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Looping, also called leveraged staking or recursive borrowing, means using borrowed funds to increase a position in the same asset you already hold, repeating the cycle to build exposure larger than your capital. AGI3 does not provide looping as a product feature. There is no one-click loop, no automated leverage, and nothing in the platform that maintains, rebalances, or unwinds a looped position for you. Everything described here is something you would construct yourself out of the ordinary supply, borrow, and swap actions, and would be entirely responsible for managing. This article exists so the mechanics and the failure modes are clear before you attempt it.

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The mechanic

One cycle, starting from an asset that earns yield:
  1. Supply the asset as collateral.
  2. Borrow a second asset against it, typically a stablecoin.
  3. Swap the borrowed asset back into the first asset.
  4. Supply the proceeds as additional collateral.
You now hold more of the yield-bearing asset than you started with, and you owe the borrowed asset. Repeat, and exposure grows while each cycle adds less than the last.

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Why anyone does it

The intent is to earn the spread on a larger base. If the collateral yields more than the debt costs, multiplying the collateral multiplies the spread. The arithmetic in Net APY shows how a 2-point spread can present as a double-digit return on committed equity.

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Why the loop terminates

Each cycle is bounded by the market’s max borrowable LTV, so the amounts shrink geometrically. At an 85% max LTV the theoretical ceiling on total exposure is about 6.7× your starting capital. You will not reach it, and should not try:
  • The 3% safety margin applies to every borrow, so each cycle draws less than the theoretical maximum.
  • Swap slippage and fees consume part of every cycle.
  • Approaching the ceiling drives your health factor toward 1.00 and then below it, which is where liquidation risk becomes acute.
The last cycles add little exposure and a great deal of fragility.

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How it fails

Health factor compresses with every cycle. This is the defining risk. A single position at 50% LTV is robust; a looped book near the max LTV has almost no buffer, and the same price move that a single position absorbs will liquidate a looped one. Losses are leveraged too. Exposure of 5× your capital means a 10% fall in the collateral is a 50% loss of your equity, before liquidation costs. The spread can invert. Supply and borrow rates float independently. If borrow costs rise above your collateral’s yield, a looped position bleeds, and it bleeds at leveraged scale. Nothing prevents this and no warning precedes it. Correlated collateral offers no protection. Looping concentrates you in one asset by construction. The portfolio health score will score this near zero on concentration, and its crash-day scenario shocks every ETH derivative together at −45% precisely because wrappers of the same asset do not diversify. Unwinding is not symmetrical. Building a loop happens in calm markets at your leisure. Unwinding happens when it is going wrong: you must repay debt to release collateral, which may mean swapping at exactly the moment spreads widen and liquidity thins. The exit is slower and more expensive than the entry, and there is no automated unwind to fall back on. A depeg breaks the assumption entirely. Looping a liquid-staking derivative against its base asset assumes the two track each other. If that relationship breaks, LTV moves sharply with no price fall in the underlying at all.

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If you do it anyway

Stop well short of the maximum: the last cycles are where nearly all the risk concentrates and very little exposure is gained. Decide your target health factor before you start and treat it as a hard floor, not a guideline. Keep uncommitted assets available to add as collateral, because a looped position that cannot be topped up has only one exit. Monitor both the collateral price and both interest rates, since either rate moving can turn the position loss-making without any price action. And know your unwind sequence before you need it. Looping is a leveraged position in a single asset. Size it as you would size any leveraged single-asset trade.