In the trading of assets, an investor can take two types of positions: long and short. An investor can either buy an asset (going long) that they expect will grow in value or sell it (going short), which they expect to decline.
In the crypto market, centralized exchanges provide the option to long or short crypto assets. Ever since the evolution of decentralized finance, these investment strategies have gained more popularity in the ecosystem.
With the onset of the earliest versions of DeFi lending protocols, the community realized they could use them for advanced trading strategies, such as creating leveraged positions with assets supported by these money markets. In addition, decentralized finance has the edge over centralized exchanges due to its trustless nature.
Problems with the current scenario
The concept of long or short positions in DeFi is reasonably easy to understand; a user supplies a particular asset, borrows a different one, and then uses the borrowed funds to acquire more of the supplied asset, creating a leveraged position.
One major issue encountered in this scenario is the lack of availability of a wide range of assets by current money market protocols. For example, every major DeFi lending platform supports only a handful of crypto assets, restricting the users to roughly ~50% of the market share.
What if a DeFi lending protocol welcomed the entire crypto space into the money market, enabling users to take advantage of leverage positions for low cap and volatile assets?
How does UniLend fit into this market?
UniLend Finance is dedicated to building a permissionless money market for lending and borrowing any and all of the crypto assets. This means anyone will be able to create a lending/borrowing pool for all ERC20/ERC20 crypto assets. Users are encouraged to interact with our protocol and leverage a wide range of new DeFi strategies that will be made possible with the permissionless listing of all crypto assets.
With our upcoming launch of UniLend V2, it is quite an easy feat to create a long/short position. Let us understand this with examples:
Long Positions with UniLend V2
- John is very bullish on ETH and wants to leverage a long position in order to maximize his profits.
- John then lends $1000 worth of ETH to (let’s say) ETH/USDC pool and borrows $500 USDC.
- USDC is then swapped to $500 worth of ETH to increase John’s portfolio exposure to ETH and now has a total of $1500 worth of ETH.
- If the price of ETH goes up by 1%, the total profit for John is $15 compared to the $10 profit he would’ve had without any leverage position.
Short Positions with UniLend V2
- Alice believes that ETH will be on a downtrend in the upcoming days and wants to leverage a short position.
- Alice lends a stablecoin (let’s take $1000 USDC, for example) to ETH/USDC pool and borrows $500 worth of ETH.
- Alice then swaps ETH back to $500 USDC and has now acquired $1500 USDC in total.
- Now, Alice has a debt of $500 worth of ETH. If the price of ETH drops by 1%, Alice’s debt value drops to $495, which she repays and gets a $5 profit on her short position.
The fundamental here is that users borrow an asset they want to short, and when that asset drops in value, the debt value of the user decreases, enabling them to close their short positions in a profit.
Do More With DeFi!
UniLend has a vision of being the base layer on which future DeFi protocols will be built. Omnis opens a vast range of applications previously unseen in DeFi. For example, the ability to take leverage to long or short any asset is just one of the advanced trading strategies that users can employ using Omnis. We are yet to see what innovations can happen by building over UniLend Omnis.
Stay ahead of the game with our Insider series where we discuss the use cases and technology of OMNIS and how this can revolutionize the DEFI !