Just Credit Debt Facility

I have written about fractional banking, and the concept of using the CDP loan process to use a singular expenditure of capitol to buy an asset, deposit the asset in a CDP loan, then borrow against it to create new capitol, use this new capitol to buy more of the asset in the CDP, deposit this asset in the same CDP, then borrow against it to create more capitol, use the created capitol to buy more assets, deposit the asset in the same CDP, then borrow against it again. I theorized that I could do this repeatedly and double the amount of asset held in the CDP with out expending anymore of my own capitol, but using only borrowed capitol. This only makes sense if the asset appreciates in value more then the borrowed capitol costs you.

This is a series of loans and points out the beauty of decentralized finance over traditional finance. In Traditional finance a single loan can take a month, regardless of your assets and includes an evaluation of your credit worthiness. But in decentralized finance you only need the assets to secure the loan and the loan is granted in seconds.

I wrote about this while studying and writing about the MakerDao, the first Credit Debt Facility in Decentralized Finance. However, this was an academic exercise because the cost of transactions on the Ethereum blockchain make this very expensive, to the point that it’s hard for the appreciation of the asset to exceed both the cost of borrowing and the cost of transactions, so this isn’t profitable. However Justin Sun and the Tron Foundation created the Just platform or Decentralized application / dApp on the Tron blockchain. It’s an opensource code version of the MakerDao, so Just is a credit debt facility, very similar to MakerDao, but with 100x faster and 100x cheaper transactions.

So the project was economically viable to set up so I performed a demonstration of how to double assets under control.

Example:
MakerDao, a credit debt facility on the Ethereum blockchain. It takes deposits of Ethereum , and loans you the stable coin Dai.

Example:
JUST, a credit debt facility on the Tron blockchain. It takes deposits of Tron, and loans you the stable coin USDJ.

One use case is to hold onto one token, while borrowing against it to invest in something else simultaneously.

Example:
MakerDao, investors who buy and hold/hodl Ethereum, wish to invest in another token. They can deposit 1000 USD worth of ETH and then borrow 500 USD worth of stablecoin Dai. Then invest it in another token.

Example:
Just. Investors can deposit 1000 USD worth of Tron and then borrow 500 USD worth of the stablecoin USDJ. Then use that 500 USD to buy another token as an investment.

Another use case is to hold a token, borrow against it, to buy more of the same token.

Example:
Just. Investors can deposit 1000 USD worth of Tron and then borrow 500 USD worth of the stablecoin USDJ. Then use that 500 USD to buy more Tron. This allowed me to double the amount of Tron I am holding in the CDP and if the rate of appreciation for the Tron is greater then the interest rate I pay on the loan, I make money.

Example:
Just.
Investor deposits 250 Tron in a CDP and then borrows 2 USDJ.
Investor then uses the 2 USDJ to buy 75 Tron.
Investor then deposits 75 Tron in same CDP. Investor now has 325 Tron in CDP

Investor now borrows an additional 2 USDJ from same CDP
Investor buys 75 Tron
Investor deposits 75 Tron in the CDP. Investor now has 400 Tron in the CDP.

Investor now borrows 2 USDJ from same CDP
Investor buys 75 Tron
Investor deposits 75 Tron in the CDP. Investor now has 475 Tron in CDP.

Investor now borrows 1 USDJ from same CDP
Investor buys 37 Tron
Investor deposits 37 Tron in the CDP. Investor now has 512 Tron in the CDP.

Investor now has doubled the amount of Tron in the CDP from 250 Tron to 512 Tron with no additional capitol spent.
The CDP allows you to borrow against the deposited Tron, up to a collateralization ration of 150% and then it liquidates your CDP. So by adding to the CDP you push the collateralization ratio up and you can borrow again. Then if you use the loan to buy more Token and add to the CDP you can borrow again.

I put this theory into action.

Start by swapping 250 Just for 365 Trx so I have Trx to invest on JST.

Now go to Just and open my first CDP. I deposit 250 Tron.

After creating the CDP with 250 Tron, I borrow 2 USDJ by selecting the generate button, which means I borrow against my deposited Tron and crest the CDP Loan.

Based on 250 TRX I can get 4.47 USDT with a resultant collateralization ratio of 155% I chose 2 USDT TO KEEP THE RATIO ABOVE 200%. At or below 150% my CDP gets liquidated.

This is the summary of my first CDP on JUST. I deposited 250 TRX and borrowed 2 USDJ. I will pay back 0.41 USDJ in one year if the stability fee of 0.05 doesn’t change. My TRX must appreciate by 20% for this CDP to be profitable by itself. However I intend to reinvest the USDJ in TRX to increase the amount I have saved and appreciating.

