11 ms·
Two Ethereum DeFi traders just made $120M using a strategy called 'looping'
- LuciBb 3y ago[dead]
- DarmokJalad1701 3y agoThis "strategy" smells very much like the one that /u/ControlTheNarrative infamously used on Robinhood back in 2019 (and blew up his account).
- soared 3y agoIs it accurate that on these platforms one can deposit funds, borrow funds (using the deposit as collateral), deposit those borrowed funds, borrow more funds (using the deposited borrowed funds as collateral), etc. and this can 3-5x their money, and the only risk is a bankrun? This seems.. insane. What’s the interest rate and payment terms on these borrowed funds? I have $100k cash and need to buy a house.. maybe I just crypto loop to get 500k.
- pcthrowaway 3y agoThat's exactly what looping refers to. See my other comment for an idea of what these numbers probably look like. The interest rate usually varies based on available liquidity in the pool, so if they were borrowing 292M of stables, their interest rate could vary anywhere from 0.5-150% APY, depending on the protocol parameters and the available liquidity. Usually (negative) APY when borrowing stablecoins (edit: on ethereum) would be closer to 1%, but as you can imagine, when lots of people withdraw liquidity to engage in the same kinds of tactics, the overall liquidity available for borrowers decreases, and then the interest rate adjusts to incentivize depositers (who can sometimes have stablecoin (positive) interest rates of >100%. For reference, I deposited 200 USD of a stablecoin into a pool with low liquidity on a more niche lending protocol on a blockchain that is known for attracting people more inclined to leveraging, about 18 months ago, and I can withdraw 550 USD now based on the interest rate fluctuations (likely due to lots of people going long against the stables in that same period) Right now on Compound, one of the most popular (and safest) lending protocols, one can get 9% APR for supplying USDC (which I believe to be one of the safest stablecoins) As things turn around into more bearish territory, people will leverage the other direction and that interest rate will go down significantly (back to more like 1%) as people effectively short ETH and other tokens using the same mechanics (deposit a bunch of USDC, borrow a volatile crypto-asset, sell it for USDC, deposit more USDC, etc. Then if the price of that crypto-asset goes down significantly, you can repay your borrow balance at a fraction of the cost in USD terms)
- pcthrowaway 3y ago> This seems.. insane. What’s the interest rate and payment terms on these borrowed funds? I have $100k cash and need to buy a house.. maybe I just crypto loop to get 500k. 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
- jmalicki 3y agoYou can't crypto loop to $500k in outside funds. Let's say you can borrow fraction (1-r) of deposits (for some small r, could be 0 - in fractional reserve banking monetary expansion, r is the "fractional reserve"). At time t0, you deposit 100 ETH, and borrow 99 ethereum worth of USDT. You loop that back into 99 ETH, and redeposit it. You have 199 ETH of assets, (99 EHT at time t0 of USDT) of debt (that you basically owe to yourself) - 100 ETH net, what you started with. You can now borrow an additional 98.1 ETH worth of USDT that you could spend on a house - less than the 100ETH you started with. Or you could redeposit that, to have 297.1 ETH total. But now, you can only borrow an additional 97.2 ETH. The total leverage on your ETH/USDT trade goes up, but the amount you can take out of the system (to, say, buy a house) can only stay the same or go down at each step through the loop.
- pcthrowaway 3y agoSo to clarify for those who don't care to know about defi, 2 people made on-chain leveraged bets with up to 2X leverage (which isn't a ton compared to what some people do). 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)
- laborcontract 3y agoI don't like the title. "Looping" isn't really a strategy. It's just a levered punt on the direction of the market.
- pcthrowaway 3y agoI mean it's not really a trading strategy, more of a mechanical strategy for composing other financial primitives into leverage
- Aurornis 3y ago> The fact that such a large position likely moves the market does at least make it a little bit safer for them I would not be surprised if they had some inside information about some big moves that were likely to move the market in some way. I doubt their entry and exit timing was randomly chosen.
- neonate 3y agohttp://web.archive.org/web/20240215054349/https://www.dlnews.com/articles/defi/two-ethereum-defi-traders-made-120-million-million-looping/ http://web.archive.org/web/20240215054349/https://www.dlnews... https://archive.ph/EFGPO https://archive.ph/EFGPO
- johnea 3y agoWouldn't a sane individual cash it in and retire at that point? Even cashing 1/2 of it would pay for pretty much any lifestyle a person might want...
