I almost went bankrupt because of a "beautiful" compound interest operation. I still break out in cold sweat when I think about the moment I received the liquidation warning that day.

I used to believe in the power of compound interest, thinking that the money earned from arbitrage, if not spent, could be reinvested, making the principal grow larger and the returns increase like a snowball. But that one incident last month made me realize—if you don't play compound interest carefully, it can really be a ticking time bomb.

The story goes back three months. At that time, I had accumulated a decent profit through arbitrage. Watching the account balance fluctuate daily, I impulsively decided to add all the earnings as collateral. I collateralized my stablecoin assets worth 100,000 USDT and increased it to 150,000. My borrowing limit also rose to 112,500 USDT, and the yield from my investments visibly increased, with monthly income nearly 40% higher.

During that period, I was telling everyone that this was the ultimate way to make money while lying down. But I never expected that the crypto market would suddenly experience a sharp decline. Although I collateralized stablecoins, which theoretically shouldn't fluctuate much, panic sentiment spread through the market, causing my asset prices to fluctuate slightly.

That day, I was out dining when my phone suddenly alerted me to a liquidation warning. My heart skipped a beat—when I checked my account, my collateral ratio had already surged to 128%, just 2 points away from the 130% liquidation threshold! I finished my meal quickly and transferred funds to add more collateral, narrowly avoiding forced liquidation.

After reviewing the situation carefully, I realized the core problem was the "full-position reinvestment" strategy. Putting all the earnings back into the account left no buffer. As soon as the market moved slightly, it threatened to trigger a liquidation. Now I understand that no matter how attractive the compound interest may seem, you must leave yourself some room to breathe.