Short Selling Made Simple on Tectonic
Shorting is a popular strategy used by traders to profit from falling asset prices. This can be particularly useful in volatile markets or when anticipating negative news or events that may impact a token’s price.
In this article, we will explore how to create leveraged short positions and provide a sneak peek at what we’ve been building to make shorting on Tectonic even easier!
The mechanics of short selling
Short selling involves borrowing an asset, selling it at the market price, and repurchasing it later at a lower price. If the asset price drops, you pocket the difference.
Here’s how it works on Tectonic:
- Supply collateral (e.g. USDC)
- Borrow the token you want to short
- Sell the borrowed token for USDC
- Deposit the USDC as additional collateral
- If the borrowed token’s price drops, buy it back cheaper
- Repay the borrowed token to close the position and realize your profit
Want to execute a short more efficiently on Tectonic? We have a solution for you! Our upcoming shorting tool lets you open a leveraged short in one click.
On 14 Sep 2023, we will be launching the third tool in our leverage management series — shorting — which effectively rolls up steps 1 to 4 into just one transaction. Then, when ready to take profits, our Repay with Collateral feature closes the position — also in one click!
With 17 markets and up to 3x leverage, we are one of the few platforms on Cronos that offer users such a wide selection of tokens to choose from.
In addition, we have integrated with @WowmaxExchange, which is a DEX aggregator. Our aim is to find you the best swap rates, making shorts even more capital-efficient.
What can I use this shorting tool for?
You can use our one-click short selling tool to capitalize on two key opportunities: speculation and hedging. Here are some examples:
Speculation
Shorting provides an opportunity to speculate on specific tokens that you believe may experience a decline in value. Traders can leverage up on Tectonic to increase their potential profits.
For example, if you believe the price of ABC will decline over the next few weeks, you can use Tectonic’s short feature to long USDC against ABC. First, deposit 100 USDC tokens (worth $100), borrow 50 ABC tokens (worth $50), swap ABC for more USDC, and deposit it back on Tectonic. If ABC’s price declines by 50%, you can buy back the 50 tokens for $25. That means when you close out your debt, you would have profited $25.
Of course, the risk is prices moving against you instead, so manage risk accordingly.
Hedging
Short selling is not just for making directional bets — it can also be used to hedge your existing exposure. By shorting tokens on Tectonic, users can effectively hedge their existing crypto exposure without having to sell the initial assets.
For example, you may be long-term bullish on token ABC, but are concerned about potential short-term price volatility. To hedge against possible near-term declines in ABC’s price, you can use our shorting tool to hedge your exposure on Tectonic. Similar to the example above, short ABC against USDC. If ABC declines in price, this hedge will provide you with some downside protection. If, however, ABC’s price rises, this strategy will eat into some of the upside you would have gotten from just longing the asset.
Risk management is crucial
Tectonic’s upcoming short feature offers traders a more efficient way to profit from price declines. While shorting on Tectonic Finance offers compelling benefits, it is essential to remember that shorting is inherently risky if the market moves against you. Therefore, proper risk management and thorough analysis are crucial when engaging in shorting.
Would you like us to explore other use cases for Tectonic?
Let us know by giving us a shout in our discord!
psss we are also running a $100 $Tonic Giveaway. Check it out here!
