Leverage Strategies
Last updated
Last updated
Leverage is a product that enables you to 1-click leverage your exposure to assets on Plume, and has two major use cases:
Leverage yield exposure - by leveraging and increasing your holdings on a yield-bearing asset, you increase your total yield.
Long/short an asset - by leveraging and increasing your position on an asset whose price we think may appreciate (e.g. PLUME), you are extra exposed to price fluctuations and will profit (or take a loss) accordingly.
Mystic's leverage product integrates our 1-click leverage smart contracts with Mystic's Core Markets and Curated Vaults, so that any asset on Mystic can be easily leveraged. Plus, leverage takes E-Mode into account, so you can leverage at the highest LTVs possible! Let's look at how it works.
The leverage implemented on Mystic is flash leverage, meaning we are increasing your holdings of an asset by contracting an equivalent debt via a flash loan. Let's look at how it works overall and then break it down step-by-step.
First, you select the asset you want to deposit and the desired leverage multiplier you want. The multiplier figure expresses how many times you are gaining additional exposure to the asset. In this example, let's imagine we want to 4x leverage nRWA starting with a 100 nRWA position.
After you deposit your 100 nRWA and choose your multiplier, Mystic flash borrows the remaining amount necessary to meet your desired leverage. In this example, Mystic will flash borrow 300 pUSD (to meet the 4x leverage). Had you started with pUSD, Mystic would have first swapped it for nRWA before proceeding with the flash borrow.
Next, Mystic goes to a DEX (our partner Rooster in this case) and swaps that 300 pUSD into nRWA.
We then deposit the 300 nRWA into Mystic and take out a 300 pUSD loan, to repay the flash loan executed beforehand.
The end result of this is a 400 nRWA deposit and a 300 pUSD debt to the protocol, meaning you are now gaining the yield of the 400 nRWA instead of just the yield you could have achieved with your initial 100 nRWA.
Leverage is just the beginning here, as we intend to roll out more strategies in the future. There reason for this is two-fold: liquidity sharing and convenience. On one hand, liquidity is DeFi's main bottleneck and also its living blood. Enabling custom strategies to be built on top of Mystic means third-party protocols can now tap into Mystic's liquidity by creating their own strategies, without having to bootstrap liquidity or raise via backroom TVL deals. This will not only dramatically accelerate both Mystic's supply and borrow activity, but directly help solve one of DeFi's biggest issues - the cold-start problem.
In addition to this, convenience is a big factor. Leverage and other complex trades can often be quite cumbersome to do and manage manually. To scale DeFi on Plume, we think it is essential these strategies can be performed and managed seamlessly, ideally with just 1 click. That is exactly what Mystic enables with leverage - an automated, user-friendly way to achieve leverage, the DeFi-native way.
