Leveraged Looping

Definition ∞ Leveraged looping is a high-risk strategy in decentralized finance where users repeatedly borrow and lend the same assets to increase their exposure to a particular cryptocurrency. This process involves using borrowed funds as collateral for further borrowing, amplifying potential gains but also significantly increasing liquidation risk. It creates a recursive cycle of debt and collateral. Such strategies can lead to substantial losses during market downturns.
Context ∞ Leveraged looping is frequently discussed in crypto news concerning decentralized finance protocols and the risks associated with highly speculative trading practices. A key debate involves the systemic risks these strategies pose to lending platforms, especially during periods of extreme market volatility. Future developments include improved risk management tools for users, clearer disclosure of associated dangers, and potential protocol-level safeguards to limit excessive leverage.