Recursive Lending Supply Share

Overview

This indicator goes over the percentage of liquidity provided to the protocol that is made up from recursive lending strategies. Recursive lending strategies are those which borrow an asset which is then resupplied into the lending side and potentially borrowed again, thus rehypothecating the protocol’s debt.

How can I use it?

Recursive lending, or looping, has become a popular strategy in DeFi as a way to obtain a higher amount of token incentives on top of a given asset. However, it also involves a degree of risk, as market conditions and changes in interest rates need to be constantly monitored in order to avoid liquidations.

Knowing the percentage of liquidity in a DeFi protocol that is made up from Recursive Lending strategies is useful because it provides insight into the stability and yield generation opportunities of the protocol. A high percentage of liquidity derived from recursive lending strategies can indicate that the DeFi protocol is relying heavily on incentives to attract depositors. This is helpful to gauge how much of the liquidity could be sticky vs simply looking to farm yield short-term.

Furthermore, the percentage of liquidity that recursive lending strategies make can indicate the amount of yield being generated within the DeFi protocol, which can be useful for evaluating investment opportunities.