Perpetual Loops

Definition ∞ Perpetual loops in the context of digital assets typically refer to self-sustaining or recurring financial strategies within decentralized finance protocols. These often involve repeatedly borrowing and lending the same assets across different platforms to amplify returns or exploit interest rate differentials. While potentially profitable, they carry significant risks, including liquidation cascades during market volatility. Such strategies highlight the composability and complexity of DeFi.
Context ∞ The discussion around perpetual loops frequently addresses their impact on market stability and protocol risk, particularly during periods of high leverage or market stress. A key debate involves the systemic risks these highly interconnected strategies pose to the broader DeFi ecosystem. Future developments include improved risk management tools for users and protocols to better assess and mitigate the dangers associated with these complex, recursive financial operations.