The loop
One deposit gives you back up to 80% of itself as lUSD — and nothing stops you from putting that lUSD to work as a new deposit. This is the loop: loom's version of leverage, built without a borrow rate.
One pass through the machine
- Deposit 1,000 USDC. It's routed to the yield venue and starts earning immediately.
- Choose a mint ratio — say the maximum, 80%. You receive 800 lUSD and a receipt recording 1,000 USDC principal against an 800 lUSD debt.
- Swap the 800 lUSD for USDC and deposit again: 640 lUSD and a second receipt.
- Repeat as long as the numbers are worth it.
Each pass earns the full venue yield on its full principal. The geometric series converges to:
max exposure = 1 / (1 − ratio) at 80%: 1 / 0.2 = 5×
Five thousand USDC of yield-bearing exposure from one thousand of capital — while you still hold the final round of lUSD.
Why there is no borrow cost
In a lending protocol, leverage means borrowing someone else's deposits and paying a rate that rises with utilization. lUSD is not borrowed from anyone — it is minted against your own collateral and burned when you redeem. There is no lender on the other side, so there is no funding leg, no utilization spiral, and no rate that spikes exactly when everyone wants leverage.
What replaces the borrow cost is friction: each pass through the loop pays the swap fee and slippage on the lUSD → stablecoin trade. Realized leverage stops where marginal yield stops covering marginal friction — the loop is self-limiting by economics, not by a governance cap.
What the loop does and doesn't risk
Every unit of lUSD in the loop stays fully backed — each pass locks more principal than it mints (at most 80%). Because there is no oracle and no liquidation, there is no price that unwinds the loop for you. The risks that remain are the protocol's ordinary ones, multiplied by your exposure: venue risk on more principal, and more lUSD to return when you exit. Read Risk disclosures before sizing a loop.
Unwinding isn't a cascade either: exit any layer by selling its receipt on the market, or wait for unlock and redeem layer by layer — each layer's redemption returns exactly the lUSD you need to close the next.
The loop is the power tool, not the main path. A plain deposit at 0% ratio — pure yield, no debt — is a complete way to use loom.