Leverage Yield Farming

Leverage yield farming is a capital-efficient strategy that involves borrowing assets to amplify one's liquidity position in a pool (LP), thereby earning higher returns from farming incentives and trading fees. When the strategy is implemented in a market-neutral manner—meaning long and short exposure are balanced—the goal is to earn yield steadily while minimizing the impact of asset price fluctuations.

At the same time, this strategy contributes to the health of the tgUSD ecosystem by deepening the liquidity of tgUSD/stgUSD pools, reducing slippage during swaps, and increasing the borrowing demand for tgUSD and stgUSD. This demand reinforces minting activity and drives up overall TVL .

How It Works:

Process:

• Borrow assets (e.g., stablecoins or others) to expand the capital base, typically using 2× leverage → resulting in a 3× leveraged position

• Supply both own capital and borrowed funds into a high-yield LP

• Maintain a market-neutral position, focusing purely on farming and fee yields without directional exposure to price movements

Yield Sources:

• Leverage magnifies the base APY (e.g., 5% becomes 15% at 3× leverage), but net returns must account for borrowing interest, which may reduce the final yield.

• LP rewards and trading fees

Risks:

• Rising interest rates may erode profits or cause losses

• Severe price fluctuations may trigger liquidation risks

• Providing liquidity still exposes users to impermanent loss

Example: Leveraged Yield Farming with stgUSD/USDT

Assumptions:

1. USDT maintains a stable value at $1

2. stgUSD / USDT = 1.06

Alice applies a market-neutral strategy using 3× leverage:

	Alice’s Own Capital	Assets Borrowed	Total Supplied to LP	Position Delta
USDT Amount	1000 ($1000)	500 ($500)	1500 ($1500)	1000 USDT (stable, treated as neutral)
stgUSD Amount	0	1415 ($1500)	1415 stgUSD ($1500)	0 stgUSD (neutral)

• Alice borrows 500 USDT and approximately 1415 stgUSD (worth $1500 at 1.06 each)

• She combines her own capital and borrowed assets to provide liquidity to the stgUSD/USDT pool

• While the position is notionally long on USDT, its stable value implies negligible price volatility risk, preserving the market-neutral structure

• This approach exposes Alice only to impermanent loss and interest rate risks, while virtually eliminating directional price risk—making it well-suited for conservative yield farming