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Opening a leveraged Cross-Protocol Arbitrage position on 246 Club is similar to leveraged looping from protocols like Morpho or Aave :
  • You leverage a single yield source as a collateral with a single borrow asset, up to the protocol’s maximum Loan-to-Value (LTV) ratio.
  • There’s no fixed repayment schedule. You repay whenever you choose, as long as your position stays below its liquidation threshold.
  • If your collateral’s value drops or your debt grows such that your LTV exceeds the Liquidation Threshold, your collateral may be liquidated to cover the loan.

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Understanding Cross-Protocol Arbitrage

Cross-Protocol Arbitrage allows users to leverage interest rate arbitrage opportunities by collateralizing yield position from one protocol and borrowing against it on another, thereby capturing interest rate spreads with leverage. For example, if a Morpho Vault on USDC is yielding 10% while the Aave borrow rate is 5%, a user can capture the spread through cross-protocol arbitrage. By leveraging this position 10x, the user could earn an approximate net leveraged APY of 50% ((10% – 5%) × 10). In this setup, the Morpho Vault serves as collateral to borrow from Aave via 246 Club, further amplified using flash leverage (executed through flashloans, allowing instant leveraged entry without upfront capital) similar to a standard leverage-looping strategy.

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What’s Different?

Collateral - Borrow Separation In traditional lending markets, once you provide collateral or supply assets to a protocol, you can only borrow against them within that same protocol. At 246 Club, however, your collateral is deposited into a yield source (such as a Morpho vault) to generate returns, while your leveraged borrowings come from Aave through delegated borrowing power provided by re-lenders. (Learn more about Re-Lending and Credit Delegation.) Unified Market Structure & Pair Specific Risk Controls While 246 Club presents multiple “pairs” of collateral and borrowable assets in the interface, liquidity isn’t siloed on a per-pair basis. We adopt a structure similar to Compound V3, where each market offers a specific borrowable token supported by multiple collaterals. (See details on market structure.)

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Key Terms

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Net APY

When you borrow, your Net APY is influenced by both the yield on your collateral and the interest you pay on your loan. We can think of it as: Net APY = (Collateral’s Supply APY) – (Borrow APY × LTV) Collateral APY This is the yield you earn on whatever protocol your collateral is deposited in. For instance, if you deposit collateral into a Morpho USDC vault, you’ll earn that vault’s APY (plus any associated incentives). Borrow APY
  • This is the interest rate you pay for borrowing your chosen asset. It combines Aave’s interest rate with an extra premium charged by 246 Club.
  • Because rates on Aave and 246 Club can change based on supply and demand, your effective Borrow APY can fluctuate over time. For details on how 246 Club sets these rates, see our Interest Rate Model.

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LTV, LT

Each Collateral–Borrow Pair has a specific maximum LTV (the loan amount you can take relative to your collateral’s value) and a Liquidation Threshold. If your LTV surpasses the Liquidation Threshold, your position is at risk of liquidation.
  1. Max LTV
    • The upper bound on how much you can borrow against your collateral.
  2. Liquidation Threshold (LT)
    • If your LTV reaches this level, liquidation can be triggered.
  3. Close Factor (CF)
    • Defines how much of your position is liquidated once you cross the threshold. (See our Liquidation Mechanics for more.)