Loops are structured yield strategies that use borrowed capital to multiply returns from yield-bearing tokens (e.g., LSTs, LP tokens). The strategy works by recursively borrowing and depositing the same asset, creating a loop where both principal and borrowed funds generate yield.

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Loop Mechanics

A Loop works as follows, using a JupSOL / SOL Loop as an example:
  1. Loopscale borrows SOL with no collateral via a flash loan
  2. SOL is swapped for more JupSOL
  3. JupSOL is deposited as collateral in Loopscale
  4. SOL is borrowed against the JupSOL collateral
  5. Borrowed SOL repays the initial flash loan
Loopscale executes these steps atomically. This means that all the above actions occur within a single transaction and revert if any step fails. This creates a levered JupSOL position, earning yield as long as the JupSOL staking APY exceeds the fixed borrow rate. Upon closing a Loop, Loopscale atomically:
  1. Flash borrows the amount needed to repay the fixed-rate loan
  2. Repays the fixed-rate loan to unlock the yield token collateral
  3. Sells enough of the yield token to repay the flash loan
  4. Returns the remaining collateral to your wallet
Some more advanced Loops also mint or redeem tokens (typically after swapping to the required underlying token) as part of this flow. For example, a pt-fragSOL / SOL Loop would swap the flash-loaned SOL for fragSOL before minting pt-fragSOL; as expected, the inverse takes place in closing the Loop.

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Advantages

While leveraged yield strategies have existed in DeFi before, Loopscale’s order book architecture provides several key advantages over looping from traditional yield-based protocols.

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Fixed Costs

Loops use Loopscale’s fixed-rate loans, protecting users from rate volatility that can erode the yield of pool-based position.

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Per-Collateral Pricing

Rates are specific to the collateral asset. Safer assets (e.g., USDC) receive better terms than volatile ones.

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Isolated Risk

Each Loop is isolated. Market stress in one asset class won’t affect unrelated Loops, unlike in multi-asset pools with contagion risk.