How to use Looping

Leverage, or "Looping," is an advanced feature that allows you to multiply your exposure to $BREAD using borrowed $BERA. This powerful function automates what would otherwise require multiple transactions, helping you create a significantly larger $BREAD position with minimal upfront capital.

Understanding the Looping Mechanism

What is Looping?

Looping allows you to amplify your exposure to BREAD tokens by using a single transaction to create a leveraged position. Unlike traditional borrowing that requires you to provide collateral first, looping lets you start with just $BERA and build a leveraged $BREAD position instantly.

How to create a looped position

1. Navigate to the Leverage Interface

• Go to the "Borrow & Loop your asset" page from the main navigation

• Select the "1 Click Loop with Bera" tab at the top of the interface (next to "Borrow against Bread")

2. Enter Your Target Amount

• In the input field labeled "Borrow instantly, no collateral," enter the total target amount of $BERA you want to create the leveraged (looped) position

3. Set Your Desired Loan Duration

• Use the horizontal slider to select your desired loan duration (1 to 365 days)

• You can also use the "MIN" and "MAX" buttons to quickly set durations

• The front-end shows you the Borrow APR

4. Review Complete Position Details

Before proceeding, carefully review all the position details displayed:

• Expiration Date: When your leveraged position expires

• Recorded Borrow Amount: The total amount of $BERA being borrowed

• Leverage Baking Fee: The fee charged for using the leverage feature (typically 1.42%)

• Interest Fee: The total interest charged on the borrowed amount

• Leveraged Position: The total amount of $BREAD you'll receive, with effective leverage multiplier

• Total Payable: The actual amount of $BERA you need to send in this transaction

5. Confirm and Execute Your Leverage Transaction

• Click the "Loop" button at the bottom of the interface

• Your wallet will prompt you to confirm the transaction

• Once confirmed, the protocol will execute all the looping steps atomically

• After processing, your leveraged position will appear in the "Active Position" section

The technical process behind looping

When you initiate a Loop transaction in BREAD Protocol, the contract performs a single mathematical calculation to create a leveraged position:

1. Takes your input bera amount and calculates the baking fee:

   • Leverage Baking fee (currently 1.42% of your $BERA)

2. Calculate userBera the amount of BERA usable for the leveraged position:

   • userBera = bera - bakeFee

3. Calculate userBorrow and overCollateralizationAmount based on 99% collaterization ratio:

   • userBorrow = userBera * 99%

   • overCollateralizationAmount = userBera - userBorrow

4. Calculate interest based on loan duration and userBorrow

   • interest = getInterestFee(userBorrow, numberOfDays)

5. Under the hood, it creates a leveraged position in $BREAD as follows:

   • Mints $BREAD tokens with your input $BERA (minus fees)

   • Establishes a loan with your $BREAD tokens as collateral

   • All calculated and executed in a single, atomic transaction

   • The user needs to pay bakeFee + interestFee + overCollaterizationAmount

Example 1: Starting with 10,000 BERA (90-day duration)

Input: 10,000 BERA
↓
Fees:
- bakeFee: 142 BERA
↓
userBera: 9,858 BERA
userBorrow: 9,759.42 BERA
overCollateralizationAmount: 98.58 BERA
↓
Interest rate: 6.9% * 3 / 12 = 1.725% (for 3 months)
- interest: 168.35 BERA
↓
Total fees: bakeFee + interest = 310.35 BERA
Total Bera Required: Total fees + overCollateralizationAmount = 408.93 BERA
↓
Total Leveraged Position (in BERA terms) = userBera = 9,858 BERA
Implied Leverage (excluding fees): userBera / overCollateralizationAmount = 100x
Implied Leverage (including fees): userBera / Total Bera Required = 9,858 / 403.93 = ~25x

The effective leverage is ~100x if you ignore fees, because it's a 99% LTV loan

Inclusive of the bake fee and interest fee, the effective leverage is ~25x because your 403.93 BERA (bake fee + interest fee + overcollateralization amount) controls a BREAD position worth ~9,858 BERA.

Looping FAQ

Q: How much leverage can I achieve through Looping?

A: The leverage before fees is always 100x (99% LTV). After fees, the leverage multiplier varies 25-30x, though this varies based on current protocol parameters and fees. The interface will show you the exact multiplier (e.g., "7.48 BREAD (24.56x)") before you confirm your transaction.

Q: Can I extend the duration of a looped position?

A: Yes, the same way you can extend a normal loan.

Q: Is there a minimum amount required to use the Loop feature?

A: No, just slightly more than dust is required. However, note that only 1 position can be active at a time, so if you open a very very small position and want to increase it via looping, you should close it first or use another wallet to take advantage of the discounted baking fee (1.42%)

Q: Can I add more collateral to an existing leveraged position?

A: No, and it does not make sense to - since $BREAD always rises relative to $BERA and interest is paid up front, there is never any need to add collateral

Q: Can I close my leveraged position early?

A: Yes, you can close your leveraged position at any time before the expiration date using either direct repayment with $BERA or the Flash Burn ("Burn Collateral" ) method.

Q: What happens to my leveraged position if the value of $BERA drops in USD terms?

A: Your position's USD value would decrease, but the $BREAD/$BERA ratio will continue to improve due to the protocol's design. Remember that Baker DAO ensures $BREAD only appreciates against $BERA, not necessarily against USD.

Q: Is there a way to partially close a leveraged position?

A: Yes, the 1-click looping method is simply a cost-efficient way to establish the position. Beyond that - it's the same as a normal borrow.

Q: Can I have multiple leveraged positions simultaneously?

A: No, you can only have one active loan position at a time, whether standard or leveraged. You must close your existing position before opening a new one.