# Example

This section assumes high level familiarity with how concentrated liquidity AMMs work.

## Long ETH/USDC trade

Let’s imagine a trader wants go long 1 ETH versus USDC with 10x leverage and InfinityPools has a concentrated liquidity AMM where the current market price of ETH is 1000 USDC. The trader could then borrow 1000 USDC worth of liquidity centered at 900 USDC and swap it for 1 ETH, minus fees and slippage (using a spot DEX of their choice).

Just as with any regular AMM, the InfinityPools AMM (also called the float pool) now only cares about two outcomes:

The pool price stays above 900 USDC, in which case it expects back 1000 USDC

The pool price drops below 900 USDC, in which case it expects back ~1.11 ETH (1000 USDC converted into ETH at the 900 USDC price point)

There are however three possible scenarios for the trader:

**Scenario A:**If the price of ETH goes up, the trader can swap back part of the 1 ETH for 1000 USDC to pay back the liquidity loan and keep the rest as profit.**Scenario B:**If the price of ETH goes down to right above 900 USDC, the 1 ETH the trader holds is worth 900 USDC and the AMM is still expecting back 1000 USDC. The trader therefore needs to start out with 100 USDC (or ~0.11 ETH) in collateral in order to pay back the full liquidity loan.**Scenario C:**If the price of ETH goes below 900 USDC, the AMM is expecting back ~1.11 ETH and the trader already holds 1 ETH. The remaining 0.11 ETH is worth, at most, ~100 USDC. Therefore, same as with scenario B, the trader needs to start out with 100 USDC or 0.11 ETH in collateral in order to pay back the full liquidity loan.

The minimum collateral requirement for a trader borrowing liquidity worth 1000 USDC concentrated at 900 USDC is therefore ~100 USDC (~10x leverage). It follows that the closer the liquidity range borrowed is to the current market price of ETH, the more leverage it enables. For example, if the liquidity borrowed was deployed at 999 USDC, the maximum loss / initial collateral required would be 1 USDC, which corresponds to 1000x leverage.

## Trade payoff function

The chart above shows the payoff functions for the trader and the corresponding liquidity providers, and excludes the interest rates paid. Interest rates paid by the borrower in this scenario would be ~1 USDC for a one day trade (~0.1% daily rate), assuming normal levels of volatility for this pair. In the case where the price of ETH drops below 900 USDC, the trader’s position remains open and the same payoff function continues to apply as long as the loan isn’t closed out.

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