The BIG Short: Introducing Decentralized Leveraged Short-Swaps
Decentralized exchanges like Uniswap, Pancakeswap, Quickswap and MDEX reinvented the way people trade digital assets and receive profit from trading if assets’ prices go up.
WOWswap works on top of those decentralized exchanges and offers the simplest tool to maximize profits with 5x leveraged long-swaps.
But is it possible to receive a profit when a token’s price goes down?
The answer is “YES” — it’s called shorting. When you short a token, you loan it from someone and immediately sell that token: Short = Borrow + Sell.
If the token’s price goes 📉, you buy it back later for a cheaper price, return the loan, and keep the profit💰.
At the moment not a single major decentralized exchange offers shorting 🙁. In other words, they allow you to profit from the🐂 market, but have nothing to offer for the 🐻 market.
As for centralized exchanges, many of them support shorting of some popular coins, but on those platforms you have no control over your crypto 😱 and no power over trading rules and procedures😡. This is NOT how we see the future of finance.
WOWswap is fully committed to decentralization 👼, and therefore today we are happy to introduce decentralized leveraged short-swaps 🎊
HOW IT WORKS 🧐
Remember the last time you had a strong feeling that “this coin is totally overpriced”? So, now you can easily turn your feeling to hard cash (assuming your feeling is right).
Let’s assume that token A is currently traded on Pancakeswap at $10, and you decided to short it for 100 BUSD (your money) with 5️⃣X leverage. It means that you will borrow A token for 500 BUSD (50 tokens). On WOWswap you will borrow these tokens from the lending pool, created by individual liquidity providers who deposited A tokens to the lending pool.
When you make a short swap you will sell 50 borrowed A tokens and receive revenue of 500 BUSD. This revenue + 100 your BUSD (600 BUSD in total) will become a collateral for your short position.
Since you borrowed A tokens you need to pay interest on your loan. So let’s suppose that after some time your payable interest becomes 10%, so now you owe 55 A tokens to the pool.
However, if A-token’s price drops to $8 per token, your position’s value will be = $600–55*$8 = $160. Since you invested only $100 of your own money your net profit will be $60 or 60%.
Beware of — Liquidations 😨
It’s important to remember that leveraged short-selling also has its risks: if the price of the token you shorted goes up you can have a multiplied loss, or even loose all the capital invested in the trade position.
However, in comparison to stock market exchanges or centralized crypto exchanges you CANNOT lose more money than you invested in the trade, so your risk is always limited. 😊
In WOWswap liquidation procedures are transparent and executed by a community of keepers who run the liquidation software.
In case of shorting, a liquidation happens if
Collateral < Liquidation price * Number of tokens * (1 +Liquidation margin)
In the example above, you shorted 50 tokens, while having a collateral of 600 BUSD, so assuming liquidation margin of 5% (decided by the DAO participants) the liquidation price at opening will be:
Liquidation price = $600/50/(1.05) = $11.43
It means that if A token’s price rises from $10 to $11.43 your collateral might not be enough to buy back A-tokens from the market to pay the loan, and this position shall be liquidated by a keeper.