Brothers who use leverage should have all been stabbed by interest rates. When the market moves, the fund pool utilization shoots to the max, and the borrowing interest rate can multiply by several times within a few hours. You calculate the arbitrage space you think you have—then you sleep one night and suddenly you’re working for the protocol. The most infuriating part is that there’s no way to prevent this: interest rates are set by the market, so you can only watch the charts at midnight, ready to repay at any moment.
Later I figured out one thing: floating-rate leverage, in essence, is like you simultaneously opened two positions. One is the long/short position on the asset, and the other is the long/short position on the interest rate. Most people don’t lose because they misjudged the coin price—they lose because they simply didn’t realize they were naked short the interest rate.
The solution for @TermMax is pretty brutal. The moment the borrowing is executed, all interest is locked in. After that, even if market rates rocket to the sky, when the loan matures you pay back the exact same amount—no more, no less. It’s like deleting the “interest rate” variable from the strategy. What’s left is only one variable: whether your judgment is right or wrong.
Anyone who plays loop-leverage arbitrage should understand what this means. Both收益 and costs are calculated in advance—your breakeven point is already clear before you even open the position. This can’t be done in a world of floating interest rates.
Of course, I’m stating the ugly truth upfront: locking is two-sided. If market interest rates fall, you don’t get any cheaper advantage either—you effectively give up the new option to benefit from rate declines. And at maturity you must handle it: either repay or close. If you want to roll over, you have to look at the order book at that time, and nobody will cover the continuation cost for you.
I personally use fixed rates as a tool. Determinism—institutions are often willing to pay huge money for it. Retail traders, on the other hand, usually think it’s not exciting enough. But veteran traders all understand this: “excitement” is just another name for losing money.
$TMX Aug 25 TGE. After the reward distribution, you’ll know immediately how much borrowing demand is left. I’ve already moved my chair.
Do you think this fixed-rate thing will be used first by arbitrageurs, or will institutions move in first?
#termmax
Later I figured out one thing: floating-rate leverage, in essence, is like you simultaneously opened two positions. One is the long/short position on the asset, and the other is the long/short position on the interest rate. Most people don’t lose because they misjudged the coin price—they lose because they simply didn’t realize they were naked short the interest rate.
The solution for @TermMax is pretty brutal. The moment the borrowing is executed, all interest is locked in. After that, even if market rates rocket to the sky, when the loan matures you pay back the exact same amount—no more, no less. It’s like deleting the “interest rate” variable from the strategy. What’s left is only one variable: whether your judgment is right or wrong.
Anyone who plays loop-leverage arbitrage should understand what this means. Both收益 and costs are calculated in advance—your breakeven point is already clear before you even open the position. This can’t be done in a world of floating interest rates.
Of course, I’m stating the ugly truth upfront: locking is two-sided. If market interest rates fall, you don’t get any cheaper advantage either—you effectively give up the new option to benefit from rate declines. And at maturity you must handle it: either repay or close. If you want to roll over, you have to look at the order book at that time, and nobody will cover the continuation cost for you.
I personally use fixed rates as a tool. Determinism—institutions are often willing to pay huge money for it. Retail traders, on the other hand, usually think it’s not exciting enough. But veteran traders all understand this: “excitement” is just another name for losing money.
$TMX Aug 25 TGE. After the reward distribution, you’ll know immediately how much borrowing demand is left. I’ve already moved my chair.
Do you think this fixed-rate thing will be used first by arbitrageurs, or will institutions move in first?
#termmax