An investor can take two sorts of positions when trading assets: long and short. An investor can either acquire (go long) or sell (go short) an asset that they believe will appreciate in value.
Centralized exchanges in the crypto market give users the choice of longing or shorting crypto assets. These investment strategies have grown in popularity in the ecosystem since the evolution of decentralized finance.
The community discovered they could use the early versions of DeFi lending protocols for advanced trading tactics, such as constructing leveraged positions with assets supported by these money markets, when they first appeared. Furthermore, due to its lack of trustworthiness, decentralized finance has an advantage over centralized exchanges.
Issues with the existing situation
Long or short positions in DeFi are rather straightforward; a user provides one asset, borrows another, and then utilizes the borrowed funds to acquire more of the supplied asset, resulting in a leveraged position.
The lack of availability of a wide range of assets under present money market regulations is one of the key issues encountered in this scenario. Every major DeFi loan site, for example, only covers a few crypto assets, limiting consumers to around 50% of the market share.
What if a DeFi lending protocol welcomed the whole crypto sector into the money market, allowing users to leverage low-cap and risky assets?
What role does UniLend play in this market?
UniLend Finance is committed to creating a permissionless money market where anybody can lend and borrow any digital asset. This means that anyone can build up a lending/borrowing pool for any ERC20/ERC20 crypto asset. Users are invited to interact with the protocol and take advantage of a variety of novel DeFi tactics that will be possible once all crypto assets are listed without authorization.
With the future release of UniLend V2, creating a long/short position will be a breeze. Let’s look at few examples to help you understand:
UniLend V2’s Long Positions
- John is bullish on ETH and wants to take advantage of a long position to increase his gains.
- John then borrows $500 USDC and lends $1000 worth of ETH to an ETH/USDC pool.
- John’s portfolio exposure to ETH is increased by $500 worth of USDC, giving him a total of $1500 worth of ETH.
- If the price of ETH rises by 1%, John will make a total profit of $15, as opposed to the $10 he would have made without the leverage position.
UniLend V2’s Short Positions
- Alice anticipates a downturn in ETH in the next days and intends to leverage a short position.
- Alice lends a stablecoin to the ETH/USDC pool ($1000 USDC, for example) and borrows $500 worth of ETH.
- Alice then exchanges her ETH for $500 USDC, bringing her total to $1500 USDC.
- Alice is now in debt for $500 in ETH. If the price of ETH falls by 1%, Alice’s debt will be reduced to $495, which she will return and make $5 on her short position.
The basic idea is that users borrow an asset they intend to short, and as that asset’s value lowers, the user’s loan value drops, allowing them to profitably conclude their short positions.
UniLend aspires to be the foundation upon which future DeFi protocols are constructed. Omnis enables a wide range of applications that were previously unavailable with DeFi. The capacity to utilize leverage to long or short any asset, for example, is only one of the complex trading tactics that Omnis customers may deploy.