manage it instead of fearing it:

Liquidation cascade (layers fall at the same time) → you keep a very low overall LTV with a large buffer, or you only take 1.2–1.5x leverage
Selling pressure on the way down → you know each layer's liquidation price in advance and have a clear exit plan
Gas costs for every cycle → you choose a cheap network (Solana ~$0.01/cycle) and limit the number of cycles
More smart contract interactions → you only use audited protocols

Every risk has a solution. You're not afraid of looping — you simply see that its leverage isn't something you need right now.

Here are the concrete numbers behind why the buffers differ:

Scenario	With 2.8x leverage (overall LTV ~64%)	Without looping (LTV 30%)
SOL drops 8%	LTV rises to ~70% — already right at the edge	LTV ~33%, still far from liquidation
SOL drops 10%	LTV exceeds 71% — liquidation	LTV ~33%, still far from liquidation
SOL drops 36%	the position was gone long ago	LTV only rises to 47%

Note: after 5 cycles the overall LTV is already ~64% — just 7 percentage points from the 71% threshold. That's why leverage cuts both ways: the same layers that deliver 2.8x profit on the way up get liquidated after just a ~10% price drop on the way down.

Our strategy — why no looping?

Aspect	With looping	Our strategy
Leverage	2.5–3x	1x (no leverage)
Liquidation risk	Very high	Low (LTV 30%)
Complexity	High	Simple
SOL −36% scenario	Total loss	LTV 47% (safe)
Income	Bigger returns	Stable returns + protection

Our philosophy

We choose stability over maximum profit.

100 SOL with a conservative 30% LTV + options protection = a better risk/return ratio than 280 SOL from looping with no protection.

A good strategy stays viable through a bear market. Looping strategies often collapse right when you need them most.

When CAN looping be acceptable?

Looping isn't always a bad idea — but only in very specific situations:

Same-asset looping (ETH → stETH) — lower risk, because both assets are correlated
Very low leverage (1.2–1.5x) with a large safety buffer
Short time horizon with a clear exit plan
Only for experienced users who fully understand the liquidation mechanism

We don't use it in our strategy — and we don't recommend it for beginners.

Summary

Question	Answer
What is looping?	Borrow → deposit again → borrow again
What's it used for?	Increasing leverage and returns
Why is it risky?	Liquidation cascade, possible total loss
Do we use it?	NO — too much risk
What do we do instead?	Conservative 30% LTV + options protection

Quick check

How is the borrowed capital recommended to be allocated in Strategy A ($3,000)?

Practice task

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Write your paper borrowing plan

The final task of this module — put everything into one plan on paper. This is NOT actual borrowing, it's preparation: when you decide to act one day, the plan will already be ready. Takes about 20 minutes.

The whole plan stays ON PAPER — you don't move any real money. Only start actual borrowing once the plan is ready, you understand the liquidation mechanism, and you're starting with a small amount at 30% LTV.

This is learning, not investing — use only small amounts you treat as tuition.

You just combined LTV, the liquidation price, capital allocation, and crisis actions into one plan — for most DeFi users, this stays pure theory.

Aave.com (ETH)Jupiter Lend (SOL)