Aqua use cases: looped multi-positions on Aave
With 1inch Aqua, you can increase the liquidity available to your positions without taking on additional price exposure between collateral and debt. Learn how to do it in this post.
More liquidity can mean more opportunities to fill larger swaps and earn fees. But normally, getting more liquidity means committing more capital. Aave loops offer another route. You can supply an asset, borrow against it, resupply what you borrowed and repeat. The result is a larger supplied position built from the same starting capital. This is an advanced strategy: it uses real borrowing on Aave, carries liquidation risk, and is not suitable for users unfamiliar with leveraged positions.
1inch Aqua adds another layer. The aTokens representing that supplied position remain in your wallet and can back multiple Aqua strategies at once.
And the most straightforward loop does not necessarily involve borrowing a different asset. You can supply WETH, borrow WETH, supply it again and repeat. The same approach can be used with USDC. This keeps collateral and debt denominated in the same asset, reducing one of the biggest risks of cross-asset looping.
How an Aave loop works
On Aave, supplying an asset gives you aTokens representing your supplied position. Those aTokens accrue supply interest while the underlying assets remain supplied to Aave.
You can also use supplied assets as collateral to borrow.
A loop repeats those two actions:
- Supply an asset.
- Borrow against it.
- Supply the borrowed asset.
- Borrow again against the larger collateral position.
- Repeat until you reach the desired level of leverage.
Suppose, for illustration, that WETH has an applicable LTV of 80.5%. An LP starting with 100 WETH could supply it, borrow somewhat less than the maximum available amount - for example 78 WETH - supply those 78 WETH and then borrow again against the enlarged collateral base.
The process can be repeated several times, leaving the LP with a much larger supplied WETH position than the original 100 WETH.
This is real leverage. The additional capital comes from borrowing, and borrowing costs continue to accrue.
Why same-asset looping matters
The simplest Aqua-oriented loop uses the same asset on both sides of the Aave position.
For example:
WETH supplied → borrow WETH → supply WETH → borrow WETH → repeat
Or:
USDC supplied → borrow USDC → supply USDC → borrow USDC → repeat
This matters because collateral and debt move together.
If you supply WETH and borrow USDC, a fall in ETH can reduce the value of your collateral relative to your stablecoin debt, pushing the position closer to liquidation.
If you supply WETH and borrow WETH, both sides are denominated in the same asset. A change in the dollar price of ETH affects the collateral and debt in roughly the same direction, so the ETH price itself does not create the same mismatch in the position's health factor.
That removes an important source of directional price risk.
It does not remove borrowing risk. Aave's supply rate is generally below its borrow rate, so maintaining the loop has a cost. Interest on the debt can gradually reduce the position's safety buffer. That is why borrowing right up to the maximum LTV would leave very little room for rates, parameter changes or other risks.
Why build a larger position?
Because a larger aToken balance can support more liquidity on Aqua.
Suppose you start with 100 WETH. Without leverage, you have 100 WETH of starting capital available to build around.
After looping on Aave, the resulting supplied position can be substantially larger. The corresponding aWETH balance can then be used by Aqua strategies.
More available liquidity can allow larger swaps to execute against your positions. If those swaps happen, the larger position can generate more fees.
The leverage comes from Aave. Aqua itself does not create debt or multiply your assets.
Where Aqua enters the loop
Once the Aave loop is built, the wallet holds the aTokens representing the supplied assets.
Those tokens are already doing one job: they represent capital supplied to Aave and continue accruing Aave supply interest.
But they can also do another.
Aqua supports aTokens, allowing them to back Aqua liquidity positions directly from the wallet.
A same-asset WETH loop, for example, can create a larger aWETH balance. A USDC loop can create a larger aUSDC balance. Those balances can then be used across Aqua strategies.
And because Aqua uses shared liquidity, one balance does not have to be isolated in one position.
The same aToken balance can back multiple Aqua positions simultaneously, subject to the tokens actually available in the wallet when execution occurs.
One leveraged balance, several Aqua positions
This is where the two systems complement each other.
Aave increases the size of the supplied position through borrowing.
Aqua lets the resulting balance support multiple liquidity strategies rather than requiring a separate allocation for each one.
For example, a portfolio containing aWETH, aUSDC and aUSDT could potentially support:
- an aWETH/aUSDC position;
- an aWETH/aUSDT position;
- an aUSDC/aUSDT position.
Those strategies do not require three completely separate pools of capital. Aqua positions can share the tokens already held in the wallet.
That does not mean the same token can actually be spent several times. Execution is always limited by the current wallet balance. Shared liquidity simply means several strategies can compete for the same available capital. Note that fills also change which aTokens the wallet holds, which can affect an Aave position’s health factor, see “What to monitor” below.
Cross-asset loops are possible too
Same-asset loops are not the only option.
You can also build a position such as:
WETH supplied → borrow USDC → supply USDC → borrow again
The result may include both aWETH and aUSDC collateral, which can then support Aqua positions involving those assets.
This gives the strategy a different risk profile.
