Contango builds leveraged positions whose costs continue through the exit

Contango combines spot trading with lending markets to create leveraged positions backed by collateral and debt. Opening commits margin to a position; closing repays the debt and releases the remaining equity. Between those actions, borrowing interest, lending income and asset prices change the outcome. Execution fees and available liquidity also affect the amount returned. Its Advanced and Simplified interfaces provide different entry paths into the same underlying mechanism, including directional trades and leveraged yield strategies.

Collateral, debt and ownership belong to different layers

A position combines assets supplied to a lending market with an outstanding borrowing balance, while a wallet-held NFT represents ownership. The collateral supports the debt under that market's rules. Keeping the NFT in a wallet does not mean the collateral remains freely spendable there. A separate proxy holds each position, and the main contract mediates the owner's actions.

These boundaries also define the risks. Contract upgrades and vulnerabilities can affect funds despite the separate ownership record. The documented architecture includes upgradeable contracts, so possession of the NFT does not establish immutable control.

Opening connects a spot trade to a lasting loan

Flash loans supply temporary capital during opening, allowing the protocol to assemble collateral and debt within one transaction. The flash loan ends during that transaction; the collateralized borrowing remains open afterward. Looping describes the resulting leveraged exposure, which combines borrowing with additional asset acquisition and supply. In a trading pair, the base asset is the asset being bought or sold; the quote asset expresses its price.

Long exposure

Margin in the quote asset

The protocol combines margin with flash-borrowed funds, purchases the base asset and supplies it as collateral. It then borrows the quote asset against that collateral to repay the flash loan.

Margin in the base asset

Existing base-asset margin joins the base assets purchased with temporary funding. The lending position then supports the quote-asset borrowing that repays that funding.

Short exposure

A short reverses the exposure: the protocol borrows the asset whose price the position seeks to short. Selling it creates the assets supplied as collateral. Repayment therefore depends on the value of the borrowed asset relative to that collateral.

Authorization creates a commitment before settlement

Reviewing a proposed trade does not open a position, but signing permissions can authorize token spending before the trade itself executes. Token approval and trade execution are separate commitments. An abandoned trade does not necessarily remove an allowance that an earlier approval created.

Supported tokens can use permit signatures, while other combinations require an alternative authorization method. A permit avoids a separate approval transaction, but the eventual trade still incurs transaction costs. Approval amounts govern how much a contract may spend.

Before submitting the opening transaction, record the proposed margin, position size and borrowing amount. After confirmation, compare the resulting position balances and transaction details with that preview. An executed opening has no cost-free undo. Returning to the previous exposure requires another transaction under the prices and conditions then available.

Costs accumulate at different points in the position

Entry and exit incur execution costs, while an open position accumulates lending income and borrowing expense. A favorable opening quote cannot fix the borrowing rate for the entire holding period.

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The app's service charge depends on the instrument and the change in position size. Swaps introduce their own fees, spreads and market impact. Flash-loan charges depend on the funding route, and network execution adds gas costs. Direct contract access avoids the app service charge, but it does not remove these underlying expenses. The trade review exposes the applicable charges before submission.

Net funding reflects the cash flows on both lending and borrowing balances. Supply and borrow percentages alone do not describe the outcome without their respective balances. Position size can also change market utilization and therefore the rates available after execution. The displayed estimate accounts for the proposed trade's rate impact.

Positive funding can offset other costs. It does not establish that the position has earned a profit.

Which profit figure reflects an available exit?

A market-based exit estimate reflects executable liquidity more closely than an oracle valuation, although settlement still depends on the transaction that actually executes.

An oracle supplies the lending market's valuation for collateral health and liquidation. A spot quote estimates the exchange available for closing. These prices can differ without either display representing a completed trade. The open-position display offers different pricing sources, and most instruments initially use the money-market oracle. A market quote therefore answers a different question from the collateral-health valuation.

Annual percentage yield, or APY, expresses net funding relative to position notional. Return on equity, or ROE, uses initial margin as its basis. Neither annualized estimate equals the cash already earned. Accrued funding enters profit and loss, while rewards may appear separately. Adding a separately displayed reward to a figure that already includes it would overstate the result.

Changing exposure and moving the borrowing position

Adding capital to repay debt can reduce borrowing expense without selling the same amount of collateral. Reducing position size changes exposure instead. These actions therefore solve different problems, even when both lower leverage. Available modifications remain subject to collateral requirements and execution conditions.

Migration moves an eligible position to another lending market by closing the existing market position and opening its replacement. The documented migration mechanism uses flash funding without a spot swap. That can avoid swap costs, although a flash-loan charge may still apply. The replacement market brings its own borrowing conditions and liquidation rules.

A lower borrowing rate does not erase an existing loss or fix the destination market's future rate.

Liquidation can end a position before the intended exit

Collateral deterioration or growing debt can make a position eligible for liquidation before its owner submits a voluntary close. The relevant boundary comes from the selected lending market.

The underlying money market carries out liquidations of Contango positions. Its rules determine the penalty and the treatment of collateral. An oracle can also diverge from the price available through a spot trade. Consequently, a favorable-looking exchange quote does not override the lending market's liquidation calculation.

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Take-profit and stop-loss orders provide conditional exit instructions where supported. They add automation costs for execution by keepers. An instruction awaiting execution does not itself repay debt or stop interest accrual; the completed transaction changes the position.

Yield strategies add conditions beyond price direction

The same borrowing structure supports leveraged staking and restaking exposure, stablecoin rate differences and principal-token strategies. Advanced provides direct instrument selection, while Simplified groups selected strategies. Both create lending-market positions. A simpler presentation does not remove the underlying debt or liquidation conditions.

Yield and incentive exposure

Yield-bearing collateral can contribute returns alongside lending income. Stablecoin pairs target rate differences but retain the risk that their prices separate. Funding strategies can also combine offsetting price exposures. Rewards and points introduce separate eligibility and distribution conditions, so their displayed estimates should not become assumed cash proceeds.

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Principal tokens and maturity

A principal token separates principal from an underlying asset's yield component. Its maturity value does not fix the financing cost of a leveraged position. Borrowing continues at a variable rate, and an early exit uses the prevailing market price. After maturity, the principal token stops accruing its fixed yield, while outstanding borrowing still accrues costs. Closure requires action rather than an automatic maturity settlement.

Closing reconciles debt, execution and returned equity

A full close unwinds the lending position, repays outstanding borrowing and returns the remaining equity in the selected supported asset. A partial close leaves exposure and debt to manage. The output currency matters because obtaining it may require another conversion.

The settlement record is the basis for reconciling the exit. Transaction history exposes cash flows, execution details and fees for the position. A preview describes an expected outcome; a successful transaction records the actual change. Wallet receipts and remaining position balances must agree with whether the action closed everything or only reduced exposure.

Some closing paths leave a small residual balance, called dust, after selling enough collateral to cover debt. That balance remains separately claimable. For matured principal tokens, redemption can avoid a swap when its proceeds match the debt asset. If repayment requires another asset, conversion costs and available liquidity still affect the final amount returned.

Things people ask about Contango