Strategy 3: Yield Farming with 2.5x/3x Leverage, Hedging risks and Obtaining high returns

Regardless of how you open a position, the profit and loss of 2.5x/3x leveraged positions are monotonically positively or negatively correlated with the Token Price. Therefore, the 2.5x/3x leverage should judge the direction of long and short positions. There are also 4 ways to open positions such as BNB/USDT currency pairs, own-BNB-borrow-USDT (long BNB), own-BNB-borrow-BNB (short BNB), own-USDT-borrow-BNB (short BNB) and USDT-borrow- USDT (long BNB). The simple principle: whichever asset you borrow is the one you short. Whether you are in a bull market or a bear market, you can achieve higher positions and BAGEL rewards by opening yield farming positions with 2.5x/3x leverage.

Open long position in rising market :

Borrow stablecoins from the trading pairs which include stablecoins, or borrow relatively insignificant tokens(the one you are most bullish about) from dual currency pair.

Example: If you hold BNB or USDT and expect BNB's price to rise, then borrow USDT to open a leveraged BNB/USDT position by taking a long position on BNB.

If you expect the price increase of BNB to exceed that of MDX, borrow MDX when you open a leveraged BNB/MDX position by taking a long position on BNB.

Open short position in falling market :

Borrow bearish tokens in trading pairs which include stablecoins, or borrow more bearish tokens in pairs from dual currency pairs.

For example: If you hold BNB or USDT and expect BNB's price to fall, then borrow BNB to open a leveraged BNB/USDT position by taking a short position on BNB.

If you expect the price fall of BTC to exceed that of BNB, borrow BTC when you open a leveraged BTC/ BNB position by taking a long position on BNB.

If you do not want to judge the direction of the rise and fall, you can take hedge positions on the Bagels platform. We will demonstrate PnL of yield farming with 3x leveraging using the same BNB/USDT pair.

1.Hedging with the principal amount of BNB/USDT

Suppose: the user holds 500U and 1BNB (worth 500U)

Position 1: Own-BNB-borrow-USDT:In this case, 0.5x USDT (i.e. 250 USDT) is converted into BNB at the outset, which corresponds to 0.5x long BNB (i.e. long BNB worth 250U).

Position 2: Own-USDT-borrow-BNB: In this case, 0.5x BNB (i.e. 250USDT) is converted into USDT at the outset, which corresponds to 0.5x short BNB (i.e. short BNB worth 250USDT).

Two transactions will be occurred when use this hedge strategy: 0.5 BNB convert to 250U in position 1, 250U convert to 0.5BNB in position 2, which means the trading fee cost 1.5U when open position(Swap fee 0.3%). Therefore the Impermanent loss is relatively larger at 3x leverage when token price is fluctuating, but the farming APR also is 50% higher than 2x leverage at the same time and the PnL is still rather stable when BNB price fluctuates within +/-20%.

Position 1: Own-BNB-borrow-BNB (then swap the BNB to USDT): In this case, 2x of the BNB is borrowed, of which 1.5x is swapped to USDT. Therefore, this position embeds a 1.5x short position on BNB and this can be hedged by opening a 1.5x long position on BNB in the future market.

Position 2: Own-USDT-borrow-USDT: Similar to position 1, this position embeds a 1.5x long position on BNB and can be hedged by a 1.5x short position on BNB in the future market.

There are two transactions in this hedge:

Position 1: 1.5 BNB swap to 750 USDT

Position 2: 750 USDT swap to 1.5 BNB

So the trading fee is 4.5 USDT(swap fee 0.3%). But the PnL is still rather stable when BNB price fluctuates within +/-20%.

2.Own-USDT, Hedge

Hedge also available for those people who only have one asset. e.g. Own 1000USDT

Position 1: Own 500USDT – borrow BNB. In this case, 2x of the BNB is borrowed, of which 0.5x is swapped to USDT. Therefore, this position embeds a 0.5x short position on BNB.

Position 2: Own 500USDT – borrow USDT. In this case, 1000x of the USDT is borrowed, of which 750x is swapped to BNB. Therefore, this position embeds a 0.5x long position on BNB.

There are two transactions in this hedge:

Position 1: 0.5 BNB swap to 250 USDT

Position 2: 750 USDT swap to 1.5 BNB

So the trading fee is 3 USDT(swap fee 0.3%). But the PnL is still rather stable when BNB price fluctuates within +/-20%.

The PnL details: