Leverage and looping

Looping is the most popular way to boost yield on Solana, and the easiest way to lose money if you don't understand the math. The idea: deposit an asset, borrow against it, buy more of it, deposit that too, and repeat.

A worked example

You deposit 10 JitoSOL earning 5.5%. You borrow SOL at 4.5%, convert it to JitoSOL and deposit again until your position is 30 JitoSOL with 20 SOL of debt. That's 3x leverage.

• You earn 5.5% on 30 JitoSOL: 1.65 SOL a year.
• You pay 4.5% on 20 SOL: 0.90 SOL a year.
• Net: 0.75 SOL on your original 10. That's 7.5% APY.

The general formula:

Net APY = yield × leverage − borrow rate × (leverage − 1)

Kamino Multiply and Jupiter Lend's vaults do all the loops in one transaction.

ToolLoop & liquidationSee your net APY and liquidation price before you loop or borrow.

Three ways a loop breaks

1. The spread flips. The whole profit is the gap between your collateral's yield and the borrow rate. If SOL borrow demand spikes and the rate rises above the staking yield, every day costs you money, and at high leverage your margin melts quickly. This is the most common loss on correlated loops.

2. The collateral depegs. If JitoSOL trades below its SOL value (say during a panic), your LTV jumps. At 10x on a correlated pair, a 2 to 3% depeg can be enough to liquidate you.

3. Price moves on volatile pairs. Loop SOL against USDC debt and a normal 20% SOL drop can liquidate a 3x position.

Safer looping habits

• 2 to 3x is plenty. The yield gain from 3x to 10x rarely justifies the extra fragility.
• Watch the borrow rate, not just your APY. Set a reminder to check weekly.
• Know your exit. Unwinding a loop costs swap fees and can be expensive in a crisis when everyone exits at once.
• Prefer fixed rates for longer loops. Kamino Fixed Rates and Loopscale lock your borrowing cost.

Leverage without liquidation

Some products give leveraged exposure with no liquidation. Hylo's xSOL is roughly 2 to 3x leveraged SOL that absorbs losses by losing value faster instead of being liquidated. It removes one risk and adds another: in a deep drawdown xSOL can lose most of its value. Read the stablecoins lesson to see how its hyUSD side works.