Because the collateral and debt are no longer denominated in the same asset, relative price movements matter. If ETH falls against USDC, for example, the health factor can deteriorate even without any Aqua activity.
So cross-asset loops can create more strategy combinations, but they also require closer monitoring of market prices and liquidation risk.
How can Aqua trade aTokens that are already collateral?
This raises an obvious question.
If aTokens are backing an Aave loan, how can Aqua trade them at all?
Aave does not let a borrower freely transfer collateral if doing so would leave the loan undercollateralized. If an outgoing aToken transfer would push the health factor too low, Aave reverts it.
That means a simple sequence like this may fail:
maker sends collateral out → maker receives the other asset
The intermediate state matters. The maker may not be sufficiently collateralized after the first step, even if the completed swap would leave the position healthy again.
SwapVM solves this through execution ordering.
Input first, output second
With SwapVM, the incoming side of the swap can reach the maker before the outgoing collateral is taken.
For example, imagine a maker is swapping one Aave collateral token for another.
The resolver first transfers the incoming aToken to the maker.
That increases the maker's collateral and improves the health factor.
Only then does the resolver receive the outgoing aToken from the maker.
In simplified form:
incoming aToken goes to maker → collateral increases → health factor improves → outgoing aToken leaves maker → collateral composition changes
The important point is that the position receives additional collateral before it gives collateral up.
That ordering can make an overcollateralized Aave position tradable through Aqua even when transferring the outgoing asset first would fail Aave's collateral checks.
Aqua does not bypass Aave's risk controls. Aave's rules still apply to every relevant transfer. SwapVM simply allows the swap to be structured so the healthy final state can be reached without first creating an unhealthy intermediate state.
Why SwapVM changes what is possible
This execution model is especially important for leveraged positions. With a conventional order mechanism, the maker may need to transfer the sold token before receiving the token on the other side. If that token is collateral backing substantial debt, the first transfer can fail.
SwapVM gives the taker control over the order of transfers. The taker can contribute the incoming asset first, giving the maker additional collateral capacity before the outgoing asset moves. But the flow can also be reversed: the maker can transfer first and the taker can return the other asset afterwards.
That flexibility matters because it enables strategies such as flash swaps and arbitrage using the maker’s funds, while also making it possible to work with collateral that is not freely transferable in isolation. In all cases execution remains atomic, the maker receives the position’s quoted terms, or the transaction does not complete.
The economics still have to work
Looping creates a larger position, but it also creates an ongoing financing cost.
If you supply WETH, borrow WETH and resupply it repeatedly, you earn supply interest on the supplied balance while paying borrow interest on the debt.
Because the borrowing rate is generally higher than the supply rate, the loop has negative carry before Aqua fees.
The real question is therefore not simply:
“How much larger can I make my Aqua position?”
It is:
“Will the additional swap fees from the larger Aqua position compensate for the extra Aave borrowing cost and risk?”
If the Aqua position attracts enough trading activity, additional liquidity can generate additional fees. If it receives little flow, the LP can end up paying borrowing costs without earning enough extra fees to compensate.
What to monitor
A same-asset loop removes much of the collateral-versus-debt price exposure, but it is still a leveraged position.
On Aave, LPs need to watch the health factor, supply and borrow rates, applicable LTV and liquidation parameters. Borrowing costs can gradually increase debt relative to collateral, particularly if the position was opened too close to its maximum borrowing capacity.
Cross-asset loops require additional attention to relative prices because market moves can directly affect the health factor.
On Aqua, LPs also need to monitor position ranges, available balances, fills and how swaps are changing the composition of the aTokens held in the wallet, since changes in the ratio between assets such as aUSDC and aWETH can affect the health factor and increase liquidation risk in looped positions.
More capital can create more fee opportunities. It also creates more moving parts. For the broader risk framework, see our guide on risk management for LPs.
From leverage to shared liquidity
Aave and Aqua address different parts of the capital-efficiency problem.
Aave looping can turn a starting balance into a larger supplied position through leverage.
Aqua can then let the resulting aToken balances support multiple liquidity strategies at the same time.
Same-asset loops such as WETH/WETH or USDC/USDC are particularly useful because they can increase the size of the position without introducing the same directional price mismatch as borrowing one asset against another.
SwapVM completes the picture. By allowing incoming collateral to reach the maker before outgoing collateral is transferred, it makes it possible to execute swaps against leveraged Aave positions while respecting Aave's collateral requirements.
The result is a structure where one starting balance can support a leveraged Aave position, continue accruing supply interest and provide shared liquidity across multiple Aqua strategies.
But leverage is never free. Borrowing costs, health factor and Aqua fee generation all need to be considered together.
Explore 1inch Aqua and learn how shared liquidity can work with Aave collateral.
Disclaimer: This content is provided for informational purposes only and does not constitute financial, investment, legal or tax advice, or a recommendation to enter into any transaction. Leveraged borrowing and liquidity provision involve significant risk, including liquidation and possible loss of funds. Supply and borrowing rates, LTV limits, liquidation parameters and market conditions can change. Swap fees are not guaranteed.
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