Looping is one of the most common ways DeFi users increase capital efficiency.
At a high level, looping means using a deposited position as collateral to borrow, then redeploying the borrowed funds into a yield strategy. Repeat the cycle and you can build a larger yield-bearing position than your starting capital would normally allow.
This isn’t new. Traditional finance has similar structures through rehypothecation and leveraged carry. The difference in DeFi is that the mechanics are visible, composable, and accessible to anyone with a wallet.
Looping is worth understanding because it sits at the intersection of leverage, lending market mechanics, and yield strategy selection. When those pieces line up, it can be an effective tool. When they don’t, risk can compound quickly.
The Basic Mechanics
Most loops follow the same structure.
A user deposits an asset into a yield-bearing product or vault. That deposited position is then used as collateral in a lending market to borrow another asset, often a stablecoin or stable asset. The borrowed funds are redeployed into a yield strategy, either the same one or something closely related.
The result is a combined position where the user is earning yield on deployed assets while paying interest on borrowed funds. Looping is simply repeating that process to increase exposure to the underlying yield source.
Put plainly: looping is leverage, built out of DeFi primitives rather than a single standalone loan.
Why Looping Exists
Capital is limited, and yield opportunities are competitive.
If a user believes a yield source is attractive and durable, they may want more exposure than their starting balance allows. Looping is a way to scale that exposure without adding new funds, using borrow capacity as the multiplier.
It also explains why looping is most popular when lending markets are deep, borrowing costs are reasonable, and the yield source feels stable enough to size up.
It’s not always about chasing the highest rate. Often, it’s about keeping collateral productive in a system where idle assets have an opportunity cost.
Looping Strategies with ONyc
ONyc is designed around real-world risk exposure and reinsurance-linked performance. That matters because the driver of yield is different from most DeFi-native yield sources, which often lean heavily on liquidity incentives or reflexive onchain activity.
Looping an ONyc position through protocols like Kamino, Loopscale, or Carrot gives users a way to scale exposure to real-world yield while staying inside DeFi’s composability rails. That capital efficiency is why ONyc has become one of the most utilized assets on Solana.
For users, that can mean three things:
Scaling exposure to real-world yield. Rather than relying purely on emissions or short-term incentives, users can allocate around yield tied to real-world premiums and risk.
Building composable positions around structured risk. DeFi works best when strategies become building blocks. ONyc positions can be used inside lending markets and integrated across protocols, so they become something users can structure around, not just hold.
Making stablecoin capital more productive. Looping is most common in stablecoin markets because it allows users to express a “yield + leverage” view without taking obvious directional exposure. When ONyc is accessed through stablecoin-based positions, looping becomes a natural extension of how DeFi users deploy capital.
Looping doesn’t change what ONyc is underneath. It changes how users choose to allocate around it using DeFi’s leverage rails.
The Tradeoff: Amplification Works Both Ways
Looping is often described casually, but mechanically it’s a leveraged position. That means it amplifies outcomes in both directions.
If the yield source remains attractive and borrowing conditions stay stable, looping can be effective. If conditions move against the user, the unwind can be painful and fast.
That’s why looping should be treated as a structured strategy, not passive yield.
Risks to Understand
The primary risk is liquidation. Looping relies on collateralized borrowing, and if collateral values move or market conditions tighten, positions can be liquidated automatically.
Borrow conditions can also shift fast, since DeFi rates are variable and a loop that works in one environment can break in another. Because looping is composable, users are also exposed to protocol, oracle, and stablecoin risk across the full stack.
Looping, in Practice
Looping is best suited to users who understand lending market mechanics, are comfortable managing collateralized debt positions, and want to scale exposure to a yield source they have conviction in.
It isn’t passive. Even when parts of the process are automated, looping still requires monitoring, a clear view of risk parameters, and the ability to unwind positions if conditions change.
Looping is one of the clearest examples of what makes DeFi powerful: basic primitives can be combined into structured strategies that improve capital efficiency. But it’s also a reminder of what makes DeFi unforgiving. Leverage compounds quickly, and the system doesn’t pause when conditions move against you.
Used responsibly, looping can be an effective way to increase exposure to productive yield sources like ONyc while staying within DeFi’s core rails.
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