Strategy 2: 2x leveraged yield farming, no risk going long/short
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The principle of leveraged farming is to match the resources in the hands of users：
1. Single asset holders think the interest rate of single-asset farming on the lending platform is too low;
2. Yield framers want to use the assets as collateral and borrow assets for farming to maximize the income.
In fact, there are four ways to open leveraged positions (take BNB/USDT as an example): Own BNB-Borrow USDT (referred to as U), Own USDT -Borrow BNB, Own BNB-Borrow BNB, Own USDT-Borrow USDT.
Own-BNB-borrow-USDT: In this case, there’s no risk on long/short, but the impermanent loss is double that of unleveraged yield farming due to the 2X leverage.
2. Own-USDT-borrow-BNB: n this case, there’s no risk on long/short, the impermanent loss is double that of unleveraged yield farming due to the 2X leverage.
3.Own-BNB-Borrow-BNB: The borrowed BNB is converted to USDT before opening the LP position. This effectively is a short position on 1 BNB. The PnL in the table below incorporates both the impermanent loss and the return from the short position on BNB.
4.Own-USDT-borrow-USDT: Similar to above, the borrowed USDT is converted to BNB before opening the LP position. This effectively is a long position on 1 BNB. The PnL in the table below incorporates both the impermanent loss and the return from the long position on BNB.
Hint：
Obviously, impermanent loss is larger under the leveraged yield farming positions than unleveraged position. Because of there’s no conversion (swap fees) occurred when own one and borrow another one, whether it’s own-USDT-borrow-BNB or own-BNB-borrow-USDT options. Users must be careful to select "Default" when closing a position, otherwise they will bear the swap cost of 0.3% and the slippage cost from the MDEX (or PANCAKESWAP) exchange.
In the case where own-BNB-borrow-BNB or own-USDT-borrow-USDT, the PnL on the position is monotonically increasing/decreasing with respect to BNB’s/USDT’s price change. It means that Own BNB-Borrow BNB is short on BNB, Own USDT-Borrow USDT is long on BNB. Note that under own-BNB-borrow-BNB or own-USDT-borrow-USDT options, a 0.3% swap cost will incur at the open of the position.
Depending on the depth of the MDEX (or PancakeSwap), large amount positions may cause relatively large slippage if BNB borrows BNB or if USDT borrows USDT. Bagels Finance platform has a function to set the slippage, the default value is 0.5%, and the slippage can be set independently.
