Module 3.4｜Leverage to Earn
Last updated
Last updated
In the Fulcrum Strategy, users can enhance their potential returns by leveraging their positions in JLP tokens. This allows users to borrow against their collateral to invest in more JLP tokens, amplifying their yield-generating capabilities.
Deposit Collateral: Start by depositing your collaterals (JLP) into the leverage vault.
Select Leverage Ratio: Choose a leverage ratio (up to 7x) based on your risk appetite and investment strategy.
Borrow Funds: The leverage vault will automatically borrow funds against your collateral to increase your JLP holdings.
Earn Yields: As the value of your JLP increases and you earn yields from liquidity provision, you can benefit from higher returns due to the amplified position.
By leveraging your investment, you can significantly increase your potential earnings compared to simply holding JLP tokens.
Leveraging JLP allows you to amplify your potential returns by borrowing additional funds to purchase more JLP tokens. This means you can earn yields on a larger investment than you could with just your initial capital. By increasing your exposure, you can take advantage of market movements and yield opportunities that would not be possible with unleveraged positions.
The reward earned from leveraging in the vault can be calculated using the following formula:
Where:
Situation:
Bob is an degen looking to maximize his returns through the Fulcrum Strategy by leveraging his JLP (Jupiter Liquidity Provider) tokens. He decides to take advantage of the leverage vault.
Parameters:
Benchmark APR (A): 67%
Leverage Multiple: 6x
Borrow Interest (X): 31%
Bob finds that by leveraging his JLP tokens with a leverage multiple of 6x and a borrow interest of 31%, he can achieve an effective APR of 247%. This significant potential return illustrates the power of leveraging in the Fulcrum Strategy, although Bob knows he must also be mindful of the associated risks involved with leveraged positions.
The yield paid to leveragers is influenced by the JLP's APR from the previous 4 weeks on NX Finance, while other protocols depend only on the previous week's APR. This approach ensures that leveragers can enjoy a more steady and safe APR, avoiding vigorous volatility associated with short-term fluctuations.
Yes! Your JLP position in Fulcrum automatically compounds over time. This means that any earned yields are reinvested into your position without requiring manual intervention.
The maximum leverage ratio available for users is 7x. This allows you to amplify your investment significantly but also increases risk.
The assets you borrow from the lending pool remain within the NX smart contract; they will not be transferred to your wallet. Instead, the contract automatically executes the leverage process and opens a position for you. Therefore, users will not have direct access to the borrowed funds during this process.
When borrowing stablecoins like USDT or USDC, you are utilizing a more stable asset that typically doesn't experience significant price fluctuations. This provides a hedge against volatility. In contrast, borrowing SOL is part of a hedge strategy; it exposes you to higher price volatility but allows for potential higher rewards through liquidity provision or staking opportunities. For more details on this strategy, refer to Module 3.4.1 | JLP Hedge
You can use various assets as collateral in Fulcrum, including:
JLP
jupSOL
sSOL
vSOL
Liquidation Risk: If market prices drop significantly, your leveraged position may be liquidated if it falls below a certain health factor threshold.
Market Volatility: Rapid price fluctuations can lead to increased borrowing costs or decreased collateral value, impacting profitability.
Interest Rate Changes: Fluctuations in borrowing rates can affect net returns and overall profitability.
= Benchmark APR (the JLP APR from the previous 4 weeks)
= Leverage Multiple - 1
= Borrow APR (which varies according to the token utilization rate)
