Do people margin trade on lending protocols?
Yes! Documenting all research we have found so far on this:
Paper by Bank for International Settlements (BIS)
About the paper:
Written by Monetary and Economic Department of the BIS.
Dated: March 2024
Data: On-chain data of Aave v1, Aave v2, and Compound v2 on Ethereum, collected using blockchain archive nodes and covering the period from January 2021 to March 2023.
TL;DR insights:
Overall DeFi leverage levels (Page 9): overall leverage of DeFi users typically ranges between 1.4 and 1.9.
Leverage of large/active users (Page 11-12):
The largest and most active users tend to have higher leverage compared to average users, with their leverage often exceeding 2.
This is based on analysis of the top 1000 users by debt size and activity level.
Collateral selection behavior (Page 25-26):
While most users do not strategically shift to more volatile collateral when close to liquidation, those with higher leverage that do make such shifts tend to be more aggressive in doing so. This comes from examining collateral compositions of liquidated positions.
64% of tx volume on Morpho came from leverage traders
Strategy used by whales:
This strategy of recursive deposits is the oldest way to get leverage on-chain. In 2017, OG defi users of MakerDAO figured out to recursively lent ETH and generated DAI credit to go long on ETH on-chain.
We want to democratize this strategy to general public:
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