Niu Niu originally planned to write about leveraged loop operations today, but after opening the DOCS webpage of @TermMax and carefully reading GT, FT, and XT, I realized my previous understanding was too superficial.
First, let me talk about the point I was纠结 the longest: why does FT need to be split into a principal part and an interest part? Later I figured it out. After splitting, the borrower can sell the interest part separately to get back XT, and then use XT to redeem the debt token. This step turns future interest payments into an asset that can be traded right now. So the cost at each layer isn’t calculated as an APR—it's determined by the actual execution price on the Range Order, and the market depth determines the cost.
As for the number of leverage layers, the essence is: what rate you get at each layer depends on which segment the interest part lands on within the Range Order. If liquidity is good, rates will be smooth. If it’s not, stacking two layers can push the cost higher. This is not the same as Aave looping. In Aave, each layer’s interest rate is relatively close; in TermMax, each layer’s rate can differ a lot. The more layers, the more it becomes a bet on the market depth in each maturity segment.
The liquidation mechanism also makes me uneasy. In Aave, liquidation happens step by step, so you can add collateral. With TermMax’s Physical Delivery, it directly transfers the collateral asset in kind. If you run a three-layer loop and the bottom layer’s GT gets liquidated unsuccessfully, the collateral could be taken away as a whole. These rigid requirements mean you must judge the maturity date and the price range very precisely—not something you can just set a stop-loss and call it a day.
There’s another easy-to-overlook point: the refinancing risk of fixed terms. With Aave looping, you can keep rolling. With TermMax, every time it reaches maturity you have to take it apart and redo it, and the new interest-rate environment may be completely different. If the market suddenly tightens, the rollover cost can eat up the profits you had earlier. Locking in a fixed interest rate locks in the cost for that period, but it doesn’t lock cross-period costs—this is something I hadn’t thought of at first.
Now looking at TermMax’s leveraged returns again, they feel more like they’re designed for people willing to precisely manage expiration and interest-rate risk at each layer. Ordinary users only see that “fixed interest rates are more suitable for looping,” but the rigidity brought by fixed terms—and how dangerous it could be—may be more risky than floating rates.
#TermMax
The above is only my personal research notes and does not constitute investment advice. DeFi is risky.
First, let me talk about the point I was纠结 the longest: why does FT need to be split into a principal part and an interest part? Later I figured it out. After splitting, the borrower can sell the interest part separately to get back XT, and then use XT to redeem the debt token. This step turns future interest payments into an asset that can be traded right now. So the cost at each layer isn’t calculated as an APR—it's determined by the actual execution price on the Range Order, and the market depth determines the cost.
As for the number of leverage layers, the essence is: what rate you get at each layer depends on which segment the interest part lands on within the Range Order. If liquidity is good, rates will be smooth. If it’s not, stacking two layers can push the cost higher. This is not the same as Aave looping. In Aave, each layer’s interest rate is relatively close; in TermMax, each layer’s rate can differ a lot. The more layers, the more it becomes a bet on the market depth in each maturity segment.
The liquidation mechanism also makes me uneasy. In Aave, liquidation happens step by step, so you can add collateral. With TermMax’s Physical Delivery, it directly transfers the collateral asset in kind. If you run a three-layer loop and the bottom layer’s GT gets liquidated unsuccessfully, the collateral could be taken away as a whole. These rigid requirements mean you must judge the maturity date and the price range very precisely—not something you can just set a stop-loss and call it a day.
There’s another easy-to-overlook point: the refinancing risk of fixed terms. With Aave looping, you can keep rolling. With TermMax, every time it reaches maturity you have to take it apart and redo it, and the new interest-rate environment may be completely different. If the market suddenly tightens, the rollover cost can eat up the profits you had earlier. Locking in a fixed interest rate locks in the cost for that period, but it doesn’t lock cross-period costs—this is something I hadn’t thought of at first.
Now looking at TermMax’s leveraged returns again, they feel more like they’re designed for people willing to precisely manage expiration and interest-rate risk at each layer. Ordinary users only see that “fixed interest rates are more suitable for looping,” but the rigidity brought by fixed terms—and how dangerous it could be—may be more risky than floating rates.
#TermMax
The above is only my personal research notes and does not constitute investment advice. DeFi is risky.