Leverage

Leverage provides users with a one-click solution to increase their exposure with vSOL and vUSDC through a looping mechanism. It leverages the combined power of eMode and looping with affiliated assets, enhanced by flash loans, to boost depositors' exposure.

Mechanisms

Leverage vaults utilize a combination of eMode and flash loans to create leveraged positions for users. When a user requests leverage, the protocol calculates the amount of SOL required for the flash loan, then follows these steps:

  1. SOL is borrowed from the lending and borrowing market.

  2. The borrowed SOL is swapped for vSOL.

  3. vSOL is then supplied back to the lending and borrowing market.

  4. More SOL is borrowed against the deposited vSOL.

  5. The borrowed SOL is used to repay the initial flash loan.

  6. The final leveraged position is established at the target leverage level.

Where does the yield come from

The yield is generated from the returns on vSOL. As vSOL represents a deposit in the JLP Delta Neutral with SOL strategy, the yield comes from the fees earned through Jupiter Perpetual. To learn more about the fee structure of Jupiter Perpetual, visit this guide.

How do eMode and Flash Loans work

eMode is a mechanism that allows for higher loan-to-value (LTV) ratios between assets that have price correlations (e.g., vSOL and SOL, vUSDC and USDC).

Since vSOL is fully exposed to SOL’s price, its value is closely aligned or "pegged" to SOL. In a vSOL/SOL Leverage Vault, for instance, vSOL is used as collateral while SOL is borrowed, and this process is looped to reach the desired leverage level. Typically, these types of assets have a lower LTV, around 70%, which enables up to 3.3x leverage. However, with eMode, the LTV can be increased to 90%, allowing for leverage up to 10x.

Liquidations

A leveraged position can be liquidated if the collateralized asset loses its peg or if the borrow interest rate exceeds that of the paired asset for an extended period, increasing the debt relative to the collateral enough to trigger liquidation.

There is also a risk of liquidation if smart contracts within the strategy are exploited, which may lead to depegging.

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