Deposit, borrow, swap back, deposit again — but how many times? There is a limit, the market sets it rather than you, and if you already hold the money you can skip the whole ritual and open the identical position in one step. A plain-English walkthrough, no maths background needed.
Every looping tutorial describes the same ritual: deposit an asset, borrow against it, swap what you borrowed back into the first asset, deposit that too, and repeat. The step everyone gets stuck on is the last word. Repeat how many times?
This article answers that from scratch. No background assumed — we will define each term as it comes up.
Collateral is the asset you deposit. The lending market holds it and lets you borrow against it.
LLTV stands for liquidation loan-to-value. It is the most important number on any lending market, and it means: the most you are allowed to owe, as a share of what you deposited. A market with a 90% LLTV lets you borrow up to $90 for every $100 you put in. Cross that line and you get liquidated.
Liquidated means the protocol sells your collateral to clear your debt — usually at an unfavourable price, usually with a penalty on top. It is the outcome you are trying to avoid.
That is enough to follow everything below.
Say you deposit $10,000 into a market with a 96.5% LLTV. You can borrow $9,650. Swap that back into the collateral asset, deposit it, and now you can borrow against that — but only 96.5% of $9,650, which is $9,312. Every round is a little smaller than the one before, because you never get to borrow back quite everything.
Watch it shrink:
| Round | You deposit | You can borrow | Total deposited | Leverage |
|---|---|---|---|---|
| 1 | $10,000 | $9,650 | $10,000 | 1.00x |
| 2 | $9,650 | $9,312 | $19,650 | 1.97x |
| 3 | $9,312 | $8,986 | $28,962 | 2.90x |
| 4 | $8,986 | $8,672 | $37,949 | 3.79x |
| 5 | $8,672 | $8,368 | $46,620 | 4.66x |
| 6 | $8,368 | $8,075 | $54,989 | 5.50x |
Leverage here just means total deposited divided by the $10,000 you actually started with. After six rounds of clicking you are at 5.5x — your $10,000 is controlling $54,989.
Because the rounds keep shrinking, the total never runs away to infinity. It settles on a particular number, and you can work out that number without grinding through a single round.
If you like formulas, here it is — with starting money E and an LLTV of r:
total deposited = E / (1 − r)
total borrowed = total deposited − E
leverage = 1 / (1 − r)
If you would rather skip that, you only need the punchline: at a 96.5% LLTV the loop settles at 28.57x, so $10,000 becomes roughly $285,700 deposited against $275,700 borrowed.
Now the part worth remembering. Run the same sum on a 91.5% LLTV market and you get 11.76x — $117,600 deposited against $107,600 borrowed. Same $10,000, less than half the leverage.
The ceiling is set by the market's LLTV, not by you. The slider does not choose your maximum. It only chooses where you stop on the way there.
Here is the thing most tutorials bury.
Looping is how you reach a large position when you only have $10,000 to start with. That is all it is — a way of funding something you cannot pay for outright.
If you already hold $285,700 of the collateral, you do not need to loop at all. Deposit the whole $285,700, borrow $275,700 against it, and stop. You now hold exactly the position that twenty rounds of clicking would have built: same amount deposited, same amount owed, same leverage, same price at which you would be liquidated.
The only difference is the route. One transaction instead of dozens, one set of fees instead of dozens, and none of the value lost swapping back and forth over and over.
That has an important consequence. Because both routes end in an identical position, arriving at 28x slowly is exactly as risky as arriving there in one move. Grinding through twenty careful rounds feels cautious, but it does not make the position safer — only slower and more expensive to build. Looping is a funding method, not a safety measure.
Three reasons, and the third is the one that really matters.
Infinite rounds are not available. After 10 rounds you are at 9.3x — about a third of that theoretical 28.57x. After 20 rounds, 15.1x. You would need something like 100 rounds to get close. Nobody clicks 100 times.
Every round costs money. Each deposit and each borrow costs a transaction fee, and each swap loses a little to slippage — the gap between the price you expected and the price you actually got. The rounds keep shrinking but the costs do not, so eventually a round costs more than it adds.
The maximum is the liquidation point. This is the real reason, and it catches people out. If you loop all the way up to the LLTV, you arrive with no room at all — the smallest move against you and you are liquidated immediately, on entry.
