Two Ethereum DeFi traders just made $120M using a strategy called 'looping'

If they are up 120M when ETH has gone up ~26% since it's low point of the last 30 days, they must have deposited ~150M to start with.

Looping 3 times, and borrowing ~80% of their deposit value each time (pretty close to the max for most defi protocols), they would have borrowed (likely in a stablecoin) 120M, then 96M, and finally 76M, giving them a total deposit of 442M worth of ETH against a borrow of 292M of the stablecoin.

After ETH went up by 26%, their initial 442M deposit is now worth 557M. Had the value of ETH gone down 21% at any point from the beginning of their levered position, their initial stake of 150M in ETH would have been liquidated by the protocol, so this is an incredibly risky play as you can imagine

The fact that such a large position likely moves the market does at least make it a little bit safer for them, but by that same token, unwinding their position will move the market in the other direction just as easily (so they might only see a 110M in profit if they tried to unwind entirely, at this article was written)

Just to address this directly, you're probably much more likely to get liquidated than to be able to bring your balance up to 500K when leveraging. In fact, if you're leveraged very close to the liquidation rate, with a lot of money at stake, people may even make plays to move the market to get you over the liquidation line and then liquidate you.

I mentioned turning 200 USD into 550 USD based on a stablecoin deposit, but that was both incredible luck on my part (I deposit as things were starting to flip from bearish to bullish) as well as being a lower-liquidity protocol where interest rates could fluctuate much more wildly.

To be clear, my earnings would have been a much smaller percentage had I deposited 100K USD, because the increased liquidity in that protocol would have resulted in much lower supply rates due to much higher liquidity, so I may have seen something more like 5-20% APR in that meantime (which is still not bad to be fair).

Had I leveraged even a little bit (going short against a volatile crypto-asset basically), I would have certainly been liquidated as prices for those have mostly all mooned in that time.

Looping doesn't just let you walk away with the money, as you necessarily have to redeposit it into the protocol to borrow more against your deposit.

If you're considering leveraging because you need to buy a house, you almost definitely shouldn't leverage unless the 100K is worthless to you without another 400K on top of it, and therefore you don't mind the much more likely scenario where it gets evaporated by market fluctuations

https://archive.ph/EFGPO