> For the complete documentation index, see [llms.txt](https://docs.looputo.xyz/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.looputo.xyz/mechanism/negative-carry-protection.md).

# Negative Carry Protection

Looputo's automation system against negative carry risk.

Looping earns the carry, which is the collateral's yield minus the borrow cost. When carry turns negative, a leveraged position loses money even with no price movement. Negative Carry Protection monitors carry continuously and unwinds the position when negative carry persists, with no action required from users.

### How It Works

Negative Carry Protection runs a **cost-aware model**. When carry turns sufficiently unfavorable, the model unwinds the position before losses compound; when carry turns favorable again, it re-levers back to the original target.

The model is designed to avoid overtrading. Carry fluctuates and can cross zero frequently; reacting to every swing would mean constant unwinds and re-levers, eroding returns through gas and execution costs. The model acts only when the expected loss from negative carry outweighs the cost of acting, responding to sustained negative carry and ignoring short-lived swings.

<figure><img src="https://1517612113-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FiyPrXoSfRikirWhKbEx7%2Fuploads%2Fgit-blob-8f4b267322ca5f4758204557874ae5d389d3f1ac%2Fncp-carry-response.jpg?alt=media" alt="Carry of a looped position over time: short dips below zero are tolerated and the loop stays active; when carry stays negative, Negative Carry Protection triggers an unwind."><figcaption></figcaption></figure>

### Pool-Level Execution

Every position in the pool shares the same aggregate debt, so carry is identical for all of them. It only needs to be monitored once, and when action is needed the model acts at the pool level, with a single set of transactions for the whole pool rather than position by position. Protecting many positions costs the same as protecting one, which keeps the protection always on without per-position overhead.

Pool size is capped. An unwind trades through available market liquidity, and beyond a certain size that trade would move the price against itself and execute with high slippage. If executing the full unwind at once would incur excessive slippage, it is split into smaller unwinds executed in sequence. Each pool is also sized so it can be unwound smoothly, so capacity is bounded by design.

{% hint style="info" %}
Negative Carry Protection responds to carry. Its counterpart, [Liquidation Protection](/mechanism/liquidation-protection.md), responds to price. The two are kept separate because they act on different signals, and both run continuously.
{% endhint %}