The room you have left is called your buffer: how far your collateral can fall before liquidation. It shrinks quickly as leverage climbs:
| Your leverage | How far collateral can fall before liquidation |
|---|---|
| 5x | 17.1% |
| 10x | 6.7% |
| 15x | 3.3% |
| 20x | 1.6% |
| 28.57x (the maximum) | 0.0% |
That last row is not a rounding artefact. At the theoretical maximum the buffer really is zero — at every LLTV, on every market. That is what "maximum" means.
So stopping short is not timidity. The room you leave is your entire safety margin, and that is what the leverage slider is really setting. Not "how much yield would I like" but "how much room do I want before I lose the position".
Many lending apps now offer a "multiply" or "leverage" button that builds the whole position in a single transaction, using a flash loan — money borrowed and repaid inside the same transaction, which lets the app assemble everything in one shot.
You end up in exactly the same place as the manual loop, with one set of fees instead of many. Worth knowing before you spend an afternoon clicking. It does not change the risk at all — only the route you took to get there.
Leverage multiplies your result in both directions, and the margin being multiplied is usually thin.
Suppose your collateral earns 6% and you borrow at 5%. That is a 1% edge. At 28.57x it becomes roughly +33% a year on your own money — which is why people do this at all.
Now let the borrowing rate rise from 5% to 7%. Lending rates move like that routinely, whenever a lot of people want to borrow at once. The same position now returns about −22%. A two-point move in a rate you do not control swung your return by more than fifty points.
Separately, your collateral only has to drift down to the LLTV for you to be liquidated. When both sides are stablecoins, or a staked token against the token it was staked from, a 3% gap sounds impossible — right up until a depeg opens one inside an hour.
If you want the fuller case against leaving these positions unattended, read why circular lending and borrowing goes wrong. To see how we score individual loops, see how we build the strategy safety score.
This article is educational and is not financial advice. Leveraged positions can be liquidated in full; never deploy capital you cannot afford to lose.
Looping (also called recursive lending) means depositing collateral into a lending market, borrowing against it, swapping the borrowed asset back into collateral, and redepositing — repeatedly. Each round adds less than the last, because you can only borrow up to the market's LLTV. The result is a single leveraged position with amplified exposure to the spread between your collateral yield and your borrow rate.
There is no fixed number. The loop is a geometric series, so decide the leverage you want and use the closed form instead of counting rounds: with equity E and an LLTV of r, total supply converges on E / (1 − r) and leverage on 1 / (1 − r). What matters is stopping short of the maximum — the headroom between your leverage and the LLTV is your entire liquidation buffer.
Maximum leverage is 1 / (1 − LLTV), which is a property of the market rather than a setting you choose. At a 96.5% LLTV that is 1 / 0.035 = 28.57x, so $10,000 of equity converges on roughly $285,714 supplied against $275,714 borrowed. At a more typical 91.5% LLTV the same $10,000 reaches only 11.76x, or about $117,647 supplied.
No — they produce an identical position. If you already hold $285,714 of collateral, depositing all of it and borrowing $275,714 in one transaction gives the same supply, debt, leverage and liquidation price as looping there from $10,000. Looping is a funding technique for reaching a position you cannot afford outright, not a risk-reduction technique. Arriving at 28x gradually is exactly as risky as arriving in one step, and costs far more in gas and slippage.
Three reasons. Infinite rounds are impossible — after 10 rounds you hold only 32% of the maximum, and roughly 100 rounds are needed to reach 97%. Every round also costs gas plus swap slippage, which the shrinking rounds stop justifying. Most importantly, the maximum is the liquidation point: your buffer is 1 − (L−1) / (L × LT), which at 28.57x against a 96.5% threshold is exactly 0%, versus 6.7% at 10x and 17.1% at 5x.
Many lending venues offer a single-transaction leverage feature that flash-borrows the full amount, builds the position, and repays the flash loan out of the new debt — all atomically. The end state is identical to the manual loop: same supply, same debt, same leverage, but with one gas payment and one swap instead of dozens. It saves cost and time, but does not change the risk profile at all.
Practitioner turned analyst tracking how incentives, liquidity, and capital flows shape DeFi protocols.
