Deleveraging

Understanding Deleveraging

Deleveraging is the process of reducing your position's leverage by withdrawing collateral and repaying debt. This can be done in two ways:

1. Partial deleveraging: Reduce leverage while maintaining an active position.

2. Full deleveraging: Completely unwind the position by repaying all debt.

Preparing for Deleveraging

Before deleveraging, you need to:

1. Understand your current position: Review your collateral amount, debt amount, and health factor.

2. Set an appropriate slippage tolerance: Typically 0.5-2% depending on asset volatility.

3. Calculate the optimal deleveraging amounts: Determine how much collateral to withdraw and debt to repay.

Constructing the DeleverageAction struct

Deleveraging requires constructing a DeleverageAction struct that specifies how to unwind your position:

// Define how much collateral to withdraw
const collateralAmount = ethers.utils.parseUnits('300', 18);
const repayAmount = ethers.utils.parseUnits('200', 18); // Amount of debt to repay

// Create swap data to convert collateral to borrow asset
// Note: This is an array of swaps, allowing for multi-hop routes
const swapData = [{
  target: '0x1111111254EEB25477B68fb85Ed929f73A960582', // 1inch router
  inputToken: underlyingAsset,
  outputToken: borrowUnderlying,
  inputAmount: ethers.utils.parseUnits('250', 18), // Amount needed to convert to repay debt
  call: '0x...', // Encoded swap call data
}];

// Construct deleverage struct
const deleverageAction = {
  cToken: COLLATERAL_CTOKEN,
  collateralAssets: collateralAmount,
  borrowedToken: BORROWED_CTOKEN,
  swapData: swapData,
  repayAmount: repayAmount,
  auxData: '0x' // Optional for specialized protocols
};

Executing the Deleverage Operation

With the DeleverageAction struct prepared, execute the deleverage operation:

// Set slippage tolerance (1%)
const slippage = ethers.utils.parseUnits('0.01', 18);

// Execute the deleverage transaction
const tx = await positionManagement.deleverage(
  deleverageData, 
  slippage,
  2000000
);

const receipt = await tx.wait();
console.log(`Position deleveraged! Tx hash: ${receipt.transactionHash}`);

Important Considerations

1. Swap Data Configuration:

   1. The swapData array can contain multiple swaps for complex routes.

   2. Each swap must specify the correct input/output tokens and amounts.

   3. Slippage tolerance should be set appropriately for each swap.

2. Amount Calculations:

   1. collateralAmount: The amount of position tokens to withdraw.

   2. repayAmount: The amount of debt to repay in the borrowed asset.

   3. Ensure these amounts are properly calculated to maintain desired position size.

3. Protocol-Specific Features:

   1. Some protocols may require additional data in the auxData field.

   2. Check protocol documentation for specific requirements.

   3. Consider using protocol-specific optimizations when available.