> ## Documentation Index
> Fetch the complete documentation index at: https://docs.agi3.ae/llms.txt
> Use this file to discover all available pages before exploring further.

# Yield spread

> Borrowing stablecoins to supply where the rate is higher: the arithmetic of two floating legs, and the inversion that unwinds it.

Like every strategy in this section, this is a pattern you construct and manage yourself from the platform's ordinary actions; the [shared framework](/strategies/overview) applies throughout.

## What it is

Borrow stablecoins at one floating rate and supply them where the rate is higher, earning the spread on the borrowed amount. One pass, no recursion: this is the single-cycle relative of [looping](/strategies/looping).

## Mechanics on AGI3

* Post collateral and borrow the stablecoin: [Borrow against collateral](/how-to/borrow-against-collateral).
* Supply the proceeds into the higher-rate market: [Supply assets](/how-to/supply-assets), with a [swap](/how-to/swap-assets) first if the target market takes a different asset.
* The book now carries two positions, and [Net APY](/earning-yield/net-apy) is the readout: earned minus paid, against your equity.

## When it fits

* A persistent spread between two markets, made of borrower-paid interest rather than a rewards program. The rate breakdown shows which; see [How yield is calculated](/earning-yield/how-yield-is-calculated).
* Collateral already committed, so the spread is earned on top of exposure you already carry rather than justifying new exposure by itself.
* Tolerance for both legs floating independently for the life of the position.

## What it costs

* The borrow leg accrues continuously. The spread is the entire margin, so entry and exit costs (network fees, and price impact where a swap is involved) consume a real share of it.
* Exit is two-sided: the supply leg is subject to the market's withdrawal cap, while the borrow leg accrues regardless.

## How it fails

* Inversion is the canonical failure, and the worked example in [Net APY](/earning-yield/net-apy) is this strategy's arithmetic: a 2-point spread inverted by a 3.5-point move in one leg, amplified by leverage in both directions. Nothing prevents it, and no warning precedes it.
* The legs correlate under stress. The same squeeze that raises your borrow rate drains liquidity from the market you supplied into; the two utilizations are independent variables in calm conditions and correlated ones in a crisis.
* A rewards-built spread has a budget and an end date that someone else controls. If the supply leg's rate is mostly a rewards program, so is your margin.
* The exit can trap. A heavily utilized supply market caps your withdrawal while the borrow side keeps accruing: the spread can invert while the earning leg cannot be closed.

## Managing it

* Track both rates, not the net alone. Net APY tells you the position moved; the legs tell you which one, and why.
* Decide the exit spread at entry: the level below which the position no longer pays for its risks, treated the way the health-factor floor is treated.
* Prefer interest-driven supply rates for the leg the strategy depends on.
* Watch the supply market's utilization as an exit indicator as well as a rate driver, on the cadence in [Monitor positions and alerts](/how-to/monitor-positions).