Fixed borrowing cost doesn't mean fixed profit. I nearly mixed those up when looking at leveraged yield on TermMax.
Take a simplified one-year 3x example:
$10,000 of my own capital
$20,000 borrowed at a fixed 6%
$30,000 of total exposure earning 8%
Before fees and price changes, the collateral earns $2,400. Interest costs $1,200. That leaves $1,200, or 12% on my original $10,000.
Looks fine.
But if the collateral yield floats down to 4%, income falls to $1,200 while the borrowing cost stays at $1,200. The spread is gone. Net return: roughly zero before fees.
At a 2% collateral yield, the same setup loses about $600 even if the collateral price doesn't move.
That's the check I'd make before touching the leverage button: at what collateral yield does my spread hit zero?
TermMax can fix one side of the equation. It can't fix a floating yield on the other side.
@TermMax #TermMax
Take a simplified one-year 3x example:
$10,000 of my own capital
$20,000 borrowed at a fixed 6%
$30,000 of total exposure earning 8%
Before fees and price changes, the collateral earns $2,400. Interest costs $1,200. That leaves $1,200, or 12% on my original $10,000.
Looks fine.
But if the collateral yield floats down to 4%, income falls to $1,200 while the borrowing cost stays at $1,200. The spread is gone. Net return: roughly zero before fees.
At a 2% collateral yield, the same setup loses about $600 even if the collateral price doesn't move.
That's the check I'd make before touching the leverage button: at what collateral yield does my spread hit zero?
TermMax can fix one side of the equation. It can't fix a floating yield on the other side.
@TermMax #TermMax