How to Calculate Crypto Profit on Leveraged Looping (Lend-and-Borrow Math)

Leveraged looping is one of the highest-yield strategies in DeFi — and one of the most misunderstood. The idea is simple: supply a coin on a lending protocol like Aave, borrow against it, and re-supply what you borrowed. Repeat a few times and your supplied balance grows to two or three times your starting capital.

But the profit is not "supply APY times three." It is the spread between supply and borrow rates, multiplied by your leverage — minus every transaction fee. Here is the full calculation, with a worked example.

The Profit Formula: Spread × Leverage − Costs

Loop profit is three components. Gross supply interest: supply APY on your total supplied balance. Borrow cost: borrow APY on everything you owe. Transaction costs: approve, supply, borrow, swap, and re-supply on every iteration. On a tight spread, gas alone can erase the benefit — our guide to calculating net profit after gas fees on Ethereum and other chains shows how to account for these.

Net profit = (total supplied × supply APY) − (total borrowed × borrow APY) − gas costs. Looping magnifies the spread between the two rates, so a positive spread is the single requirement for the loop to be worth doing.

Worked Example: 10 ETH Looped Three Times

ETH at $3,300, so 10 ETH is $33,000 of collateral. We use 5.0% supply APY and 3.0% borrow APY — a positive spread — borrowing at 66% loan-to-value and re-supplying the proceeds. Gas is about $6 per transaction. All figures are illustrative.

The three iterations

Round 1: Supply 10 ETH ($33,000). Borrow $21,780 in stablecoins. Re-supply. Total supplied: 16.6 ETH ($54,780).

Round 2: Borrow 66% of the new collateral: $14,375. Re-supply. Total supplied: 21.0 ETH ($69,155). Total debt: $36,155.

Round 3: Borrow 66% again: $9,488. Re-supply. Final supplied: 23.9 ETH ($78,642). Final debt: $45,643. Leverage on the original capital: about 2.4x.

The comparison table

Key takeaway: The 2x loop barely matches a plain deposit — after gas, it earns slightly less than doing nothing. Looping only pays when the spread is wide enough and you go far enough to beat transaction costs.

Key takeaway: A negative spread (borrow APY above supply APY) makes every extra loop worse than the last. Compute the spread before you loop, not after.

The Liquidation Buffer: How Far Can ETH Fall?

Here the debt is in stablecoins while collateral is ETH, so a crash can liquidate the loop. Protocols use a health factor: (collateral × liquidation threshold) ÷ debt. For ETH on Aave-style markets the threshold is around 82.5% — confirm it in the Aave documentation.

Our 3x loop: $78,642 × 0.825 = $64,880, divided by $45,643 of debt gives a health factor of about 1.42. Liquidation triggers at 1.0, so ETH can fall roughly 30% before the loop is liquidated; the 2x loop sits near 1.25, tolerating only ~20%. The Ethereum price history on CoinGecko shows 30% drawdowns are not rare.

One exception: borrowing and re-supplying the same asset (ETH against ETH debt) cancels out price moves, nearly removing price-drop liquidation risk. What remains is interest-rate risk — variable rates can shift mid-loop and flip your spread negative.

What Can Break the Math

Rates move. Borrow APYs are usually variable and react to utilization. If demand surges, your 3.0% borrow cost can jump above the 5.0% supply rate, turning a profitable loop into a slow bleed.

Rewards are not guaranteed. Some markets add token incentives on top of supply APY. Programs change or end — never size a loop assuming bonus rewards persist.

Liquidation penalties are real. At a health factor of 1.0, the protocol sells collateral at a discount, typically 5–10%. On a leveraged position that haircut lands on the multiplied balance, not just your capital.

If you have not combined lending income with token appreciation before, our explainer on how to calculate profit on DeFi lending by adding interest to price gains covers the simpler unleveraged version — a good warm-up before looping.

Skip the spreadsheet: plug your collateral value, supply APY, borrow APY, and fees into the free crypto profit calculator to estimate your net looping return in seconds — then compare it against a plain deposit before committing any capital.

Conclusion

Leveraged looping is pure spread math: multiply the gap between supply and borrow rates by your leverage, subtract every fee, and check the health factor before celebrating. When the spread is wide, a 3x loop can lift a 5% supply yield toward 7.5% on your original capital. When it is narrow, gas and rate shifts eat the gains — as the 2x example showed, you can do all the work and end up behind a simple deposit. Calculate first, loop second.

Disclaimer: This article is for educational purposes only and is not financial advice. Leveraged DeFi strategies carry significant risk of loss, including liquidation. Crypto markets are volatile — always do your own research (DYOR) and never risk funds you cannot afford to lose.