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Short Farming

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Last updated 2 months ago

What is Short Farming?

Short farming is a strategy that lets you profit when the price of an asset decreases. In this example, you borrow SOL to sell it for USDC and provide both as liquidity in a Liquidity Farming. If SOL’s price falls, it will be bought back at lower prices within the range you set, generating profits. Additionally, you earn trading fees while your position stays within the range.

Think of it as a limit order that also earns fees while waiting for the price to move.

Short Exposure: Fully Adjustable on DeFiTuna

DeFiTuna allows you to control how much exposure you have to the market. By adjusting parameters like deposit ratio, price range, borrow ratio, and leverage, you can create a position that matches your market outlook—whether you prefer higher potential returns with increased risk or a safer, more moderate approach.

Key Parameters to Manage Short Exposure

  1. Deposit Ratio

    • This is how much of your position consists of USDC.

    • Higher deposit ratios increase your exposure to the strategy.

    • For example, creating an out-of-range position with a 100% deposit ratio of USDC maximizes your short exposure.

  2. Range

    • The price range determines when your borrowed SOL will be repurchased.

    • Setting a lower minimum price means SOL will be bought back for less, increasing your profits.

    • A wider range can reduce fee-earning efficiency. Think of it like setting a lower target price for a limit order.

  3. Borrow Ratio

    • Borrowing more SOL increases your exposure to the strategy.

    • If you allocate 100% of the borrowed SOL to the position, you maximize its potential profitability.

  4. Leverage

    • Leverage allows you to increase the size of your position by borrowing additional funds.

    • Higher leverage can amplify your profits if the price moves in your favor but also increases your risk.

    • Tip: To reduce the risk of liquidation, you can borrow more SOL or adjust your deposit ratio and price range for a safer setup

Advanced Tip: Boost Profits Through Compounding

To maximize returns, consider reinvesting the fees earned from your SOL/USDC position as collateral to open additional leveraged positions. This creates a compounding effect, where your profits grow at an accelerating rate. By reinvesting earnings, you can exponentionally enhance your overall profitability.

Important Note:

When your position goes out of range, you stop benefiting from further price decreases. Ensure that your range is well-optimized for the expected market movement.

Final Reminder:

Short farming is a powerful way to profit from declining prices during Bear Market, but it requires careful planning and risk management. Use DeFiTuna’s flexible tools to adjust your position, align it with your goals, and ensure sustainable growth.