When financial markets are unstable, gold once again becomes a safe haven for investors. However, instead of simply buying and holding gold in the traditional way, a financial strategy from the DeFi world is being applied to maximize profits. The 'looping' strategy with gold has yielded returns of up to 22% since January 8, even as Bitcoin has dropped 10% during the same period.
Looping – Leveraging Gold
#Looping is not a new strategy in DeFi. In this method, investors use one asset as collateral to borrow another asset, then continue to invest and borrow, creating a loop to amplify profits.
Currently, investors are using gold as collateral to borrow USDC – a stablecoin pegged to the USD. According to the Berlin-based trading platform Swarm, this loan can then be used to invest in various other assets, including… more gold!
In this way, investors can double or even triple the amount of gold they own, helping to amplify potential profits.
Why Does Gold Looping Attract Investors?
Katie Evans, Business Development Director at Swarm, said that the amount of looping transactions has increased significantly, especially as the market is experiencing major volatility.
The allure of gold increased further when the Trump administration imposed a 25% tariff on major trading partners and disrupted long-standing political relationships with Canada and Europe. These policies drove gold to an all-time high, surpassing $3,050 per ounce last week, according to data from exchange #FXCE .
According to Philipp Pieper, co-founder of Swarm, gold looping offers a safer option compared to complex financial instruments in crypto. "When the market becomes volatile, this is an ideal 'escape route,'" Pieper shared.
NFT – A New Tool for Gold Looping
The distinctive feature of the current gold looping model is the use of NFTs instead of futures contracts or gold ETFs.
Investors purchase an NFT representing ownership of real gold, then use it as collateral to borrow up to 70% of the gold's value in USDC. This loan is subsequently invested in other gold NFTs, creating a profit loop.
If desired, investors can exchange NFTs for physical gold, but they will need to comply with anti-money laundering (AML) regulations and identity verification (KYC).
Risks of the Looping Strategy
Any leverage strategy carries risks, and gold looping is no exception.
Although gold typically rises in price during economic instability, when investors return to stocks – an asset that can provide higher returns during periods of economic growth – the price of gold can drop sharply.
For example, in November last year, gold lost more than 6% of its value as investors anticipated new economic policies from $TRUMP .
Furthermore, if the price of gold drops too quickly, gold-backed loans could be liquidated, causing significant losses for investors.
The Future of Gold Looping in Crypto
Looping has become a strong trend in DeFi. In 2024, a pair of traders on Ethereum earned $120 million just through this strategy. Platforms like Fluid Protocol are currently supporting $1.3 billion in borrowing and lending transactions through the 'multiply page' tool.
Despite the many risks involved, given the volatile economic situation, gold may continue to be an attractive option for those looking to maximize profits through looping strategies.
👉 Will gold become a new financial trend in the crypto world? Let's wait and see!