# Loop Strategies

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

{% hint style="info" %}
**Not investment advice** — Looping increases leverage. Small price moves can liquidate you. Loss of principal is possible.
{% endhint %}

## 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

{% @mermaid/diagram content="flowchart TB
A\[Start: deposit collateral] --> B\[Mint USDHN]
B --> C\[Swap USDHN into more collateral]
C --> D\[Add collateral back to the same Trove]
D --> E{Loop again?}
E -->|Yes| B
E -->|No| F\[End: leveraged Trove]

style A fill:#B0BBF4,color:#333,stroke:#4C5FD5,stroke-width:2px
style B fill:#4C5FD5,color:#fff,stroke:#3A49C5,stroke-width:2px
style C fill:#EEFBA0,color:#333,stroke:#D1F24A,stroke-width:2px
style D fill:#D1F24A,color:#333,stroke:#B8DA2C,stroke-width:2px
style F fill:#3A49C5,color:#fff,stroke:#4C5FD5,stroke-width:2px" %}

## 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)

{% stepper %}
{% step %}

#### Step 1: Start with a safe baseline Trove

Open a Trove with a conservative CR buffer.

Next: [Borrowing & Liquidation](https://hann-finance.gitbook.io/hann-finance/protocol/borrowing-and-liquidation)
{% endstep %}

{% step %}

#### Step 2: Swap borrowed USDHN into collateral

Use a route with deep liquidity to minimize slippage.

Next: [StableSwap DEX](https://hann-finance.gitbook.io/hann-finance/protocol/stableswap-dex)
{% endstep %}

{% step %}

#### 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.
{% endstep %}

{% step %}

#### 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](https://hann-finance.gitbook.io/hann-finance/protocol/zapper)
{% endstep %}
{% endstepper %}

## Risks you must understand

{% tabs %}
{% tab title="Liquidation risk (primary)" %}
Looping pushes CR closer to the liquidation threshold.

{% hint style="danger" %}
A small drawdown can liquidate a highly-leveraged Trove.
{% endhint %}

Mitigations:

* maintain a buffer
* avoid looping when collateral volatility is elevated
* reduce leverage early if conditions worsen
  {% endtab %}

{% tab title="Slippage & liquidity risk" %}
Every loop includes at least one swap.

Mitigations:

* use deep liquidity venues
* set realistic slippage limits
* avoid looping in thin markets or during volatility spikes
  {% endtab %}

{% tab title="LST unbonding risk" %}
If your collateral is an LST, withdrawing to native KAIA may involve an **unbonding delay** depending on the staking system.

Mitigations:

* do not assume instant exits
* consider secondary market liquidity
* keep larger safety buffers when collateral has exit friction
  {% endtab %}
  {% endtabs %}

## Deep dives (optional)

* Leverage mechanics and failure modes: [Looping & Leverage Deep Dive](https://hann-finance.gitbook.io/hann-finance/resources/deep-dives/looping-and-leverage)
* Trove as an isolated position (design + intuition): [Trove Concepts Deep Dive](https://hann-finance.gitbook.io/hann-finance/resources/deep-dives/trove-concepts)
* CR and liquidation price math: [CDP Safety Deep Dive](https://hann-finance.gitbook.io/hann-finance/resources/deep-dives/cdp-safety)
* Swap guardrails and LP risk: [StableSwap Deep Dive](https://hann-finance.gitbook.io/hann-finance/resources/deep-dives/stableswap)

## Next reads

* Borrowing safety: [Borrowing & Liquidation](https://hann-finance.gitbook.io/hann-finance/protocol/borrowing-and-liquidation)
* LST basics: [bKAIA & HNKAIA](https://hann-finance.gitbook.io/hann-finance/protocol/bkaia-and-hnkaia)
* Full risk list: [Risk Disclosure](https://hann-finance.gitbook.io/hann-finance/risks/risk-disclosure)