Finance series - DeFi apps

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I used InstaDapp to create a MakerDAO CDP to generate DAI and lent out the DAI through Compound Finance

I’ve been quarantined for the past few days with a stomach bug. Not good for my @actifit posts or my June running targets, but at least it has given me the time to try something that I’d been super-curious about for months, ever since the folks on cryptotwitter (CT) started preaching the virtues of DeFi (portmanteau for Decentralised Finance). The suite of DeFi apps include MakerDAO’s CDP portal, Compound Finance, Veil, Dharma and Instadapp.

MakerDAO is the decentralised network that mints DAI (decentralised stablecoin) and controls the mechanics of DAI such that 1 DAI is pegged to USD$1. Compound is a borrowing and lending platform for various cryptocurrencies.

How did I do it?

I was going to do it through Metamask in a browser on my laptop but then I remembered that the iOS version of Coinbase wallet has a ‘Dapps’ tab that allows you to interface with DeFi apps whilst connected to the wallet. It’s basically a browser inside the wallet app. I decided to go for using Coinbase wallet on my phone.

I stumbled upon Instadapp a week or so earlier. I’d heard of it before but never considered it as an option until I saw some of the features it offered. They call themselves a ‘Decentralised Bank’ - they have built interfaces for creating MakerDAO CDPs, lending and borrowing on Compound, and Uniswap pools. Essentially it’s a one-stop shop for DeFi. I liked that I could do everything I wanted within an integrated app. It also has a Dashboard so you can see your positions at a glance. The InstaDapp feature that hooked me was ‘loop’ within the MakerDAO CDP section. I had been wondering for a while whether this feature existed - basically it allows you to create DAI through a CDP, then exchange that DAI for ETH to create another CDP to create more DAI, etc - hence the name ‘loop’. I think this ‘loop’ executes three times. I’d heard of people using this strategy manually but was interested if there was an app that existed allowing this via one-click. This is something one would consider if they were very bullish on the price of ETH, because they would end up with more ETH than they started with locked up in smart contracts. Of course, one also has to consider that when closing these contracts there’s more DAI to pay back, then there are fees, etc, but if ETH mooned I don’t think you would be too bothered about that! In the end, I decided not to try this because I thought it would be best to dip my toes in first, but it’s definitely something I’d be keen to try in future.

InstaDapp has a nice, clean interface but for a n00b is quite confusing. I reached out to the founder and lead dev on twitter asking if they had any plans to make how-to tutorial videos for how to use InstaDapp. He replied pretty quickly saying that they have plans to make some videos but they’ve been so busy developing InstaDapp that they haven’t had time. He suggested I join their Telegram channel and ask any questions I had in there ... so I did. Sure enough, they were super-helpful in there and answered my questions.

So I transferred 0.4 ETH into my InstaDapp wallet and generated 50 DAI at about 48% debt-collateral ratio. When you input values into InstaDapp it gives you feedback on whether it considers this ‘risky’ or ‘safe’. Above 50% is considered risky. I also transferred the 6 DAI I’d made from Coinbase Earn and deposited that together with the CDP debt into a Compound DAI loan at 8.99% annual (they say this compounds every 15 seconds!).

Fees

For each step within InstaDapp, there was a small fee because they are interfacing with smart contracts that incur GAS. There is also of course the ‘stability fee’ for the MakerDAO CDP when closing the CDP and repaying the DAI debt. From memory, this was 16.5% ... so if my maths and my understanding are correct, I’m actually going to lose on this little thought experiment, but I’m OK with that. Also, both the Compound rate and the stability fee for the CDP contract can change at any time.

Why did I do it?

The short answer: curiosity. My understanding is that you can only make money on this if you used the ‘loop’ feature to increase leverage, which is something I’d like to try after this experiment is over. Otherwise, you’re better off just hodling the ETH rather than going through this ... or buying DAI through an exchange and lending it out through Compound. It is also possible that the rates will swing more in my favour and make it profitable but this is not a great concern for me. There are more exciting things coming for DeFi - MakerDAO’s multicollateral DAI, Augur V2 which will have DAI integration and of course Ethereum 2, so I wanted to be a part of the revolution!

Disclaimer: I’m not a finance professional, this article is just me sharing my experiences with DeFi apps.

Posted using Partiko iOS