In this article, we will explain with practical examples how looping and vaults work in detail. Knowing how to borrow and avoid liquidations is also important for this topic, so be sure to review Part Four if you have not yet done so!
Looping
UwU Lend offers a 1-click function to loop. You can also simulate potential returns on the Loop page.
To begin, ensure you have the asset you wish to loop in your wallet and connect your wallet. Then open the Loop page.
1. Select the asset you would like to loop from the drop down menu.
2. Enter the amount you wish to use as the starting deposit and base for your loop. You will be asked to approve.
3. Approve the delegation of assets transaction. This allows our contracts to delegate your assets to be deposited and borrowed in one transaction.
4. After adjusting the leverage slider and proceeding, the smart contract will automatically combine all the required transactions. The higher your loop count, the more actions required, which will result in a higher gas cost. Be mindful of current gas (gwei) when you plan to loop. Execute the loop transaction to finalize.
Looping allows users to collect additional rewards for selling or LP staking. Remember to always consider the vesting period when you are planning your loops and reward claims.
Asset price change will not lead to liquidation, as you are borrowing the same asset you deposited. However, be mindful that accrued interest can lead to liquidations if you leave your position unmonitored over a long period of time.
Example:
Alice has 1 wETH in her wallet that she wants to loop with. She has no other deposited assets to count as collateral and uses the maximum loop option. Paying 28% APY in interest and receiving 14% APY as well as 83% APR in additional rewards. The value of her position depends solely on the price of ETH. Let’s assume that after looping, she now has a total of 5 wETH valued at $5,000, meaning she has 4 wETH borrowed, valued at $4,000.
If ETH drops 10% in price, her deposited value is now $4,500. Her borrowed position drops to $3,600. This will not cause a liquidation as both positions move up or down at the same percentage.
By looping, she receives 14% APY on her deposit position, automatically adding to her uTokens. After one year, she has now 5.7 wETH worth $5,700. The interest however is 28%. She would then owe 5.12 wETH worth $5,120.
The 83% APR accumulated is worth $7,470 but does not automatically add to her position, so she needs to monitor her position by vesting, selling or LPing some of her rewards or adding more collateral to maintain her loop position.
Unlooping
UwU Lend currently does not offer a 1-click unloop function, also called “flash loan”. Unlooping will require multiple manual transactions unless you use new funds to repay the open loan amount.
Assuming you do not invest new funds but rather want to unloop over several steps, you will need to withdraw a safe amount of the looped asset (remember to watch your HF to avoid liquidation between the steps). Withdraw and repay part of your loan. Repaying will raise your HF again so you can withdraw more to repay. Withdraw again and repay. Repeat until the loan is fully repaid.
Vaults
Some collaterals offered on UwU Lend are assets commonly referred to as “vault” tokens. These are tokens from other protocols that employ a specific set of strategies for yield farming. You deposit into the vault and receive a receipt token that automatically earns yield and, after some time, can be exchanged back for the original token plus the acquired yield. Auto-compounding collaterals such as sDAI already accumulate interest on their own and can further be used on UwU Lend to maximize personal yield strategies or receive some additional return.
Using these vaults as collateral and looping them to accumulate rewards are highly sought after strategies in DeFi that can lead to very high returns. Other types of vaults include LP token vaults, where users can take the LP token they received by providing liquidity and deposit them to use as collateral.
Example: Take a vault token with 5% APY and use it as collateral. You receive the 5% base reward from your asset, as well as the additional deposit APY and APR further enhancing your yield. Looping this asset can lead to even greater yield and autocompound your position.
Our own xUwU token is another example of a yield generating vault. Users deposit their UwU tokens and, over time, the ratio inside the vault changes. At launch, the ratio of xUwU:UwU was 1:1. The more buybacks that occur and the more bought back UwU tokens are added to the vault, the more UwU tokens the user will receive upon unstaking.
Example:
Take a 5% APY vault, use it as collateral. You receive the 5% base reward from your asset as well as deposit APY and APR, further enhancing your yield. Looping this asset can lead to even greater yield and potentially autocompound your position.
