Leverage is a concept in finance that relies on using borrowed funds to increase returns (and risk).

It's an incredibly powerful, (yet dangerous) tool that I think newcomers to the space don't understand too well.

Here’s a thread (and graphic) that explains it 👇 🧶
1/ Consider the following example:

You start with $100 and buy $BTC.

BTC does a 2x, and you now have $200.

Profit = $100
ROI = 100% (Profit / initial investment)

No leverage being used here.
2/ Now suppose you borrow an extra $50 from the bank at 10% interest.

You now have $150 that you use to buy BTC.

BTC does a 2x, and you now have $300.

After returning the borrowed $55 ($50 principle + $5 interest) to the bank, you have $245.

Profit = $145
ROI = 145% 🤑
3/ In the example above, you borrowed some money at 10%, but your investment appreciated by 100%, so you were able to amplify your returns.

Now let’s take a look at the risk side of things..

What if BTC goes down by 50%? ⬇

Without borrowing: $100 —> $50, so your ROI = –50% 🥴
4/ With borrowing:

You start with $100. You borrow $50 at 10% interest.

You buy $150 of BTC. BTC goes down 50%.

You now have $75, and you owe $55 to the bank, leaving you with $20.

Loss = – $80
ROI = – 80%. 🤮
5/ Hopefully, this example illustrates how leverage can amplify both your risks and your returns.

Be very careful with leverage. Far too many smart people have gotten wrecked because of leverage.

Don’t be greedy.

If you do use leverage, be VERY conservative with it.
6/ Mortgages are probably the most common form of leverage.

You are buying a house for $500k. 🏡

You put a 20% down payment on a house ($100k)

You borrow the other 80% ($400k) from the bank. 🏦
7/ You are now leveraging an asset (house) worth $500k having put down only $100k. 🛠
8/ If the house price goes up 10% in a year to $550k..

Profit = $50k
ROI = 50% (minus mortgage interest) 💰

If the house price goes down 20% in a year to $450k,

Loss = – $50k
ROI = –50% 🤢

10% move = ± 50%.

That’s leverage.
9/ Leverage is everywhere. Keep your eyes peeled, and you’ll see it all around. Examples:

– Options and futures are leveraged instruments for equities.

- Buying stocks on margin

- Mortgages

– Companies borrowing money to fund operations

- Hiring employees
10/ Hope you found this 🧵 useful.

It’s not directly about #Crypto or #DeFi like my usual threads, but it’s a very important concept, that a lot of people don’t understand well enough.

Be careful with leverage.

Like fire, it’s a tool that can be used well, or poorly. 🔥
11/ It also relates to some crypto content that I will be putting out later this week, about how to use leverage to boost your #DeFi returns ⚡️ 🤑

Stay tuned... ⏳
Apologies for the mistake in the graphic! I uploaded the wrong version 🥴 🙈

Here is the correct one!

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More from @shivsakhuja

30 Dec
It isn't clear to everyone why #DeFi is better than TradFi.

Sure, bringing financial services to #crypto is cool - but why is it better?

In this thread, I'm going to explore the benefits of trading stocks using @mirror_protocol to illustrate the power of #DeFi 🪞 🧶 👇 Image
1/ Mirror Protocol (@mirror_protocol) allows you to trade stocks the same way you trade cryptocurrencies in #DeFi 🪞

You can

– Buy / sell synthetic stocks (called "mirrored" assets) on a DEX.

– Farm them for yield (long or short) just like with any other tokens. 👨‍🌾
2/ Now why anyone would want to do that instead of just buying stonks on @RobinhoodApp?

It's easy to understand why 19% interest in @anchor_protocol is better than 0.5% in a TradFi savings account.

But why #DeFi stocks over TradFi stocks?

Here are some reasons 👇
Read 15 tweets
27 Dec
10 Twitter Accounts to follow for #DeFi knowledge..

(In no particular order)

Thank you to all you OGs for sharing such excellent content about #Crypto and DeFi!

Would love to see everyone else's favorites in the comments!
1/

@Route2FI: Great overall DeFi account with excellent advice, strategies, and breakdowns!

@TaschaLabs: Macroeconomics whiz who has a Blog + YouTube + Podcast about crypto / finance!

@takegreenpill: Amazing account very for wide ranging Crypto knowledge! 🔫
2/

@JustinCBram: Great threads, awesome YouTube videos! 🎥

@blocmatesdotcom: This guy writes some amazing blog posts about #DeFi ✍️

@JackNiewold: Practical advice and very well-researched threads! 🧐
Read 7 tweets
25 Dec
I've written a few guides on how to earn high interest on your stablecoins using #DeFi.

By far, the easiest and most passive (but also high yield) way is @anchor_protocol, which currently pays out ~19.5% APY in UST.

Let's see how that works. 🧶 🪡 👇
1/ For reference, here's the step-by-step guide I had written about how to use @anchor_protocol to earn 19.5% APY on your stablecoins:
2/ @anchor_protocol facilitates decentralized lending and borrowing.

With this protocol:
- Lenders are earning 19.5%
- Borrowers are paying 18.65%

Wait a minute -- borrowers are paying less than lenders are earning?!

Yes, and it's not a ponzi -- here's how it works...
Read 23 tweets
23 Dec
Recently, I wrote about how I like the Fantom ecosystem, and how I'm bullish on $FTM.

One interesting farming opportunity in the Fantom ecosystem is @tombfinance.

If you own $FTM, here are some great strategies that can yield 1000-2000% APY.

👻 Explained below 👇
1/ Here's my post explaining why I find $FTM interesting:
2/ @tombfinance has a token called $TOMB, which is pegged to the value of $FTM.

The peg deviates quite a bit at times, but in the long run, it should trend towards the value of $FTM.

You might be wondering why one would need a token that’s pegged to the value of $FTM.
Read 16 tweets
22 Dec
Ever tried to provide liquidity to a #DeFi protocol?

If not, you're missing out on some great yields on your #crypto.

In this post, I'll explain:

- How does a DEX / AMM work?

- What is a liquidity provider?

- Impermanent Loss / Tools

- Good LP opportunities right now 👇 🧶
1/

Decentralized exchanges like Uniswap, Sushiswap, TerraSwap are called automated market makers (AMM).

A traditional order-book exchange (think NYSE) will match a buy order with a sell order to facilitate a trade.

A decentralized exchange or DEX works a bit differently
2/

A DEX has 2 types of participants: the trader, and the liquidity provider.

The liquidity provider puts up an equal amount of both assets. (For example, $ETH and $USDC).

This "liquidity" provided allows traders to trade freely and automatically between the 2 assets.
Read 20 tweets
19 Dec
The $LUNA - $bLUNA Slow Burn:

Here’s another way to make some more $LUNA. (18-65% APY)

APR has gone down recently, but it fluctuates.

LUNA OGs will know about this one, but it's very low risk and an easy strategy for newcomers 🌖 🧶 👇 Image
1/ First, if you're not bullish on $LUNA long term, read this thread about the Terra ecosystem (and the linked threads).

2/ Now that you understand the Terra ecosystem, you should be sufficiently desperate to stack more $LUNA.

A couple days ago, I wrote about a strategy to get cheap bLUNA.



But that strategy relies on unpredictable dips that liquidate borrowers.
Read 9 tweets

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