USDC Leverage Lend Aave Farm

In this strategy, we’ll walk you through how the Stablecoin Lend + Leverage Strategy works. This strategy is built to help you earn more yield on your USDC by using a recursive lending approach on Aave v3. It’s currently live on the Ethereum testnet, and is meant for testing and demonstration purposes.

Here's what you'll be doing:

You’ll deposit USDC into Aave v3. Then, the strategy will borrow 50% of your supplied amount and deposit it back again. This cycle repeats up to three times, creating a leveraged position. The amount that stays as real collateral (after subtracting what’s borrowed) is called net collateral and it’s on this amount that you’ll earn a simulated yield of around 8% APY.

Once your deposit is active, you’ll receive a token called $deUSDCx, which represents your position in the strategy. This claim token can be used later to withdraw your funds and yield.

Throughout this section, we will guide you on:

• How the recursive lending loop is executed

• How the net collateral is calculated

• The issuance and use of the $deUSDCx token

• Risks involved due to leverage

This strategy gives you better use of your stablecoins, but like any leveraged position, it comes with risks. That’s why we’re keeping it on testnet for now.

Technical Working

With the USDC Recursive Lending Strategy, you can put your USDC to work—deposit, earn yield, and withdraw whenever you're ready. It’s built on the Dexponent Protocol and fits right into the Farm system using the FarmStrategy interface, making everything smooth and simple.

1. Deposit and Recursive Lending

When you initiate a deposit, the strategy accepts USDC from the Farm contract.

Step-by-step Recursive Lending Process:

i) Initial Deposit You deposit the full USDC amount into Aave v3.

ii) Recursive Borrow & Re-deposit (Up to 3 Levels)

• The strategy borrows 50% of the deposited amount.

• The borrowed USDC is re-deposited into Aave.

• This borrowing and re-depositing loop continues for up to three levels.

iii) Net Collateral Calculation

• Net Collateral is determined as: Total USDC Supplied - Total USDC Borrowed

• This value forms the basis for yield simulation.

2. Yield Generation and Harvesting

Since testnet deployments do not offer real yield, the strategy simulates returns.

• An 8% APY is applied to the Net Collateral to calculate the simulated yield.

• When the Farm contract invokes the harvest function:

  • The strategy computes the yield accrued since the last checkpoint.

  • it then transfers the appropriate USDC amount to the Farm.

This simulated yield reflects what real-world returns would look like under production conditions.

3. Withdrawals and Emergency Handling

You may trigger standard or emergency withdrawals depending on the scenario.

Standard Withdrawal:

• A portion of the recursive lending position is unwound.

• The required USDC amount is withdrawn from Aave.

• The withdrawn funds are transferred back to the Farm.

Emergency Withdraw:

• The strategy immediately withdraws all USDC from Aave.

• All funds are returned to the Farm without delay.

1. Dexponent Protocol Integration

   This strategy adheres strictly to the FarmStrategy interface defined by the Dexponent Protocol. This ensures:

   • Seamless handling of deposit, withdraw, and harvest operations.

   • Automatic routing of simulated yield back to the Farm.

   • Transparent distribution of earnings among liquidity providers and other stakeholders.

Technical Benefits

1. Better Yield with Recursive Lending

   Instead of just depositing USDC and earning basic returns, this strategy uses a method called recursive lending. It borrows against your deposit and redeposits it — this loop boosts how much your money can earn.

2. More Out of Your Capital

   By borrowing and redepositing part of your funds, the strategy puts more capital to work than just your original deposit. This increases the potential returns, making your funds more productive.

3. Simulated Yield Performance

   Even when you test this strategy on a testnet, it includes a built-in yield simulation that aims for around 8% APY. This helps you clearly see how the strategy would perform in real conditions.

4. Easy to Use with Dexponent

   The strategy is built to plug directly into Dexponent’s Farm contract. That means you can deploy it easily, earn yield, and manage withdrawals smoothly — everything works out of the box with the Dexponent ecosystem.

5. Balanced Risk with Emergency Options

   While the strategy uses leverage to boost returns, it limits the looping to just three levels. This helps manage the risk. If anything goes wrong, you’ll also have access to emergency withdrawal functions for safety.