Shorting Assets

What is short selling?

Shorting is a popular strategy used by traders to profit from falling asset prices. Here are 2 key use cases:

  1. Speculation

Shorting provides an opportunity to speculate on specific tokens that you believe may experience a decline in value.

For example, if you believe the price of ABC will decline over the next few weeks, you can use Tectonic’s short feature to long USDC against ABC. First, deposit 100 USDC tokens (worth $100), borrow 50 ABC tokens (worth $50), swap ABC for more USDC, and deposit it back on Tectonic. If ABC’s price declines by 50%, you can buy back the 50 tokens for $25. That means when you close out your debt, you would have profited $25. Of course, the risk is prices moving against you instead, so manage risk accordingly.

  1. Hedging

By shorting tokens on Tectonic, users can effectively hedge their existing crypto exposure without having to sell the initial assets.

For example, you may be long-term bullish on token ABC, but are concerned about potential short-term price volatility. To hedge against possible near-term declines in ABC’s price, you can use our shorting tool to hedge your exposure on Tectonic. Similar to the example above, short ABC against USDC. If ABC declines in price, this hedge will provide you with some downside protection. If, however, ABC’s price rises, this strategy will eat into some of the upside you would have gotten from just longing the asset.

How does shorting work on Tectonic?

Similar to Repay with Collateral and Collateral Swap, our Shorting feature also utilises the deferLiquidityCheck() function to roll multiple steps into a single transaction. Here's how:

Step 1: User confirms to long token A and short token B

Step 2: On the backend, Tectonic will borrow token B and swap it for Token A on an integrated DEX (currently VVS Finance or WOWMAX are available for selection). No liquidity check conducted at this point

Step 3: The newly swapped Token A will be used to mint tToken A, and deposited back onto Tectonic as collateral

Step 4: Liquidity check is now conducted

In summary:

Long = supplying a token (e.g. token A) for use as collateral on Tectonic

Short = borrowing another token (e.g. token B), swapping it to token A and redepositing it back on Tectonic

For more information on how to use this tool, check out this section.


Borrowing level

  • Lava bar of a user’s entire position within an isolated pool

  • Borrowing level = Total amount of Debt in USD / (sum(Amount of each collateral in USD * each collateral's respective Collateral factor))


  • A user's entire leverage position within an isolated pool

  • Leverage = 1 / (1 - LTV)

Final Long Balance

  • The final amount to be supplied as collateral (i.e. long) on Tectonic following the swap

Final Short Balance

  • The final amount to be borrowed (i.e. shorted) on Tectonic following the swap


  • Weighted APY based on a user's chosen long and short asset

  • Net APY = [(Long asset in USD * net Supply APY) - (Short asset in USD * net Borrow APY)] / (Long asset in USD)

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