Short Farming

What is Short Farming?

Short farming allows traders to profit from asset price declines while earning liquidity mining rewards. Using SOL/USDC as an example, you borrow SOL to sell for USDC, then supply both tokens to the Meteora DLMM pool. If SOL’s price drops, your position buys back SOL at lower prices within your set range, profiting from the price decrease. Trading fees are also earned during this process. This strategy combines the benefits of limit orders with passive fee generation.

Key Parameters of Short Farming (SOL/USDC example):

1. Collateral & Leverage Ratio

   1. Determines total position size.

   2. Higher leverage increases liquidation risk.

2. Borrow Ratio

   1. Specifies borrowed asset.

   2. Higher SOL borrow ratio increases exposure.

3. Deposit Ratio

   1. Defines SOL/USDC ratio in your final position.

   2. Higher USDC ratio increases exposure.

4. Price Range

   1. Sets the LP position price range and sell price for SOL.

   2. Setting the price range below current price maximizes short exposure.

Example:

• Deposit: 5 SOL

• Borrow: 5 SOL

• Price range: below current price (LiquidX swaps your deposit and borrowed SOL into USDC)

This creates a position worth 10 SOL in USDC deployed below the current price. If SOL’s price falls below this range, your position continuously buys SOL at lower prices, allowing you to repay the loan profitably. Besides trading profits, you also earn trading fees.