In a market shaped by inflation fears, geopolitical tensions, and volatile interest rates, savvy investors are turning to an innovative decentralized finance (DeFi) strategy known as looping—now making waves in the gold market. Traditionally used in the crypto space, this strategy is now being adapted for physical assets like gold, delivering up to 22% returns in just over two months, according to data shared by Berlin-based platform Swarm.
Looping Goes for the Gold
Looping is a recursive financial method where investors use an asset as collateral to borrow funds—typically in stablecoins like USDC—and reinvest the borrowed funds back into the same asset to create leveraged positions. Until recently, this strategy was mostly seen in Ethereum-based trading. Now, with the help of tokenized assets and gold-backed NFTs, looping is revolutionizing the way investors approach precious metals.
Swarm allows users to deposit gold-backed NFTs as collateral and borrow USDC, which can then be used to purchase more gold-backed NFTs. This cycle can be repeated, amplifying exposure and potential gains. TheBitJournal.com highlights this trend as a potential game-changer for those seeking a secure yet dynamic investment model.
A Safe Haven with Leverage
Gold has long been seen as a safe haven asset during times of macroeconomic instability. Recent U.S. tariff moves and weakening international trade relationships have pushed gold to a record high of $3,035 per ounce. In such times, leveraging gold through looping offers the best of both worlds—stability with the potential for high returns.
Katie Evans, Head of Business Development at Swarm, commented,
“In periods where interest rates are unpredictable and market sentiment is shaky, strategies like looping become especially attractive due to their risk-managed structure and yield potential.”
From Ethereum to Gold: DeFi’s Expanding Universe
In 2024, Ethereum traders successfully deployed looping to generate over $120 million in profits, leading to a surge in DeFi platforms integrating leverage tools. One such platform, Fluid Protocol, now manages $1.3 billion in lending volume through its ‘Multiply’ function.
The Bit Journal previously covered how Ethereum’s DeFi innovations are setting the stage for broader financial adoption. Gold-based looping marks the next step, blending the credibility of physical assets with blockchain efficiency.
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Tokenized Gold and NFT Utility
What makes gold looping particularly unique is the use of NFTs—not for art or digital collectibles, but as proof of ownership for tokenized gold. These NFTs, issued on-chain, represent real gold holdings that can be redeemed by investors. However, redemptions require passing KYC and AML procedures, keeping the system compliant with regulatory standards.
Swarm enables users to borrow up to 70% of their NFT’s value in USDC. By repeating the borrow-and-buy loop, investors can build significant exposure while maintaining asset-backed security.
Risks Still Linger
As with any leveraged strategy, looping comes with inherent risks. A sudden dip in gold prices could trigger liquidation events, especially for those heavily leveraged. Market sentiment shifts—such as increased confidence in equities—could drive investors away from gold, leading to price corrections. Notably, gold fell 1.3% last Friday and saw a 6% drop in November 2024 following positive election sentiment in the U.S.
Still, with central banks like the Fed downgrading growth forecasts and raising inflation expectations, gold’s appeal remains strong.
Final Thoughts
Looping is reshaping how both crypto and traditional investors view alternative assets. By merging blockchain-based finance with the timeless value of gold, platforms like Swarm are opening the door to new forms of secure, high-yield investment strategies.
As global markets teeter on the edge of uncertainty, strategies featured by The Bit Journal—like gold looping—are set to gain even more traction among future-forward investors.
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