Leveraged Borrowing

Mystic Finance provides users with two leverage borrowing strategies, enabling them to amplify their investment returns. Two key strategies are employed: flash loans and looping.

Flash Loans for Leverage

Flash loans are a powerful DeFi tool that allows users to borrow large amounts of capital without providing upfront collateral, as long as the borrowed amount is returned within the same transaction block. Mystic Finance leverages flash loans to enable users to perform a complex financial operation of increased collateral positions by flash borrowing and collateral swapping without exposure to significant risk.

For example, a user might use a flash loan to temporarily acquire additional RWA collateral, which is then used to secure a larger loan. The original flash loan is repaid within the same transaction, often generating a profitable position without requiring the user to risk their own capital. This strategy will be readily available to all users on Mystic Finance.

Looping for Leverage

Looping is another leverage strategy where users borrow against their collateral, and then use the borrowed funds to purchase more of the same collateral, which is then deposited back into the platform to borrow even more. This process can be repeated multiple times, effectively leveraging the user’s initial collateral into a much larger position.

While looping can significantly amplify returns, it also increases risk, as the user’s position becomes more sensitive to price fluctuations in the underlying asset. Mystic Finance provides tools and safeguards against this, such as automated monitoring and adjustable leverage limits, to help users manage these risks effectively. However, it is important to reiterate the more complex and riskier nature of these operations and recommend that only knowledgeable participants engage in them.