> For the complete documentation index, see [llms.txt](https://docs.extrafi.io/extrafi-xlend/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.extrafi.io/extrafi-xlend/strategy/overview.md).

# Overview

A looping strategy (also known as recursive lending) is a capital-efficient yield optimization technique that allows users to amplify lending returns or boost leverage on yield-bearing assets.

It works by repeatedly depositing an asset as collateral, borrowing against it, and re-depositing the borrowed amount — creating a “loop” of lending and borrowing that compounds yield.

On ExtraFi XLend, this process is fully automated and executed safely through smart accounts.

### **1. Deposit into a Vault**

**Select Token**

Each strategy vault enables you to deposit the yield bearing token, or the underlying token (eg. for weETH/ETH, you can deposit weETH, or ETH).

**Set Leverage**

Set your leverage rate. Higher leverage entails more risk, but typically earns higher yields. In each loop vault, you can view the average Multiplier across all positions in the vault.

### **2. Earning Yield**

**Net APY**

As long as your position Net APY is higher than the asset APY (eg. for weETH, if position Net APY > weETH APY), your position is earning yield. Net APY is a direct indicator of how profitable your position is.

**Position Value**

Over time, you can track the growth of your position’s value.

Each position represents as an underlying lending or borrowing position, which can be monitored directly in your portfolio.

### **3. Risks**

**Asset Depeg/Volatility Risk**

The price of yield-bearing tokens can fluctuate due to market volatility, trading activity, or underlying protocol insolvencies.

Such price movements may lead to liquidation risks or negative returns, especially when higher leverage is involved.

It’s important to exercise caution and carefully evaluate the stability and liquidity of a vault before implementing any looping strategy.

**Interest Rate Risk**

This risk arises when the spread between the yield-bearing asset’s APY (e.g., weETH) and the underlying borrow APY (e.g., ETH) on ExtraFi XLend narrows.

As the borrowing rate approaches the asset’s yield rate, net returns decrease.

If the borrow rate exceeds the asset’s APY, the position may turn unprofitable — and in extreme cases, could face liquidation pressure.

**Liquidation Risk**

If the collateral ratio drops below safe thresholds due to rate or price changes, the position may be partially or fully liquidated.

### 4. Best Practices

* Choose stable, high-liquidity assets and vaults (e.g., ETH, weETH, USDC).
* Avoid high volatility or thin-liquidity markets when opening loops.
* Monitor your health factor regularly from the Portfolio dashboard.
* Consider moderate leverage ratios to maintain safety margins.