Before we dive into the second part of this crypto lending introduction, here’s a quick recap of all the key concepts from part 1:

To borrow out a crypto loan, you must first deposit your collateral. Most crypto loans are over-collateralized - meaning your collateral must be worth at least 25% more than your loan - to protect lenders, borrowers, and lending protocols from price fluctuations. There is one exception to this - Lista Credit, the first on-chain credit loan that allows you to borrow $U with 0 collateral.

The most important metric of your loan is your loan-to-value (LTV) ratio. This is the ratio between the value of your loan and your collateral. When the crypto market fluctuates, so will your LTV ratio.

Another important metric is the liquidation loan-to-value (LLTV) ratio. This is an arbitrary number and varies from market to market. When your LTV ratio reaches the LLTV ratio, your collateral will be liquidated.

If you’re just looking for some extra yield on your idle assets, you can deposit into Lista’s vaults and earn from other players’ borrowing activities.

With these concepts in mind, you should be well-equipped to learn about advanced lending strategies.

You may have noticed that at Lista, you can deposit one asset to borrow the other, and swap the other into the first asset, and deposit it to borrow out even more. Just like almost everything else in finance, crypto lending can be amplified with leverage. This way, even if you start with a few hundred dollars, you can theoretically gain exposure to over 10 times of that.

For example, you can deposit BTC to borrow USDT, and then buy more BTC to borrow more USDT. Also known as looping, this is what many veterans do for extra exposure. If the price moves in your favor by 1%, you may get 10% profit. 

Just like everything in finance, this comes with risks - and a much higher one. If you borrow once from a market with an LLTV of 80% and the price fluctuates by 5%, you may only suffer from a small amount of liquidation. If you have a leveraged position in the same market, then a 5% price fluctuation may cost you everything you started with. We advise that every borrower always tread with caution and do a thorough risk assessment before entering into a leveraged position.

Crypto is never short of airdrops and incentives and one of the best ways to get these tokens is yield farming with borrowed assets. This is a safer strategy to get some extra yields but the profit potential is also lower than taking on a leveraged position. For instance, you can loop slisBNB/BNB at Lista to mint more slisBNBx for Binance Launchpool airdrops. Since slisBNB and BNB can be swapped at an almost fixed rate, the risk for liquidation is quite low.

You can also deposit your stablecoins - USDT, USDC, etc. - to borrow U. Then, you can deposit those U to Binance Earn and enjoy ~10% yield. This way, you don’t need to pay any trading fee and swap between these assets. You just need to deposit one and borrow the other and when you’re done farming, just repay the loan and you will get your assets back in full. Since both the collateral and loan assets are stablecoins, the chance of getting liquidated is also low.

Please note that yield farming does not always work with looping and the complexity can also be overwhelming since you may need to juggle between several protocols.

Before Lista Credit, there is another kind of loan that does not require any collateral - flash loan. As its name suggests, flash loans must be repaid very quickly - most of the time within the same block as the borrowing transaction.

Flash loans are designed for high-frequency arbitrage activities where an opportunity must be taken within seconds before it’s lost. Borrowers can only achieve this with automation tools or scripts: when they spot a price difference that can be taken advantage of, their script will take out a flash loan, take the arbitraging opportunity, repay the loan, and make sure these transactions are within the same block. They will bribe the validators if they have to. If the lending smart contract doesn’t find the repaying transaction in the same block, the flash loan will be revoked, and the borrower is left with nothing.

As we go through these advanced strategies, one word we talk about the most is risk. For crypto lending, the most prominent risk is that of liquidation. As mentioned in our previous article, liquidation happens when LTV goes above the LLTV ratio. This can happen due to price fluctuations, accruing interest (especially when interest rate spikes), or other incidents. To avoid this, we compiled a checklist for your reference:

• Always leave a buffer between your LTV and LLTV

• Monitor your positions regularly

• Don’t use any asset you can’t afford to lose

• Understand the mechanism thoroughly before depositing

• Prepare a repayment strategy

With these in mind, you should be able to sail through minor or medium incidents with ease. Do not get too comfortable - that’s when risk may catch you unexpectedly.

Lista Lending offers a wide range of products for new players and veterans alike. With these advanced strategies, you should be able to get a higher return on your assets if you handle these strategies and monitor your risk carefully. In our next episode, we will dive into the technical details of borrowing and the dynamics of lending markets.