Looping (Leverage Loop)

Looping, also called a leverage loop, is a DeFi strategy in which a user deposits an asset as collateral, borrows against it, converts the borrowed funds back into the same (or a closely related) asset, and redeposits that as additional collateral — repeating this cycle multiple times to build a position considerably larger than the user's original capital alone would allow. Each additional loop amplifies both the position's potential yield and its exposure to the underlying asset's price movements.

Looping is especially common with liquid staking tokens (see Kaavon's "Liquid Staking" glossary definition), where a user loops a staking-derivative asset specifically to amplify their effective staking yield well beyond what a single, unleveraged deposit would earn. The strategy's central risk is that each additional loop pushes the position's health factor (see Kaavon's "Health Factor" glossary definition) closer to its liquidation threshold, meaning even a moderate price decline or a sudden widening gap between the looped asset and its underlying reference asset can trigger a cascading liquidation across the entire leveraged position.