DeFi 2.0 Magic: Self Repaying Loans

finguru in #hive-167922 • 3 years ago

Self Repaying Loans_TN.png

Just imagine if you could take loans that would repay themselves on their own? That is the magic of DeFi 2.0! What if the borrower does not have to pay the Loan interest without putting a single dollar from his own pocket. Generally, a person takes a loan and is faced with high-interest rates on repayments. Also, there is a risk of liquidation. DeFi 2.0 offers a great solution to these problems - Self Repaying Loans. Here your only debt is the time!

How Does Self Paying Loan Work?

Let's say, a borrower deposits $6000 worth of crypto as collateral in order to get a $3000 worth crypto loan at a fixed percentage.
Crypto collateral ($6000) is staked to another protocol to earn further yields.
Yields from the collateral are used to pay off the $3000 loan with interest and protocol fees.
As soon as the lender gets their $3000 back with interest, $6000 collateral will be sent back to the borrower.
Everyone makes money!

_{^ This section is edited with corrections. Thanks @thinkermind}

In this process borrower never did any payment from their pocket. They didn't have to do anything apart from taking the loan and depositing collateral as crypto. After loan repayment, they will have $3000 and their collateral $6000. The lender makes a handsome premium by giving out loans. This avoids liquidation problems and the money lost in so many exchange operations. Even if the value of the collateralized asset depreciates with time, the loan will repay itself by taking some extra time to repay the interest. This is a great way to put your crypto to use and earn extra value for all the parties involved in the transaction.

I have created this Infographic to understand how these loans work in DeFi 2.0 applications:

Self Repaying Loans.png

Future of Lending

DeFi 2.0 protocols are shaping up the future of lending where Lenders, Borrowers, and LP providers, all of them are getting the benefits of participating. By removing the third party and automating all the processes, it gets easier for anyone to get a Crypto loan and use that money to compound further. Alcehmix Fi is one of the most famous lending protocols which provides Self Paying Loans services. Users can deposit DAI as collateral to get alUSD as a loan for up to 50% LTV (loan-to-value). alUSD can be exchanged on Sushiswap for other Digital Assets.

It's an interesting way to provide a great user experience. I am keen on seeing this develop in the future. Would you like to take such a loan? Or would you give out such a loan? Please let me know your thoughts in the comment section below.

_{https://leofinance.io/@finguru}

_{https://twitter.com/finguru6}

_finguru#4062

_{Not financial advice. For infotainment purposes only.}

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#lending #defi #archon #neoxian #ctp #cent #vyb #hustler #proofofbrain #broadhive #leofinance

3 years ago in #hive-167922 by finguru

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poshtoken 3 years ago

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tokenizedsociety 3 years ago

That's interesting, bro

I've seen a few posts about it before never really tried it myself. Have you?

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finguru 3 years ago

No bro. Not yet! It's an interesting concept that caught my eye. Alchemix is a fairly new platform so I might borrow some crypto. Will create a tutorial to do it! Also, I would like Cub Finance to implement this with PolyCub if possible.

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tokenizedsociety 3 years ago

I see. If you do, let us know how it goes!

And yea, it would be great if CubFinance had something along those lines. Knowing Khal and the boys, I think they have something in line for the future

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finguru 3 years ago

Sure bro! 🚀🚀

They are always onto something.

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jfang003 3 years ago

Just wondering, what is the difference between that and current Defi loans? I guess the only difference is that it pays itself off. However the $3,000 has to be paid manually so I don't see how it's any different compared to having it backed by crypto. If the $1,000 was in crypto, what would happen when the price of the coin drops?

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finguru 3 years ago

Repayment of the loan (principal+interest) is fully covered by staking rewards coming from collateral. That's the magic. Don't really have to do anything. ✌️

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thinkermind 3 years ago

The information you exposed makes us dream. But let's clarify what's really going on
=> For example in the case of Alchemix, you must deposit a guarantee of double your loan
Concrete case:
1st: You deposit $10,000
2nd: You have the right to have a self-refundable credit for only $5000
3rd: Your starting sum generates interest (from 2 to 7%) which reimburses the credit (over X years).
4th Once the refund has been made, you recover your initial investment of $10,000

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finguru 3 years ago

Haha. Ooops. I took the wrong example. Should have been $3000 loan for $6000 collateral and not a $3000 loan for $1000 collateral. That's what Alchemix does. It gives loans at 50% LTV as you mentioned.

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thinkermind 3 years ago

Additional answer via a real story DeFi 2.0 : Marketing Origin of Self Repaying Loans (ENG/FR)

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yieldgrower 3 years ago

Interesting idea and I like it. Would need to consider scenarios where you can't make enough yield to self pay back the loan and possibly insure against that.

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finguru 3 years ago

can't make enough yield to self pay back the loan and possibly insure against that.

The insurance is time. Collateral will be locked until the amount and interest are paid in full.

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asmedianet 3 years ago

For me, there are limiting factors:

The trust issue with DeFi platforms (which have no regulation like traditional financial systems) is usually broken by rug-pulls.
Interest rates for those who provide the funds are still too low (between 5% and 20%)
If the self-repaying-loans systems work, this will create a mass of requests that will have to be managed efficiently
Who will want to lend when they can borrow without any cost?

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finguru 3 years ago

Those are some huge problems with DeFi and I hope they all get resolved soon.

If the self-repaying-loans systems work, this will create a mass of requests that will have to be managed efficiently
Who will want to lend when they can borrow without any cost?

A lot of math is required to manage all of this. Alchemix has done a great job so far but again they are facing liquidity issues. DeFi 2.0 is still evolving, we aren't there yet but some interesting ideas are floating around to combat these problems.

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