- brianwawok 3y agoSame individuals don’t make it to billionaire status. At some point it’s a game.
- Frummy 3y agoIt is in our nature to constantly desire more...
- codetrotter 3y agoSee the other comments ITT. It seems like they already had far more than that to begin with.
- simpsond 3y agoThose accounts might not belong to individuals.
- _gmax0 3y agoMarginally related (this paper explains the mechanisms of a DeFi exploit which are the same mechanisms used generally in this 'strategy'): https://arxiv.org/abs/2003.03810 https://arxiv.org/abs/2003.03810
- fuhrtf 3y agoBasically they’re just using their own money and leveraging 2x. Does that sound about right?
- sushid 3y agoYes it's literally just leveraging
- m3m3tic 3y agoit's recursive leveraging using multiple different market makers that are giving you further leveraged bets on already leveraged assets
- JumpCrisscross 3y ago> it's recursive leveraging using multiple different market makers that are giving you further leveraged bets on already leveraged assets This is approximately what Bill Hwang was indicted for doing [1]. [1] https://www.wsj.com/articles/archegos-founder-and-cfo-charged-with-securities-fraud-11651059901?mod=hp_lead_pos1 https://www.wsj.com/articles/archegos-founder-and-cfo-charge...
- throwawaymaths 3y agoYou don't suppose he got in trouble with the law because he was doing it with other people's money (and not telling them that's what he was doing)?
- sushid 3y agoWhat do you think leveraging is? You are using your deposit (ETH) to increase exposure to an asset (more ETH). The process is just more manual compared to a traditional market because crypto.
- Animats 3y agoSo who lost $120M? This is a zero-sum system.
- maximilianroos 3y agoIf an asset goes up in price, who loses? One model is "total assets go up, no one loses". Another is "those who want to use the assets in the future will have to pay more for them".
- mminer237 3y agoNobody gains or loses anything tangible until they liquidate. Assuming they manage to do so without crashing the market, it would be those people who bought in at the high because "Ethereum is going up".
- drexlspivey 3y agoIt's definately not a zero-sum system
- dvt 3y agoYou can make an argument that the economy as a whole is not a zero-sum system, but money markets certainly are.
- skybrian 3y agoIt’s zero-sum when the game ends because there are no more buyers. That hasn’t happened yet. We don’t know how much more money will be spent on Ethereum or who the buyers will be. We don’t know how much they will win or lose. If it’s zero-sum but we don’t know how many terms are being summed or their values, then we can’t do the math and the equation isn’t very useful for making predictions.
- deleted 3y ago[deleted]
- drexlspivey 3y ago
- latchkey 3y agoDeBank is a sort of social network, for wallets, so I've linked the two below so that you can clearly see what is going on here. What nobody here is discussing, is the fact that these wallets already have $1.2B and $1.8B worth of funds in them. Depositing $150m is not a big risk for them. If you are into DeFi, it is obvious they know what they are doing. These wallets are using money to make money, pure and simple. https://debank.com/profile/0x28a55c4b4f9615fde3cdaddf6cc01fcf2e38a6b0 https://debank.com/profile/0x28a55c4b4f9615fde3cdaddf6cc01fc... https://debank.com/profile/0x741aa7cfb2c7bf2a1e7d4da2e3df6a56ca4131f3 https://debank.com/profile/0x741aa7cfb2c7bf2a1e7d4da2e3df6a5...
- Cheer2171 3y agoThis ought to be as newsworthy as the headline "Gambler just made $120M using a strategy called 'bet it all on a horse with 20-1 odds"
- hbbio 3y agoIt's not, because the risk is calculated. Finance has been doing the same for ages, so these people may come from a very traditional finance background...
- JCharante 3y agogoing long with margin is not something only people from finance backgrounds know
- latchkey 3y ago100% they have a background in finance. It is apparent when you look at their wallets.
- martynr 3y agoGenuinely curious- In what sense is the risk calculated? I understand that the leverage factor is known but fundamentally isn’t this still just a bet that eth will rise? And if it falls then won’t the loss be multiplied by the same leverage factor? Obviously you can research the eth market and form a view but you can also research horse racing form and the odds themselves should be a fair calculation indicator if the betting market is working well - so it seems fair to suggest that this is in the same category as a horse racing bet.
- hbbio 3y agoAs the article says, Ethereum needs to move down 60% for them to be liquidated. This is unlikely to happen overnight (if they are finance pros, they do compute probabilistic models), leaving them time to unwind their position when situation changes.
