Hi, I just posted this original article on my new Decentralised Finance Blog https://www.publish0x.com/defi-to-defy and thought I'd post it direct on Hive too. Hope you find it useful (and profitable!).
It sounds like a dream, or a work of fiction - a loan you can take out at 0% interest, which actually pays itself back over time. Really?
Yes! Now things have changed, and this is totally possible. You don't even have to prove your worth to a judgemental bank-manager. It's a dream come true!
Using Decentralised Finance (DeFi) it is possible to become your own bank. Without asking anyone's permission, you can use your existing Crypto assets (like Bitcoin / Ethereum / Fantom etc.) as collateral then take out a stablecoin loan (crypto with a set value to a US Dollar usually) against it at 0% interest, with no monthly repayments, and you can pay it back whenever you want!
You can then take that stablecoin loan and do anything you want with it!
The point is that you don't have to sell your existing crypto assets. You still own them and they will (hopefully) appreciate in value over time. When you are ready to pay back the loan you get your original crypto back (minus a tiny fee of 0.5% at the time of repayment).
You can go one-better and also make your original crypto asset earn for you, and use that earning asset as collateral for your loan, so the value of your collateral goes up anyway over time, effectively making your loan-to-collateral value move in your favour over time without you having to do anything.
So how do we do this? There are many ways, but this is my current favourite:
You will need a Metamask Wallet (or similar) and some $FTM Fantom crypto to pay gas on the Fantom blockchain network (available on most exchanges). The easiest way to get Metamask to link with Fantom Opera network is to visit Beefy Finance (who we will use later too) and select Fantom - this will bring up a prompt in Metamask to add the Fantom network.
Then you will need some crypto available in Metamask to use as collateral. In this example, the following image shows what is available to use in the Qi Dao protocol, where we will get our loan:
There is a lot of choice! There are some you may not have heard of like "mooScreamWBTC" but we will come to that shortly.
First you need to visit the Qi Dao protocol, where we will deposit our collateral and get our loan from. Connect via Metamask.
Click "VAULTS" at the top, then click "CREATE" to see what vaults are available for you to create. You will see the image above showing the different assets available.
The next column "MAI Available" shows you how much $MAI (their native stable coin pegged to $1USD) is available in the system to borrow. It is not infinite and gets used up sometimes, until someone either repays their loan or the Qi Dao protocol raises the amount of MAI available. There are a lot of options with plenty to borrow, and several which have been used up.
The simplest thing to do is choose your asset, click "CREATE VAULT" and you will see this window:
It will show the amount of collateral you have in your Metamask wallet available to deposit (if depositing FTM don't forget to leave a couple in the wallet to use for gas!). Either click "MAX" to deposit it all, or however much you want to put in, then proceed. You will need to approve a couple of transactions in the Metamask. Once the "Activity" in Metamask shows it's completed you are done. You may need to refresh the page on Qi Dao.
Next click the "BORROW" tab on the same screen which will take you here:
Use the slider to select how much you want to borrow against your crypto assets. It will only allow you to borrow a certain amount leaving some headroom to make sure your loan is over-collateralised against your original asset. You will see in mine it is currently at 196%, so I have only borrowed roughly half of what my collateral is worth - this is important as if the value of your asset drops considerably against the $USD (MAI is linked to that don't forget) then you can get "Liquidated" = you lose some of your original asset to bring back the loan to a safe loan-to-collateral ratio. With Qi Dao you won't lose it all, but it is still worthwhile avoiding liquidation. More info on liquidation HERE.
Once you have chosen how much $MAI to borrow, you will need to approve the transaction again in Metamask, the you have the $MAI!!
Currently the best place to swap $MAI for another coin is BeethovenX which you access through your Metamask. Swap it for whatever you want!
Using interest yielding collateral
This is all cool, but we can go one better and deposit our initial collateral into an interest yielding vault first, so the original quantity of your collateral grows over time without you having to do anything!
Currently Qi Dao supports interest bearing tokens from Beefy Finance & Yearn. Both are good, but today we will use Beefy.
Head over there & connect with Metamask.
Basically Beefy Finance allows you to deposit tokens & they will grow them for you. There are many options available but they are for another article.
For now, select "Scream" in the Platform drop-down. Select "Single assets" in vault type. Scroll down to see what they have. In the first screenshot where you create the vault on Qi Dao, look for token options beginning with "mooScream...." - see what they did there haha? They are the Beefy ones available.
I am using $ETH today. Assuming you have ETH in your wallet, it will show up in the "Wallet" section above. Click on the vault and click "Deposit All" (unless it's FTM then leave a couple in your wallet for gas remember!). You need to approve the spend, then confirm the transaction in Metamask.
Soon you will see your asset switch to the "Deposited" bit in Beefy, and your "Wallet" will go to zero. Your asset is now with Beefy earning. Currently ETH is earning 6.38% APY, & Beefy automatically compounds your gains for you which is awesome!!
Go back to Qi Dao, and create an vault for "mooScreamETH" (or whatever asset you chose). Continue as above, but this time you are using your Beefy Finance token instead - basically the deposit receipt you get from Beefy. Your Beefy balance will go down to 0. This is OK!
So now, you can borrow the $MAI exactly the same, but your ETH will be earning 6% interest while it is sitting there!! How cool is that!
Paying back the loan and getting your original asset back
This is basically reversing the process. So you would first pay your MAI back to Qi Dao, then you can withdraw your original asset. If you used the Beefy Finance option, you would then go back to Beefy & you will see your asset in the vault there again. Click "Withdraw all" & presto! You have your original asset back in Metamask.
Making the most of your MAI loan
Once you have your MAI you can do whatever you want with it. You can even buy crypto with it and put it in a high-interest vault at Beefy. Some of these vaults have crazy APY gains, or you can switch the MAI to another stable coin earning between 20 - 50% interest.
So your original asset is earning, then your borrowed asset is earning on top of that. There's no deadline to pay any of it back. Basically free money!!
If the original asset value drops make sure to keep an eye on your liquidation level, but if it appreciates in value you can always borrow more against it direct from Qi Dao.
All without having to visit a bank.
NOTE: AS WITH ALL DECENTRALISED FINANCE AND CRYPTO IN GENERAL THERE ARE RISKS INVOLVED AND NONE OF THIS SHOULD BE TAKEN AS FINANCIAL ADVICE. DO YOUR OWN RESEARCH AND NEVER INVEST MORE THAN YOU CAN AFFORD TO LOSE!
Hope you find this article helpful!
You can follow my new blog on Twitter @ExplorerFi
Thanks for reading & good luck.
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