Two cryptocurrency whales have raked in a cool $120 million thanks to a clever strategy called “looping” within the decentralized finance (DeFi) space. These high-rollers, whose identities remain shrouded in mystery, have harnessed the power of DeFi protocols to amplify their exposure to Ether (ETH), Ethereum’s native token.
The whales started by depositing a hefty amount of ETH into lending protocols like MakerDAO, Spark, Morpho, and Compound. This served as collateral for borrowing another asset, such as the stablecoin DAI.
They then converted the borrowed DAI back into ETH, effectively increasing their ETH holdings without spending additional cash. This newly acquired ETH was then redeposited into the lending protocols, unlocking even more borrowing power.
This repeated “looping” process created a leveraged long position on their initial ETH deposit. In simpler terms, they were essentially betting on ETH’s price going up with borrowed funds, potentially multiplying their gains several times over.
Looping involves significant risks, as a sudden drop in ETH’s price could trigger liquidation, forcing the whales to sell their assets at a loss to repay their borrowed funds. However, these particular whales opted for a conservative leverage range of 1-2x, mitigating some of the risk compared to more aggressive strategies.
What fueled this windfall?
Upcoming upgrades like the Dencun hard fork, aimed at reducing transaction costs on Ethereum’s layer 2 networks, are generating excitement and anticipation, often leading to increased demand for ETH.
The proposed approval of an Ether-based ETF, similar to the recently launched Bitcoin ETF, could attract massive institutional investment, potentially driving ETH’s price even higher.
This recent success story highlights the potential of DeFi and its inherent risks. While the $120 million gain is enticing, it’s crucial to remember that such strategies are not for the faint of heart. Careful planning, risk management, and a deep understanding of the DeFi ecosystem are essential before venturing into these complex waters.
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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
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