What is Contango?

Contango is an automated looping protocol that builds on existing lending platforms such as Silo to create perp-like experience. This allows users to create a leverage long or short position on any token pair offered on the underlying protocol. In contrast to perpetual exchanges, the funding rate is defined by the utilized market’s borrow rates which are typically significantly lower.

Silo’s risk-isolated design means we can offer pairings that are not commonly available on other markets. This includes LRTs (e.g $ezETH) and Pendle’s PT tokens (e.g. PT-eETH) which are incredibly powerful collateral due to point and fixed rate exposure. Contango has a dedicated interface for Silo which can be found here.

How does Contango work?

Any user can manually simulate a leveraged long position via Silo by (we use an weETH/ETH example here):

  1. Depositing $weETH on Silo

  2. Borrowing $ETH

  3. Swapping $ETH for $weETH via a DEX

  4. Repeating 1-4 to desired leverage

While this is excellent in increasing exposure without relying on traditional exchanges, it is time consuming and gas-intensive to create so many transactions.

Contango bundles all of the above steps into a single transaction, with a user only needing to select their token pairing (weETH/ETH in this case) and desired leverage. Once that’s done the Contango contracts handle the rest!

What are the risks of using Contango?

With any leveraged position, exposure to profit AND losses are amplified. This may result in losses or even liquidation (loss of all collateral) if the price moves too far in the wrong direction. Users are responsible for maintaining conservative leverage and monitoring their positions.

Unlike perps where liquidation price is defined by a user’s margin hitting zero, Contango’s liquidation prices are derived from the liquidation threshold of its underlying lending market. Users should consider having a stop loss before their liquidation price to mitigate unexpected liquidations.

As usual, interacting with any external contract may introduce additional smart contract risk. It should be noted that Contango has been audited by ABDK which found no vulnerabilities in their code base.

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