What does the loan position on the whale chain mean?

The loan position on the whale chain refers to the position formed by large investors borrowing other cryptocurrencies or stablecoins on the blockchain lending platform by collateralizing crypto assets. The purpose of the operation includes: 1. Short-selling profits, lending cryptocurrencies that are expected to fall through the lending platform and selling them, buying at a low price to return to earn the difference; 2. Leveraged investment, lending funds to increase investment positions to amplify returns. Risks faced include: 1. The value of collateral fluctuates, which may trigger liquidation; 2. Liquidity risk, large-scale selling may trigger price slippage; 3. Funding costs and time, soaring lending interest rates and long-term market failures may erode profits.

The loan position on the whale chain refers to the positions formed by large investors holding a large amount of cryptocurrencies (i.e., "whale") who mortgage their own crypto assets to borrow other cryptocurrencies or stablecoins. For example, whale stakes a certain amount of Bitcoin on decentralized lending platforms such as Aave and lends out Ethereum, forming an on-chain lending position. The following analysis is conducted from the perspective of operational purpose and risk:

• Operational Purpose:
  • Short-selling profit: The whale expects a certain cryptocurrency price to fall, lends the currency through a lending platform and sells it in the market, and then buys it at a low price to return the loan to earn the difference. If a whale deposits cbBTC to Aave and lends 79,638 ETH to short the ETH/BTC exchange rate. If the ETH/BTC exchange rate falls, the amount of BTC obtained by selling ETH remains unchanged, but the BTC required to return the ETH loan is reduced, and the difference is the profit.
  • Leveraged investment: Use the funds obtained from borrowing to increase investment positions to amplify investment returns. For example, the whale is optimistic about a cryptocurrency project and obtains more funds to purchase the tokens of the project through borrowing. If the token price rises, the returns will increase exponentially. Of course, if the price drops, the losses will also be amplified.
• Attack risks:
  • Fluctuation in collateral value: If the price of the collateralized cryptocurrency plummets and the collateral value shrinks, liquidation may be triggered. For example, on the Aave platform, when the mortgage rate is less than 80%, it may be liquidated. At the same time, if the cryptocurrency price of borrowed and loaned rises sharply, whales need to add collateral or be forced to close their positions.
  • Liquidity risk: Large-scale selling of cryptocurrencies for lending may trigger market price slippage, with the actual average transaction price lower than expected. In addition, if the market panic causes the mortgaged cryptocurrency to be deanned, the collateral valuation will also affect the position safety.
  • Funding Cost and Time: If the lending interest rate soars, it will erode profits. If the market conditions do not meet expectations for a long time, the accumulation of capital costs may exceed the potential returns.

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