How do you calculate yield farming leverage?

A leveraged position is essentially a borrowed position. It means that you have $500, for example, but you can create a trading position of up to 6x that amount. If you hope to lend your asset on a DeFi leverage platform, what you earn is an APY. It is calculated by adding the interest on each period to your initial deposit up to a period of 365 days of the time you were invested in the DeFi platform. Mathematically, APY is given by:



APY= (1+r/n)^n -1 where r= period rate, and n= number of compounding period.



As a lender, you may want to provide your asset to the pool with a high utilization rate because that increases the amount of interest paid on your deposit. The risks in leverage trading as a lender incudes impermanent loss and price volatility of the supplied asset or collateral.