An Introduction To Jet Margin—Leveraged Swaps
Crypto traders rely on swap protocols for huge volumes of trading activity. The swap pool is a simple and intuitive primitive that has been around since the dawn of the DeFi, and many of the most popular DeFi protocols are swap protocols. Swap pools not only allow users to trade one token for another, but also offer yield farming opportunities to users who provide liquidity for borrowers.
Specifically, the lending pool, and lending protocols built around this primitive are among the titans of DeFi. Lending pools and swap pools can be used together by users seeking leveraged or short exposure.
For example, one might swap USDC for SOL in a swap pool, deposit the SOL proceeds into a lending pool and borrow additional USDC against it, then use this USDC to buy more SOL, and repeat the cycle. This sets up a so-called leveraged long position. It’s a complex sequence of steps that requires many small transactions. To unwind this position also requires a sequence of many small steps which if done incorrectly can be costly. If the SOL price gets shaky, the process of unwinding will be stressful at best, and catastrophic at worst - it is possible to get trapped by lending limits and be unable to withdraw SOL to sell back to USDC. One might describe this process as a sort of manual margin trading.
Jet Protocol’s Margin system now offers an innovative swap margin trading product leveraging Orca—the first of its kind on the Solana network!
By integrating,Orca’s swap pools withJet’s lending pools throughJet’s margin accounts, users can eliminate the iterative setup and unwind steps of akin to one-click trades right up the maximum amount to be leveraged.
In the first iteration of Jet Margin, this feature is called Leveraged Swaps.
Suppose you’re looking to short SOL by swapping SOL for USDC. You’ll need a bit of collateral to start with (read about Jet’s margin accounting rules here) so imagine you’ve already deposited some USDC into your margin account. You select the SOL-for-USDC swap pair and choose how much SOL you want to sell. With Jet Margin,it doesn’t matter that you don’t own any SOL, you can use Jet to automatically arrange a borrow of SOL and swap it for USDC, which is then deposited right back into your margin account. Due to the atomic nature of this operation you can set up a short SOL position with about 10x leverage in a single click.
After this trade your margin account will have a positive USDC balance accumulated by selling all the SOL you never had, and a “short SOL position” which is really just a loan from Jet’s margin. You pay interest on the SOL loan, and earn interest on the USDC proceeds.
As always when you have an outstanding loan, you need to monitor your account health and keep it above the liquidation threshold. Your collateral is at risk of being sold to repay your loan.
Using approved assets as collateral, users are now able to borrow against their respective positions and trade within compatible SPL-token pools through automatic borrowing and margin trading mechanisms that execute swaps. Tokens received from any swap trade are automatically deposited into Jet’s margin pool where they accrue yield. Gone are the days where users have to venture over to third-party lending protocols, deposit collateral, obtain the proceeds, migrate to a swapping protocol and execute trades, all before depositing the final proceeds back into the lending protocol.
Working as a three-part system with margin accounts at the core, margin pools that interconnect, and finally the token trading destination as the final component, Jet Protocol cohesively leverages the composability inherent to DeFi into a linear, one-stop-shop all within users’ margin accounts that offers up to 10x leverage on users’ positions (or up to 20x on stablecoin pairs).
Jet’s lending pools have a floating interest rate and users can seamlessly repay their obligations in various payments or as an upfront payment through their margin accounts or an external wallet at any desired time. Additionally, this repayment process can be automated or completed manually, depending on the preference of the user.
What Can Jet Margin Leveraged Swaps Accomplish?
In essence, leveraged swaps grant users greater access to various trading opportunities through the provision of yield and value accrual on multiple positions at any given time, all while promoting portfolio and risk diversification. By being able to collateralize a position through Jet Protocol, users will still be able to earn a yield on this position, all while maintaining this as collateral for a leveraged trade on another asset where value generation and yield earning are easily accessible.
Providing users want to access multiple positions, Jet Protocol allows users to create multiple sub-margin accounts whereby they can orchestrate individual trading strategies to protect their collateral and isolate risk individually. In the event that a user’s position is liquidated this will only apply to one sub-account as opposed to the entirety of their portfolio, in turn minimizing the repercussions of a failed trading strategy.
By introducing leveraged swaps into the Solana DeFi space, Jet Protocol is granting users the ability to access a diverse range of trading pairs with supported SPL-tokens, including wrapped equivalents, so that they can access a plethora of trading options at any given time. In the event that users want to access unsupported SPL tokens, a request can be made at any time to the Jet Forum page and be voted upon by the DAO community prior to integration.