DeFi
Two Ethereum DeFi traders just made $120 million using a strategy called “looping” – DL News
- Two Ethereum traders made $120 million in the last 24 hours.
- Traders use a “loop” strategy in DeFi, allowing leveraged positions on Ether to amplify their investments.
- Upcoming Ethereum upgrades and the potential approval of an Ether ETF are key market catalysts, likely to push the price of Ether even higher.
A pair of high-value Ethereum traders are up nearly $120 million today as cryptocurrency prices continue to climb.
According to DL Newsanalysis, two wallet addresses, 0x28 And 0x74have used various lending protocols to increase their exposure to Ether.
Together, these wallets contain over 1.1 million staked Ether and Ether derivatives, worth $3 billion. Both wallets are deposited in a handful of lending protocols like CreatorDAO, Spark, Morpho And Compound.
The identities of the wallet owners are not publicly known, but these wallets have received attention in 2022 for almost being liquidated for $600 million worth of Ether. Today, this risky gamble has paid off.
Loop on DeFi
The strategy employed by these whales – a term for high-value crypto traders or investors – is commonly referred to as looping in DeFi.
A trader deposits one asset, such as Ether, into a lending protocol and then borrows a different asset, such as the dollar-pegged stablecoin DAI, against their deposit. They then exchange this DAI for Ether, the original asset.
After trading cryptocurrencies, the trader redeposits the newly acquired Ether into the lending protocol. This action allows them to borrow additional funds, establishing what is called a “leveraged long position” on their initial Ether deposit.
The wraparound strategy allows traders to achieve 3-5x leverage – multiplying capital by a factor of 3-5x – on their initial investment.
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But in this case, these whales opted for a more conservative leverage range of 1-2x. Despite its potential for higher returns, this strategy carries a multitude of risks. A significant drop in the price of Ether could lead to liquidation, resulting in the loss of the initial deposit.
The whale pair deployed these strategies years ago, when Ether was worth around $1,000. Ether is currently trading around $2,700. The price of Ether would have to fall by more than 60% for them to be liquidated.
Ethereum Catalysts
Traders who use the looping strategy inherently have bullish sentiment – the belief that prices will rise – in the market.
For Ether, a few important catalysts are on the horizon.
Ethereum’s Ether token has performed well over the past year.
First is next Dencun upgrade, which will reduce the cost of transactions on Ethereum layer 2 networks like Arbitrum and Optimism. After successful testing on two of Ethereum’s test networks, the upgrade is expected to arrive on the Ethereum mainnet around March 13.
The weeks leading up to major Ethereum upgrades typically coincide with increased interest in the Ethereum network, and some researchers even find that this causes the price of Ether to rise. increase.
Since the approval of the spot Bitcoin ETF, the market has shifted towards a Ether Spot ETF.
Heavyweights like Blackrock, Fidelity, Invesco and others have all already requested an Ether spot ETF, with the decision expected to be made by May 23.
Since Bitcoin ETFs hold 692,000 Bitcoinsor 3.53% of the total supply, traders are hoping an Ether ETF will see similar success.
Ryan Celaj is DL News’ data correspondent based in New York. Contact us with advice at ryan@dlnews.com.