Example Trade

Liquidation-Free 100x long ETH-USDC

You have 100 USD as margin and want to open a 100x leverage long ETH position in Limitless.

From the Limitless ETH-USDC pool, you borrow 9900 USD and open a 5 ETH long position at the current price of 2000 USD per ETH. The initial premium to pay upfront is 9.9 USD(or 0.1% of total debt), which depletes at an initial hourly rate of 0.01%/hr.

Let us examine the following possible outcomes.

A) Price Goes Up by 2%

In 1 hour, the price of ETH is up 2%. Regardless of the price movement of ETH during that hour, you close your position and you have made a 2*100 = 200% gain for your initial 100USD, which is 200USD.

Your premium depleted is 0.99USD(0.01% of 9900USD) so you get back 9.9-0.99 = 8.91 USD back.

Your total profit after the hour is 200–0.99 = 199.01 USD, or 199.01%.

In reality, premium depletion rates are variable on a per-block basis, but here we are assuming 0.01% is the average value quoted over 1 hour.

Also keep in mind that any volatility within the 1 hour has negligible impact on your final PnL, affecting only the total premiums depleted.

B) Price Goes Down by 2%

In 1 hour, the price of ETH in USDC is down by 2%. You are far below your ‘liquidation price’, but you still have your position open.

However, if you're pessimistic that the price will rebound to your entry price, you can opt to close your position to halt premium payments. In doing so, you would retrieve 8.91 USD from the initial premium, calculated as 9.9 - (9900*0.01%), but would lose the entire 100 USD margin.

C) A long time has passed

After 10 hours, your premium deposit is depleted, and you forgot to replenish your premium deposit. Regardless of the magnitude of your unrealized PnL, your position will be forcibly closed and you will automatically regain your margin+ PnL.

D) Price Goes Down 0.5%, which is the price range where you borrowed from.

In such instances, you can only close your position and retrieve your remaining margin via closing your position with limit orders. An off-chain rebalancer will fill your order and transfer to you your margin + PnL.