In various DeFi platforms and community tutorials, you can always see people showcasing exaggerated profit screenshots: "By using 5x recursive lending, pushing BNB staking yields above 50%!" Such numbers seem incredible in the real world where bank interest rates are only 3%. Many are attracted by these figures and mechanically follow the "stake - borrow - buy - restake" cycle, naively believing they can create wealth out of thin air.

But behind this seemingly perfect formula lies a trap that can instantly wipe out your principal. The essence of recursive lending is to exponentially amplify your risk exposure. When you enable 3x leverage, a 10% drop in BNB price means your net assets shrink by 30%. The mathematical relationship is brutal—the leverage multiple and the loss percentage are directly multiplied.

Even worse is the liquidation mechanism. Once the price hits the liquidation threshold, the system forcibly auctions your collateral and charges high penalties. During market crashes, on-chain congestion often spikes, gas fees skyrocket, and attempting to manually unwind the cycle or repay debt is usually too late—transactions get stuck in Pending status until the liquidation notice is issued. By then, it’s too late to turn back.

My personal use of recursive lending is limited to a scenario: the market is in a low-volatility sideways consolidation, and I monitor real-time charts or have set up alerts. Most importantly, I never get greedy to the extreme. If the protocol allows a 70% LTV, I only use up to 40%. Taking the risk of principal liquidation just to earn that extra 10% annualized yield is the worst risk-reward choice among all gambling strategies.

In this tempting market, knowing when to stop is often more valuable than knowing how to operate.