Loop Strategies

How loop strategies work and how to manage the main risks (liquidation, slippage, LST unbonding)

This page explains what a loop strategy is, why people use it, and what can go wrong—especially liquidation risk.

Not investment advice — Looping increases leverage. Small price moves can liquidate you. Loss of principal is possible.

At a glance

• A loop = borrow USDHN → swap → add more collateral → borrow again.

• The goal is usually to increase exposure to the collateral (and sometimes its yield).

• The trade-off is much higher liquidation sensitivity and execution risk.

Loop flow diagram

Why do people loop?

Common reasons:

• Increase exposure to the collateral while keeping a single position.

• Amplify yield sources (when yield exists): staking yield on LSTs, incentives, or strategy yield in integrated products.

• Capital efficiency: you keep “more exposure per initial capital,” but the risk also scales up.

How to execute a loop (high level)

1

Step 1: Start with a safe baseline Trove

Open a Trove with a conservative CR buffer.

Next: Borrowing & Liquidation

2

Step 2: Swap borrowed USDHN into collateral

Use a route with deep liquidity to minimize slippage.

Next: StableSwap DEX

3

Step 3: Add collateral and re-evaluate CR

After each loop, re-check:

• CR buffer

• slippage paid

• fees and market impact

Stop looping if the risk-to-reward trade-off no longer makes sense.

4

Step 4: Automate only after you understand the manual flow

If Zappers or strategy partners offer one-click looping, use small sizes first and audit your assumptions.

Next: Zapper Guide

Risks you must understand

Liquidation risk (primary)

Looping pushes CR closer to the liquidation threshold.

A small drawdown can liquidate a highly-leveraged Trove.

Mitigations:

• maintain a buffer

• avoid looping when collateral volatility is elevated

• reduce leverage early if conditions worsen

Slippage & liquidity risk

LST unbonding risk

Deep dives (optional)

• Leverage mechanics and failure modes: Looping & Leverage Deep Dive

• Trove as an isolated position (design + intuition): Trove Concepts Deep Dive

• CR and liquidation price math: CDP Safety Deep Dive

• Swap guardrails and LP risk: StableSwap Deep Dive

Next reads

• Borrowing safety: Borrowing & Liquidation

• LST basics: bKAIA & HNKAIA

• Full risk list: Risk Disclosure