Adding leverage to a position you already have
Borrowing against a range puts cash in your account. Adding leverage puts the borrowed money back into the range, so you earn more fees and owe more.
In short: you want to borrow against a liquidity position you already hold, and there are two ways to mean that. Borrowing puts cash in your account, while adding leverage puts the borrowed money back into your range, so it earns more fees and you owe more. Leverage does not make the range wider: it earns only while the price stays inside, and the debt stays the same size when the price leaves. Check first that the range would pay off without a loan.
There are two things people mean by “borrow against my liquidity position”, and they end somewhere completely different.
The money arrives in your account. Your position is unchanged, and you owe more. What you do with the proceeds is a separate decision.
The money goes into the position. Your range is larger, it collects more, and you owe more. Nothing arrives for you to spend.
The first is cash out and has its own article. This is the second.
Two ways to get bigger
- Add leverage
- Flash-loans the asset, puts part of it into the position as liquidity, and re-borrows the rest from the vault to settle the loan. The position grows and so does the debt
- Add liquidity
- Flash-loans the asset, uses it to clear the vault debt so the position can be touched, adds the liquidity, then re-borrows to repay the flash
Both make the position larger. The difference is what is being added: in the first the borrowed asset itself becomes liquidity, in the second the flash exists to unpin the position so that liquidity can be added to it at all.
What leverage does to a range
This needs saying plainly, because the appeal is obvious and the risk is not symmetrical.
More liquidity in the same range collects more fees, in proportion. It does not collect for longer, and it collects nothing once price leaves the range. Leverage makes a range deeper, not wider.
The debt, meanwhile, stays the same wherever the price is. A range that price has abandoned is a position converting into the asset that fell, while the loan against it stays exactly the size it was.
Before you add
The check to make is whether the range would earn its keep unlevered. Doubling a position that was in the wrong place doubles being in the wrong place, and the survey tools here will tell you what a range you name would have collected, day by day, over real history. That is a better input than a fee APR quoted at today’s price.