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Strategy Profitability

A displayed APY or projected ROE does not determine the realized outcome of a position. Supply and borrow rates, incentives, swap execution, gas costs, price movement, and liquidation can each affect the result. The sections below show how to review those components separately.

Understanding strategy costs

A leveraged position can incur costs when it is opened, managed, and unwound. The exact path depends on the assets held, route availability, partial management actions, and whether debt is repaid from another source.

Swap costs

A typical full open-and-unwind position uses an entry swap to convert borrowed assets into collateral and a later exit swap to obtain the debt asset for repayment. Where swaps are used, review these components:

  1. Price impact: Larger trades can receive a worse average execution price because they consume available liquidity. Compare the live routes and quotes shown for the exact swap size.
  2. Route fees: A route may include fees charged by its DEX, pool, or aggregator. There is no universal fee range. Use the live quote and transaction details, and do not count an all-in execution difference again as a separate fee.
  3. Slippage tolerance: This is the maximum execution movement permitted by the transaction. A wider tolerance can expose a transaction to worse execution or MEV; a narrower tolerance can cause it to revert during ordinary market movement.
  4. Notional exposure: Swap costs apply to the amount actually swapped, not only to the position's initial equity. Leverage can make that amount materially larger, but the relationship depends on the specific route and position state.

Gas costs

Network and route conditions affect transaction costs. Gas can be particularly material for small or short-lived positions, frequent management, and multi-transaction workflows. Estimate it from the exact transaction path rather than applying one fixed amount.

Dynamic rates and incentives

Interest rates, APY, ROE, and reward estimates are snapshots. They can change with:

  • vault utilization and available liquidity;
  • the configured IRM and governor actions;
  • reward-program terms and publication cadence;
  • collateral and debt prices; and
  • position balances as interest accrues.

Analyzing a position

Separate cash flows and valuation assumptions rather than relying on one headline percentage.

Reward timing

Merkl reward eligibility, calculation, publication, and UI display can update on different schedules. A new position may show no rewards before a campaign update, but rewards should not be assumed until they are published as claimable under the campaign's rules. Check the active campaign and distributor data before including rewards in an outcome estimate.

Price and accounting inputs

The UI's Net Asset Value calculations use market prices, which can differ from execution prices, protocol oracle prices used for health checks, and a stablecoin's target peg.

For a reproducible estimate:

  1. Record the underlying collateral and debt amounts, timestamp, chain, and position account.
  2. State the valuation source for each asset. If an at-peg stablecoin scenario is useful, show it separately from observed market value.
  3. Include accrued supply and borrow interest, currently claimable rewards, any previously claimed rewards tracked separately, entry and exit execution, route fees, gas, and any liquidation loss.
  4. Distinguish realized cash flows from current mark-to-market values and forecast assumptions.

Factors to monitor

  • Rates and rewards: current supply and borrow rates, reward terms, and changes to the configured IRM or campaign.
  • Execution: depth and quotes for the intended swap size, route fees, slippage bounds, and gas estimates.
  • Account risk: health, LTV, liquidation thresholds, oracle prices, available liquidity, and sensitivity to collateral, debt, and rate changes.
  • Time horizon: setup and unwind costs can dominate short holding periods, while rates, rewards, and market conditions can change over longer periods.

Any projected result is an estimate based on stated assumptions, not a forecast or a suitability assessment.