Two Ethereum DeFi traders just made $120m using a strategy called ‘looping’

Two Ethereum traders made $120 million in the last 24 hours.
The traders employ a 'looping' strategy in DeFi, enabling leveraged positions on Ether to amplify their investments.
Upcoming Ethereum upgrades and the potential approval of an Ether ETF are key market catalysts, potentially driving Ether's price even higher.

A pair of high-value Ethereum traders are up nearly $120 million today as crypto prices continue to jump.

According to DL News’ analysis, two wallet addresses, 0x28 and 0x74, have used various lending protocols to increase their exposure to Ether.

Combined, these wallets hold over 1.1 million in Ether and staked Ether derivatives — worth $3 billion. Both wallets are deposited in a handful of lending protocols like MakerDAO, Spark, Morpho and Compound.

The identities of wallet owners aren’t publicly known, but these wallets caught attention in 2022 for nearly being liquidated for $600 million worth of Ether. Now, that risky bet has paid off.

Looping on DeFi

The strategy these whales — a term for high-value crypto traders or investors — employ is commonly referred to in DeFi as looping.

A trader deposits an asset, such as Ether, into a lending protocol and then borrows a different asset, like dollar-pegged stablecoin DAI, against their deposit. They then swap that DAI for Ether, the original asset.

After swapping cryptocurrencies, the trader re-deposits the newly-acquired Ether back into the lending protocol. This action allows them to borrow additional funds, establishing what’s called a ‘leveraged long position’ on their original Ether deposit.

The looping strategy enables traders to achieve a leverage of 3-5x — multiplying capital by a factor of 3 to 5 times — on their initial investment.

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But in this case, these whales have opted for a more conservative leverage range of 1-2x. Despite its potential for higher returns, this strategy carries a multitude of risks. A significant drop in the Ether price could lead to liquidation, resulting in the loss of the initial deposit.

The pair of whales deployed these strategies years ago when Ether was worth around $1,000. Ether is currently trading around $2,700. The price of Ether would have to drop over 60% for them to be liquidated.

Ethereum catalysts

Traders who utilise the looping strategy inherently hold a bullish sentiment — conviction that the prices will go up — on the market.

For Ether, there are a couple of significant catalysts on the horizon.

Ethereum's Ether token has performed well over the past year.

The first is the upcoming Dencun upgrade, which will reduce the cost of transactions on Ethereum’s layer 2 networks like Arbitrum and Optimism. After successful tests on two of Ethereum’s test networks, the upgrade is slated to come to Ethereum mainnet around March 13.

The weeks leading up to major Ethereum upgrades generally coincide with increased interest in the Ethereum network, and some researchers even find that it causes Ether’s price to increase.

Since the approval of the Bitcoin spot ETF, the market has turned its sights to an Ether spot ETF.

Heavyweights like Blackrock, Fidelity, Invesco and others have all already applied for an Ether spot ETF, with a decision to be made by May 23.

Given the Bitcoin ETFs hold 692,000 Bitcoin, or 3.53% of the total supply, traders are hoping an Ether ETF would see a similar success.

Ryan Celaj is DL News’ New York-based Data Correspondent. Reach out with tips at ryan@dlnews.com.