What is Recursive Lending?

Recursive lending (also called looping) involves depositing an asset, borrowing against it, depositing the borrowed amount, and repeating. This amplifies your exposure to supply APY and any token incentives.

How It Works

Deposit ETH as collateral on Aave
Borrow ETH (e.g., 80% LTV)
Deposit the borrowed ETH
Borrow again against new deposits
Repeat until target leverage reached

Example

Deposit 1 ETH
Borrow 0.8 ETH, deposit again
Borrow 0.64 ETH, deposit again
Total exposure: ~3-4 ETH from 1 ETH deposit

Risk Management

Liquidation: Leveraged positions amplify liquidation risk Rate Changes: Borrow rates can exceed supply rates Smart Contract: Using same asset reduces some risks

Track leveraged positions with Fensory.

How to Get Started

1Choose asset with positive supply-borrow spread
2Deposit initial collateral
3Borrow same asset at safe LTV
4Redeposit borrowed amount
5Repeat to target leverage
6Monitor health factor closely

Pros

✓Amplified yield exposure
✓Works with token incentives
✓Same-asset loops reduce liquidation risk

Cons

✗High liquidation risk if spread inverts
✗Complex position management
✗Gas costs for setup/unwind