Leverage Exposure

This page explains how to leverage your exposure to a particular crypto asset on ZeroLend.

What is leveraging?

In decentralized lending platforms like ZeroLend, leveraging or yield farming involves utilizing borrowed assets to increase your holdings of a particular cryptocurrency or token. This approach is used by traders and investors to potentially generate greater returns from market movements. However, it's important to approach leveraging cautiously, as it increases both profits and the risk of losses.

In the following sections, we'll guide you through the process of leveraging the ZeroLend platform. On this platform, you can deposit collateral, borrow funds, and strategically increase your exposure to a selected asset.

Remember that leveraging requires a solid understanding of the risks and a detailed strategy tailored to your investment goals.

How does it work?

Yield farming is one of ZeroLend's major use cases. Users can deposit their assets and borrow stablecoins ($USDC/$USDT) or $ETH against the deposited asset.

Here's a step-by-step explanation of how you can take such a leverage position on the ZeroLend protocol:

  1. Deposit collateral: Start by depositing an asset (let's say, Token A) into the ZeroLend platform. This asset will serve as collateral for the borrowing process.

  2. Borrow funds: After depositing Token A as collateral, you can borrow a certain amount of a different asset, such as $ETH or $USDC. This borrowed asset can be used to increase the exposure to Token A.

  3. Trade borrowed asset for the underlying asset: Once you have borrowed the desired amount of $ETH or $USDC, trade those borrowed funds for Token A on a decentralized exchange or any other platform where Token A is traded. This effectively increases the amount of Token A you hold. You can also purchase any other token instead of Token A if you wish to further diversify.

  4. Increase Exposure: By leveraging borrowed funds, you have more Token A than the initial deposit. This increases your exposure to Token A's price movements. If the price of Token A goes up, the potential gains are amplified due to the increased position size.

  5. Monitoring and management: As with any investment, you must actively monitor the price of Token A and the borrowed funds. The leveraged position can result in higher profits if the price of Token A rises, but it can also lead to significant losses if the price goes down.

  6. Repaying the Loan: You might close the leveraged position at some point. To do so, you must sell enough of Token A to repay the borrowed $ETH or $USDC, plus any accrued interest. Once the borrowed funds are repaid, your collateral is released, and you can decide whether to continue holding Token A or withdraw your initial collateral.

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