Now I have a new asset in my wallet 2 USDJ, which I will trade for TRX.

Now I go to JustSwap and swap my two USDJ for TRX (76.15 TRX)

Now I go to JustSwap and swap my two USDJ for TRX (76.15 TRX)

When I check my Tron wallet, I see the 250 TRX. I withdrew to open the CDP.

As you can see there was no transaction fee to withdrawal my Tron or TRX from my wallet and deposit it into my CDP on JUST.

This is my CDP history from JUST.

Here is my Tron wallet showing the 2 USDJ. I borrowed through my CDP on JUST deposited in my wallet

Now I am swapping USDJ for more Tron, about 76 TRX.

Here you see the pending swap on JustSwap of 2 USDJ for 76 TRX.

This is my swap of USDJ for TRX confirmed on Tron scan. Now I just need to wait for the TRX balance to update in my wallet.

It shows my 2 USDJ and

My 76 TRX I got in return for my 2 USDJ

Now my Tron wallet TRX balance went up to over 900 from 837 as the 76 TRX was deposited. Now I can go back to Just to create another CDP.

This is my existing CDP with 250 Tron and 300% capitalization ratio

I will now deposit more collateral TRX

I deposit 75 TRX the exact amount I bought with the loan proceeds of the CDP two USDJ

Now my CDP contains 325 TRX

My CDP history shows both deposits 250 TRX to open the CDP and the 75 additional I deposited, which I bought with the loan.

Now I will borrow 2 more USDJ against my new TRX total of 325

Here I borrow 2 USDJ and my new capitalization ratio will be 218% still well above the liquidation level of 150%

The transaction was successful and I generated 2 more USDJ from this CDP

You can see the wallet entries in my Tron wallet, I now have added 2 USDJ, then used it to buy TRX, then after depositing the new Tron in the CDP, I borrowed more two more USDJ and deposit them in my wallet. Now I will buy more TRX.

I went back to JustSwap and swap my new USDJ for 76 additional TRX

New trade of 2 USDJ for 76 TRX conformed on Tronscan, now
I wait for my wallet to reflect 76 more Tron

2 USDJ

76 Trx

Once again my wallet shows my TRX balance go from 837 to over 910 as 76 Trx were deposited

Now I go back to the CDP where I have 325 TRX and a 218% capitalization ratio and deposit 75 additional TRX.

As I complete the Deposit process to increase my Tron in this CDP to 400 my capitalization ratio increases to 288% which is well above the 150% liquidation ratio.

Here my CDP history shows I deposited 75 additional TRX into this CDP

Now my CDP shows a new balance of my Tron as 400. My balance has gone from 250 to 400 Tron with now additional capitol, it’s all based on borrowing against my balance in the CDP. This is a demonstration of using fractional banking.

I use the new balance to generate 2 more USDJ

After generating the two new USDJ my collateralization ration is now 176% which is above 150% liquidation threshold, but getting closer. But once I swap this new USDJ for TRX and deposit the additional TRX into the CDP I will increase the collateralization ratio to a much safer number

Now I go back to JustSwap and swap my two new USDJ for 76 Tron or TRX.

Once again I am waiting to confirm the swap of 2 USDJ for 76 TRX

This is my trade confirmation of 2 USDJ for 76 TRX

Now back to Just to deposit 75 TRX and raise the collateralization ration

Here I deposit Tron 75 to restore the collateralization ratio above 200%

Here the CDP history reflects this additional deposit of Tron

Now the new balance is 475 Tron

The last CDP balance after last generated USDJ is swapped for TRX 36 and deposited 35 to bring the total to 510 Tron in the CDP.

New balance 510 Tron

As you can see, using the theoretical construct in the real world, I was able to double the amount of capitol under my control by borrowing against the deposited Tron purchased with my initial capitol, to essentially create more capitol, which I then reinvested in the asset Tron. Then having more assets I can borrow to create more capitol. Then by using the new created capitol I can buy more assets. This is of course only a wise course of action if the asset appreciation rate is greater then the borrowing rate.

So if I can create a CDP using an asset which appreciates at a higher rate the the loan rate, which here is called the stability fee, I can make money. Interestingly enough I don’t know how many times I can create new capitol and buy new assets and borrow new capitol and buy new assets. I suspect there is a mathematical formula for this, but I don’t know it. This brief exercise looked like I can generate an infinite amount of new capitol by reinvesting it in new asset, but I don’t know that to be true.

@shortsegments

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