Long and Short positions
Last updated
Last updated
The Mirai protocol allows users to engage in leverage trading by borrowing funds to increase their investment. This can be done up to 3 times their original capital, enabling them to take both long and short positions on assets such as Matic, wBTC, and Ether.
Bob can invest 100 USDC into the Mirai platform and borrow an additional 270 USDC to purchase $270 worth of Ether. This is an example of using leverage to take a long position on Ether.
Case 1: value of Ether drops 50%: In this event the value of Bob's investment would decrease as well, and if it falls below a certain threshold, he may be liquidated. This threshold is determined by comparing the amount borrowed to the value of the assets used as collateral. If the amount borrowed is greater than the value of the assets, the user will be liquidated, and the equivalent value of USDC in Ether will be sold to repay the loan.
Case 2: Ether value goes up by 10%
If the value of Ether increases by 10%, the value of the ETH purchased would rise to $297 (270+27).
Bob can then choose to sell his Ether and, in this case, he will receive 297 USDC. He will return the borrowed funds to the Protocol, and he will be left with a profit of 27 USDC which represents a 27% increase on his initial investment.
