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Longing on Hundred Finance
How to leverage long using the Hundred Finance protocol
Longing an asset like Ethereum on Hundred Finance is a simple process with three steps that can optionally be repeated according to risk appetite. Here we'll explain the process, using the Fantom deployment and an ETH long to provide a concrete example.
Note: For the sake of simplicity, this explanation assumes the crypto asset being traded is ETH and the unit of account is the US dollar. This doesn't, of course, have to be the case. In fact, many long term traders choose to make their unit of account ETH or BTC due to their greater faith in cryptocurrency monetary policy over that of fiat currencies like the dollar.

Longing Process

  • A user connects their wallet to Hundred Finance as normal before approving and supplying ETH (or any asset to be longed).
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  • It is necessary to enable the supplied asset as collateral. This is done by toggling the collateral option to the right on the main UI.
  • Once the asset is collateralized, a proportion of the collateral's value can be borrowed in any of the stablecoin assets. This proportion is expressed as a Loan-to-Value (L2V) percentage. For ETH, the L2V is 80% of the collateral's value. When choosing the asset to borrow, the most capital efficient choice will be the stablecoin with the lowest interest rate, combined with the least slippage when trading to the asset to be longed.
8000 USDC borrowed against ETH at a theoretical cost of $192 per year
  • Next, this borrowed stablecoin can then be used to buy more of the asset to be longed on any exchange or through a DEX aggregator (Firebird, for example). Due to slippage for carrying out such a trade, as well as fees paid for doing so, there are some additional costs added to longing. These costs will also be incurred when closing the position, as it will be necessary to purchase back the borrowed asset (hopefully using less ETH than was received).
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  • As can be seen from the above screenshot, slippage for buying 8000 USDC of ETH is approximately $6 and their is a 0.05% fee. This ETH can then by supplied to Hundred Finance to create a leveraged long position.
  • The process can optionally be repeated with steadily decreasing amounts of the borrowed asset in order to increase leverage, as well as the risk of the position being liquidated.

Analysis

Assumes ETH supplied and USDC borrowed.
Original Position
Leveraged Position
10 ETH (~$25,385 USD)
13.13 ETH (~$33,250 USD)
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- 8000 USDC
= ~$25,385
= ~$25,250
As can be seen in the above chart, the slippage and fees of creating the leveraged position means it starts approximately $135 in the negative. However, If during the course of holding this leveraged position the price of ETH were to go up by 50%, the following would then be the case:
Original Position
Leveraged Position
10 ETH (~$38,077.50 USD)
13.13 ETH ($49,875 USD)
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-8000 USDC (plus interest)
= ~$38,077.50
= ~$41,875 (minus interest on 8000 USDC)
As can be seen here, the leveraged position, assuming it is closed, has resulted in a profit of over $3,500 versus holding unleveraged ETH. Given the low cost of borrowing on Hundred Finance, this process could be used as a relatively simple means of longing cryptocurrencies for long periods.
As the account holder could borrow more USDC upon adding their purchased ETH back to the platform, it would be possible for them to greatly increase the size of their position relative to the quantity of their underlying assets. For example, longing a supplied asset with an 80% Loan-to-Value ratio theoretically allows leverage of up to 5x.

Conclusion

Leverage is not without risk. If the value of the collateralized asset were to fall then there is the possibility that the account could be liquidated due to it no longer sufficiently backing the assets borrowed. What is more, the chances of this increase exponentially with the amount of leverage taken and it would, in theory, be possible to be locked in a position (without using additional capital to rebuy the borrowed asset) due to the need of the protocol to remain overcollateralized. Nevertheless, should the desire to long exist, Hundred Finance is set up to be especially well-suited to the task of leverage trading and can thus be a valuable tool.
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