Everyone’s Looping. Few Survive. 4k+ looping mentions on @phtevenstrong Dojo Community. Here’s how to not get rekt: Spoiler: It’s usually the oracle or slippage. Looping PTs 1️⃣ Buy PTs on Pendle (at a discount, check IY) 2️⃣ Deposit PTs as collateral on lending protocol (e.g. @MorphoLabs, @eulerfinance) 3️⃣ Borrow stablecoin or underlying asset 4️⃣ Buy more PTs → repeat 5️⃣ Monitor borrow rate, health factor, oracle feed, and maturity date 6️⃣ Start unlooping before maturity (unless you hold PTs to end) Effectively, you’re leveraging your exposure to the yield of PTs, amplifying returns… and risks Why Loop PTs? - PTs give fixed yield. You buy at a discount, hold until maturity, and get the face value. - Looping PTs = leveraging fixed yield. - Best-case (example): borrow at 3%, buy PTs yielding 7%, repeat, amplify the 4% spread. Core Risks of Looping PTs 1️⃣ Interest Rate Risk (on your borrow asset) - If borrow APR (e.g. USDC) spikes above your PT’s intrinsic yield (IY), you’re losing money each day. - Yields can’t adjust mid-term like floating rate strategies. 2️⃣ Oracle Design - If the oracle doesn’t track real-time value of PTs correctly, you can get rekt on liquidation. - Oracles matter more during: * PT depegs (market moves faster than oracle) * Unlooping (exiting early before maturity) 3️⃣Slippage + Price Impact - Looping PTs 10x means every buy/sell has impact. Even small slippage compounds fast. - Unlooping may take days if you need to sell large size into thin markets. 4️⃣Directional Risk - You’re betting the PT doesn't lose value relative to the oracle’s pricing model. - If IY increases after you buy PTs, new PTs are cheaper → you’re underwater unless you hold to maturity. 5️⃣Utilization Curve & Liquidity Games - Platforms like Morpho/Euler have low liquidity at times. Liquidity providers play games, pulling/re-adding funds, messing with utilization & borrow rates. - You can get looped into high borrowing rates suddenly. 6️⃣ Oracle Failure / Bad Feed - Even fundamental oracles (e.g. linear discount) aren’t bulletproof. - Morpho has a failsafe fallback to Pendle’s on-chain market feed. - Pyth oracles can cause unexplained liquidations (especially if push/pull feeds get stale or manipulated). Types of Oracles & Their Role in Looping Oracle Risk Tier (Looping Safety) Tier 1: Linear/NAV Oracle + same asset borrow + deep liquidity Tier 2: Market-based Oracle + moderate liquidity + Borrow-/asset missmatch Tier 3: Thin liquidity + volatile oracle (e.g. Pyth= + max levrage What Makes a Loop "Good" or "Safe" - Using same asset to borrow/loop (e.g. loop USDC-PT using USDC as collateral) - PT has high yield, long duration, and deep liquidity - Lending market uses linear discount or NAV oracle - Borrow rate is stable and predictable - You have unloop path with low slippage (e.g. via “cheat loop” or 1:1 exit) What to Avoid - Looping volatile or thinly traded PTs - Lending markets with market-based oracles - Max leverage on unstable borrowing platforms - Ignoring oracle design or price impact Advanced Tips - Use average borrow rates for long-term strategies, not instant rates (which fluctuate a lot) - Monitor realized yield vs IY to estimate profitability - Be aware of black swan events, e.g. spikes in Stability Pool yield can make YTs pop (but also drain liquidity) - YTs can be used to hedge PT loops, but splitting and recombining won't reset your yield basis