- 3y ago
- caymanjim 3y agoWhile $120M is a huge amount of money, it doesn't necessarily mean they got a huge percentage return. I don't see how much they staked to get this return. The article does mention that the two wallets are collectively worth $3B, and that they used 1-2x leverage in this bet. I'm curious how much they actually bet on this. Was it a 10% overnight return? That's a fantastic return, but plenty of traditional market gamblers have pulled that off. Doesn't diminish their success in any way. I'm trying to figure out how much they gained as a percentage of the gambled amount, as the actual dollar amount doesn't mean much.
- jdminhbg 3y agoYeah, it's interesting that the way Ethereum works make it possible to see exactly how the trade worked and how much it made, but "traders with huge resources made a leveraged bet and won" is something that happens constantly.
- Rastonbury 3y agoIn the article, they said they opened the position when Ethereum was 1,000 which was 2021.
- caymanjim 3y agoThat's when they initially started building their now-$3B stake. Doesn't have anything to do with this $120M trade.
- declan_roberts 3y agoCrazy that people think these cryptocurrencies are somehow less easily manipulated than the dollar.
- mhluongo 3y agoNot sure anyone in the space believes that. Rather, a common belief is that over a long time horizon, the debasement of USD will hurt buying power, and that BTC and friends will benefit from that. Not such an oddball belief if you look at the change in the value of a dollar over the last century.
- pxmpxm 3y agoCrypto people discovering leverage and accounting, news at 6. I have $1 asset. I have $2 asset and $1 loan. I have $3 asset and $2 loan.
- monero-xmr 3y agoYes they have been doing this since Ethereum existed. Maybe it's HN discovering this achievement, considering crypto people are explaining very basic functionality to this website's community
- CommitSyn 3y agoHN loathes crypto. I think too many tech bros got burned in 2018.
- duckman1 3y ago[dead]
- cutler 3y agoHow we lionise these useless specimens of the human race.
- ho4 3y agoDeep elf fighters weren't supposed to be this strong
- yashg 3y agoGood for them if they manage to convert those imaginary numbers to actual money. With actual I mean real world money with which you can pay your bills, taxes etc, not the funny internet money. It's still a Ponzi. And writing about this thing in the same terms as legitimate financial trades will not change the fact that it's all a meaningless charade by habitual gamblers.
- arandomusername 3y agoYou seem needlessly aggrevated. Other people are willing to pay for it, so it doesn't really matter how you feel it's "funny internet money", it's a currency of value. Curious, what are those "legitimate" financial trades you are speaking about?
- CommitSyn 3y agoQuoting Hitchhikers Guide: This planet has - or rather had - a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn't the small green pieces of paper that were unhappy.
- friend_and_foe 3y agotl;dr traders leveraged for a 4% gain (3 billion in assets for 120 million in returns according to the article). Not really news.
- choppaface 3y agoSee also CLRS arbitrage problem https://walkccc.me/CLRS/Chap24/Problems/24-3/ https://walkccc.me/CLRS/Chap24/Problems/24-3/
- advael 3y agoOne time I made nearly 20 times my money in one night of playing poker I mean, I used to have a poker game pretty regularly with some friends and friends of friends. We'd basically just play until one person got all the chips, but we also allowed buying back in once if you were out before 11 PM. One night when it was especially big, we had a lot of people playing and a bunch of them bought back after going out quickly, and I happened to win that night. Also, the buy-in was $5, so I won like $95 total Notice how you can make the story sound really impressive or really piddly depending on how you decide to count it. 20x ROI sounds crazy! Winning less than a hundred bucks doesn't. Also, probably over all the games we ever played I came out about even or maybe a little ahead. I'm okay at poker compared to my friends who played. Not amazing, better than average maybe. But there was no amount of losing that would have represented an untenable risk for me. Similarly, this article is describing the gains from a single bet in isolation. When you say $120M it's, well, more money than most normal humans will see in their lives (though probably the average income here is more like the top quartile of US incomes), but when you say it's like maybe a 2X ROI on that bet, which represented like sub-5% of the assets of just the wallets making the bet, which I doubt even represents the total assets of whoever owned those wallets (Which could also be jointly-owned), it's a lot less impressive. I'm not sure why it's even worth reporting on unless your goal is to push Ethereum through this kind of number-jiggling for the credulous
- RecycledEle 3y ago$120M/$3B = 4% 4% would be a better way of stating their gains.