ADA Looping

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1/22 Let's talk about a degen @Indigo_protocol strategy involving a degree of leverage, but managed in a (semi)realistic way. This is not a unique idea, many of you have already come up with it: repeatedly minting iUSD, selling it for ADA, minting more iUSD, and repeating 🧵

2/22 For this thread, I'm going to assume you already know what a CDP is, how Indigo's liquidation works, what Indigo's current MCR is, and what CR means. If you don't know any of that....time to DYOR into Indigo! A read-through of their documentation will start you out well.

3/22 So, back to our ADA looping strategy. Ideally, you would do this at a market bottom. So, get out your crystal balls, call the perfect bottom, and then get looping! For this example, let us say that we think ADA at $0.20 is THE BOTTOM.

4/22 We will make our initial ADA deposit into a CDP, in this case a nice round number of 10,000. We will also mint our first batch of iUSD. In this case, we have chosen to be someone conservative and minted 1,000 iUSD, which gives us a 200% CR.

5/22 This position is fairly robust; it will not be liquidated until the price of ADA falls below $0.11 under Indigo's current MCR of 110%. Be aware that this may change! It is your responsibility to stay current on how the protocol is currently functioning.

6/22 Now, because we are degen crypto traders who are megabulls on ADA's future price (more on that in a few tweets), we want to go to a dex, sell this iUSD for the best price we can get, deposit the resulting ADA back in our CDP and mint more iUSD.

7/22 Let us further assume we sell the iUSD at 5% above peg due to high demand for stables during a huge downturn in ADA's price (I should probably do a thread about why the prices you see on dexes are not 'the peg'). The resulting ADA amount looks like this:

8/22 We've decided we want to keep the 200% CR, so we can only mint 525 iUSD this time. But let's loop a few more times! Degens must degen. Each time we'll assume a 5% above peg sell, and we will re-mint iUSD to stay around a 200% CR.

9/22 After 6 loops and the ADA from the final iUSD sale deposited back in the CDP, we have more than doubled our initial ADA! We also have a total iUSD debt to the Indigo protocol of 2,082 and our CR is a seemingly safe 201%. Wow, 20,931 ADA.....now if only we can keep it...

10/22 Let's address the glaring weakness to this strategy up front. As all of the ADA from our iUSD sales has been put back into the CDP, if ADA falls below $0.11 (more accurately, if our CR falls below 110%), our entire position gets liquidated, and we will lose everything. Ouch

11/22 This is crypto. It's very possible to get a 50% move in a day. If that happens, you will get liquidated. Bye bye, ADA. If you run this loop with an even lower CR...well....you are more degen than me.

12/22 The other huge risk to this position is you. Trading never happens in a straight line. Price doesn't hit a bottom and then just beeline up to All Time Highs. It might go up, crab sideways, go down. It might not move for months. You must be willing to WAIT

13/22 So pick your price target, and sit on your hands for a while. Or....maybe....we want more. Maybe we have a price target of $1.00, becuase, again, we are ADA megabulls. So there's things you might do as the price increases. If we recover to 0.30, look at the CR:

14/22 The CR is over 300%, now. At this point, we could mint more....if we thought the price of ADA was not likely to decrease significantly and liquidate us. If we do this, we add a lot more risk to our position! Maybe we mint enough iUSD to take us down to a 250% CR.

15/22 Selling this iUSD and immediately depositing the result back into the CDP to keep the ratio up above 250% gives us a total of 23,380 ADA, an iUSD debt of $2,782, and a liquidation price of around $0.131. Wow.

16/22 Now, we could keep doing this, perhaps, as ADA rises, and we 💗 more risk. But let's say we decide to sail across the Pacific and forget to bring our Starlink receiver. Months later, when we arrive on land again, ADA has magically risen to our $1 target price.

17/22 At this point, we decide to close out our entire position. We need to buy enough iUSD to cover your debt. Theoretically, let us assume everyone is now frantically selling the iUSD they were buying at $0.2, and the peg is now precisely $1.

18/22 So weneed to buy $2,782 of iUSD for pretty much 2,782 ADA. Once we've done that, we can close your entire CDP. Let's say we use outside funds to buy the iUSD. We then burn it all on Indigo, which will close our CDP. There is a 2% withdrawal fee, another 467 ADA

19/22 After fees and debt payoff, we are left with 20,131 ADA, over double what we initially started with. Holy s---

20/22 Again, THIS PLAY IS VERY RISKY. You could misjudge your entry point and get liquidated. You could get knocked out in a massive price wick down and instant recovery (that would suck). Indigo could get hacked, and your funds drained.

21/22 iUSD liquidity on dexes might suck and not allow the very optimistic entry and exit prices I assumed. Lots could go wrong. But hey....it might go right, too.

22/22 I have no Soundcloud, YouTube channel, or NFT to promote. If my math is wrong, please tell me. If you think I'm an idiot, you can tell me that, too, so I know who to block. If you liked this, maybe I'll do another one (it was kind of a lot of work). Thanks!