Shorting 📉

Shorting is a popular trading strategy, especially in bearish market conditions. KasLend empowers users to borrow fungible tokens (FTs), enabling them to sell the assets and subsequently re-purchase them at a lower price to increase their positions. This approach allows traders to capitalize on market declines while leveraging the unique lending capabilities of the Kaspa blockchain.

Example:

Bob believes that the price of TokenA will fall in the near future. He wants to profit from this potential drop by shorting TokenA on KasLend. Here’s how Bob uses KasLend to execute a short position:

1. Borrowing TokenA

Bob starts by providing collateral on KasLend, such as KAS. In return, he borrows TokenA from KasLend. Let’s assume Bob borrows 100 TokenA. At the time of borrowing, TokenA is priced at:

$$1TokenA=10KAS$$

The total value of Bob's borrowed TokenA is:

$$Total Borrowed Value=100TokenA×10KAS=1000KAS$$

2. Selling TokenA

Bob immediately sells the 100 TokenA at the current price of 10 KAS per TokenA. He receives:

$$Received KAS from Sale=100TokenA×10KAS=1000KAS$$

3. Price Drops

Bob waits for the price of TokenA to drop. After some time, the price of TokenA falls to 7 KAS. Now, Bob can buy back the same amount of TokenA at this lower price.

4. Buying TokenA Back

Bob uses his KAS to buy back the 100 TokenA at the new price of 7 KAS per TokenA. The total cost for buying back the borrowed TokenA is:

$$Spent KAS to Buy Back=100TokenA×7KAS=700KAS$$

5. Repaying the Loan

Bob now has to repay the 100 TokenA he borrowed, along with any interest. Assuming a simple interest rate of 5%, the total repayment is:

$$Interest in TokenA=100TokenA×5$$

Bob repays 105 TokenA in total, which he has already bought back with 700 KAS. The extra 5 TokenA for interest costs him:

$$Interest in KAS=5TokenA×7KAS=35KAS$$

6. Calculating the Profit

After buying back TokenA and paying off the loan with interest, Bob's remaining KAS is his profit. The profit is calculated as:

$$Profit=(KAS from Sale)−(KAS to Buy Back)−(Interest in KAS)$$

Substituting the values:

$$Profit=1000KAS−700KAS−35KAS=265KAS$$

Summary of Bob’s Profit

By shorting TokenA and taking advantage of the price drop, Bob is left with:

$$265KAS$$

This profit comes from the difference between the price at which Bob sold TokenA and the lower price at which he bought it back, minus the interest on the loan.

Profit Calculation Formula

The general formula for calculating profit from a shorting strategy on KasLend is:

$$Profit=(B A ​ ×P A ​ )−(B A ​ ×P A ′ ​ )−(B A ​ ×r×P A ′ ​ )$$

Where:

• B_A = Amount of TokenA borrowed

• P_A = Initial price of TokenA (when sold)

• P_A' = Price of TokenA when bought back

• r = Interest rate on borrowed TokenA

In Bob’s case:

$$Profit=(100×10)−(100×7)−(100×0.05×7)=1000−700−35=265KAS$$

By using KasLend, Bob was able to make a profit by shorting TokenA, leveraging his belief that the price would decrease.