Looping

For the degens and Yeetards

Using leverage carries risks. It is possible to lose all of your collateral if you do not pay back your loan in time.

Leveraged borrowing

• Advanced Feature: Users can borrow $BERA against their $BREAD, use the borrowed $BERA to bake or buy more $BREAD, and repeat this process; i.e., looping

• UI Support: A user friendly interface on the BakerDAO website facilitates looping in one transaction, making it quick and simple to open and unwind leveraged positions

• Fee Discount: The $BREAD baking fee is discounted from 2.69% to 1.42% when opening leveraged positions

• Liquidation: If a leverage position defaults, then the $BREAD collateral is burned, causing the ratio of $BERA per $BREAD to increase. $BREAD collateral from liquidated positions are burned collectively, every day, at 00:00 UTC

Important Note: You can only have one active loan position at a time in BakerDAO. If you already have a Standard loan, you cannot create an automated looped position (and vice versa) until you close your existing position

Using looping allows users to create leveraged $BREAD exposure. If a position is max looped, no more liquid $BERA may be borrowed against the position due to diminishing amount of $BERA being used each loop.

One-click looping

In order to facilitate easier opening of looped positions, users can open max looped positions in one click which utilize flashloans to create the position in a single transaction. This allows users to easily open and close leveraged positions, and baking fees are reduced from 2.69% to 1.42% for these transactions.

Solidity implementation

    /// @notice Calculates the leverage fee for a loan
    /// @param bera Amount of BERA to borrow
    /// @param numberOfDays Duration of the loan in days
    function loopCalcs(uint256 bera, uint256 numberOfDays) public view returns (uint256 bakeFee, uint256 userBorrow, uint256 overCollateralizationAmount, uint256 interest) {
        bakeFee = bera * leverageFeeBps / BPS_DENOMINATOR;
        uint256 userBera = bera - bakeFee;
        userBorrow = userBera * COLLATERAL_RATIO / BPS_DENOMINATOR;
        overCollateralizationAmount = userBera - userBorrow;
        interest = getInterestFee(userBorrow, numberOfDays);
    }

Flash Burn

This functionality allows users to close a position using the $BREAD collateral itself without needing to acquire additional $BERA. To use this, select "Existing Collateral" in the repayment modal.

When you choose "Existing Collateral", the following process occurs:

1. Collateral Valuation: The system calculates the current value of your BREAD collateral in terms of BERA based on the protocol's backing ratio.

2. Burn Fee Application: A 2.69% burn fee is applied to your BREAD's valuation, reducing the effective value.

3. Debt Settlement: The remaining value (after the fee) is used to settle your outstanding loan.

4. Excess Value Check: The system determines if there's any value left after repaying the loan:

   • If the remaining value exceeds the loan amount, the excess is returned to you as BERA.

   • If the remaining value is less than or equal to the loan amount, nothing is returned (the entire collateral value is consumed).