By Loxia.eth

How do you keep a leveraged strategy from being liquidated? The balancer or other DeFi or LSD-Fi underlying projects occasionally encounter such issues. For example, Balancer had around $5.6 million TVL affected this time. If users are fortunate enough, they may have time before their assets are attacked, as this time. The project team urges users to withdraw quickly, and users panic and withdraw like fleeing a bank run. Within 12 hours, the TVL that fled Balancer exceeded $100 million, far surpassing the actual affected TVL.

For leveraged investors who are optimistic about the future market, sophisticated and experienced investors will skillfully utilize AAVE or other lending protocols to leverage their LP strategies. They closely monitor interest rates and returns at every moment. Some yield aggregators integrated with lending protocols employ complex logic to automatically monitor for interest rate inversions, promptly pausing strategies or repaying a portion of the loans to maintain the health of the borrowing. All of these measures are taken to avoid the most dreaded outcome in case of unexpected events — liquidation.

For lending protocols, liquidation fees are a crucial source of protocol revenue. When yield aggregators interact with leverage protocols, they need to be meticulous and collaborate cautiously. Otherwise, the aggregator’s own customers may be hindered by various factors in the market that can cause a decline in returns, leading to liquidation and significant profit drawdown or even losses for the users. This is something that neither the aggregator nor the users want to see.

In the context of the Balancer incident with a $5.6 million TVL affected, if users need to withdraw funds or pause strategies due to underlying project risks, their yield rates for a certain period (a day, a week) would decrease below the loan interest rate, or even drop to 0, until they find a secure LP yield target to resume their strategies. Unless the loans are repaid to terminate the loan strategy, this inverted yield during that period would significantly impact the health of the loans and increase the risk of liquidation.

The unforeseen risks resulting from unexpected events in the market pose not only sudden risks to leveraged strategies but also impact the interest rates on lending platforms. Security incidents can often be accompanied by a period of arbitrage opportunities. During this window period, the lending market experiences a sudden increase in borrowing demand, leading to an increase in lending rates. This, in turn, affects the health of leveraged strategies.

（AAVE v3 ETH borrow variable interest rate Calculation）

As shown in the graph, when the pool utilization reaches the critical point of 80%, the borrowing interest rate increases sharply, even exceeding 30%. Due to the sudden increase in borrowing demand, the growth of borrowing interest rates is rapid. This is also an important factor that affects the health of lending.

Considering the points mentioned above, both individuals and aggregators who engage in leveraged investment strategies through integrating lending protocols need to bear the systemic risks of the underlying projects and be influenced by other external factors in the market. Any event that significantly impacts borrowing interest rates will affect investors’ leveraged strategies. This can make individuals or aggregators feel like staking on the ice. So, is there any leveraged strategy that can avoid such complex and difficult-to-predict external risks?

Anoym has taken this issue into full consideration while designing their products. Inspired by the LST stablecoin project and LST self-liquidating lending project, and keeping the user’s perspective and needs in mind, we have come up with a balanced solution. This solution ensures that no external risks are introduced that could lead to liquidation while providing users with increased leverage. This ensures that users can navigate the upcoming bull market without being adversely affected by significant volatility or impactful events.

The approach of credit expansion through LST stablecoin is valuable for Anoym, which focuses on yield aggregation. We will allow users to extract mETH pegged 1:1 to ETH with a certain leverage ratio. Users can ensure that their strategy yields reach a highly satisfactory value within the yield aggregator while also being able to borrow and increase leverage. To ensure that each mETH can be redeemed for real LST from Anoym (Mushroom), leveraged users who have already extracted future yields will need to lock a portion of their principal in the pool until all loans are repaid.

Although liquidity is locked in the protocol, as an excellent yield aggregator in LSD-Fi, we do not hinder users from executing their yield strategies to avoid the idleness of LST that may occur in the LST stablecoin project. Such idleness would be a significant waste during a bull market.

The repayment of mETH loans involves locking the principal portion in the protocol’s strategy pool, with a self-liquidating mechanism. LST itself is a good interest-bearing asset, and when combined with LSD-Fi yields, it can support higher self-liquidating borrowing rates. By further increasing the leverage ratio while ensuring no liquidation risk, Anoym (Mushroom) focuses its efforts on safeguarding the security of user assets in the event of risks similar to those in Balancer. Thus, Anoym (Mushroom) DAO provides users with the highest possible yield while ensuring safety and no liquidation risk.