Cheapest BTC-Backed Dai Loans Now on MakerDAO With WBTC Addition
Also, DeFi10 update and DeFiZap/DeFiSnap merger.
|May 4, 2020|| 3|
Hello Defiers! Here’s what’s going on:
MakerDAO adds WBTC as collateral
DeFi10 portfolio update
DeFiZap/DeFiSnap merger to create Zapper
🙌 Together with Eidoo, a cryptocurrency-powered debit card and platform for easy access to decentralized finance.
MakerDAO Adds WBTC As Collateral for Dai
MakerDAO on Sunday started accepting WBTC as collateral against Dai loans as it seeks to increase liquidity and diversification in the assets backing the stablecoin.
WBTC will be able to back up to 10 million Dai, or about 8% of total Dai which can be issued under the current debt ceiling. With more than 22 WBTC locked a day after it was approved as collateral, it’s now backing only 0.06% of Dai. That compares with 87.5% for ETH collateral, 0.4% from BAT and 12% from USDC.
Image source: blog.makerdao.com
The longer term vision for Dai is that it will be backed by a wide range of assets, from crypto, to equity to real estate. In theory, this would make the stablecoin resilient against volatility shocks to any single collateral type, it would open up its system to a greater number of people, and it would increase Dai’s potential liquidity.
Bitcoin on Ethereum
There is currently 1,125 WBTC outstanding (or almost $10 million), which could go towards the MakerDAO system. But beyond that, holders of bitcoin, the biggest cryptocurrency with a market cap of $160 billion, now have a way to access Dai without letting go of their BTC. This is part of a larger trend, where an increasing number of DeFr projects are trying to bring BTC to Ethereum.
WBTC, or wrapped bitcoin, is an ERC20 Ethereum token that’s backed at 1-to-1 with bitcoin, and so can replicate BTC price and offers a way to transact a bitcoin derivative within the Ethereum network. The project was launched last year by BitGo, Kyber Network and Ren. BTC backing WBTC is held in custody by BitGo. WBTC can only be issued by approved merchants and so is not designed for BTC holders to directly swap their coins for WBTC, but rather to be bought in the secondary market.
Platforms like JellySwap enable BTC holders to swap their coins for WBTC directly. RenVM is planning to launch a similar service soon with wbtc.cafe.
Dai Loans Cheaper on MakerDAO
MakerDAO isn’t the only place where bitcoin holders can borrow Dai against their BTC. BlockFi, Nexo and Celsius Network also offer the option, but the difference is that these are more centralized alternatives, which require creating an account and going through KYC.
Their KYC procedures allows for collateral ratios of around 50%, compared with 150% for MakerDAO. Still, Maker’s borrowing cost, known as stability fee, are just 1%, compared with APRs of 4.95% on Celsius, 5.9% on Nexo and 4.5% for BlockFi.
Purists Not Thrilled
Because of the custodial and permissioned nature of WBTC, some Ethereans weren’t thrilled with its addition to back Dai. For them, the best quality of Dai is that it doesn’t rely on centralized third parties as much as other stablecoins. But that line was already crossed with the addition of USDC as collateral earlier this year, as USDC is backed by fiat currency held in banks.
Projects like MetaCoin, which want to create a stablecoin that’s only backed by ETH, are in a part a response to the addition of centralized assets as Dai collateral. It remains to be seen which version will find more adoption. As of today, even with WBTC and USDC, Dai remains the most decentralized stablecoin and continues to dominate DeFi.
DeFi10 Update: Portfolio is Up 10% Since January
The DeFi10 portfolio recovered from the March 12 slump and is now up 10%, beating its benchmark MakerDAO’s deposit rate. It’s also beating US stocks and junk bonds, which are both down, but is underperforming ETH.
In January, I invested 100 Dai in 10 decentralized finance platforms, plus one benchmark for a total of 1,100 Dai, with the intention of testing a wide range of DeFi projects and also tracking their performance throughout the year. My requirement was that they be passive investments that I could just park to gain interest and/or fees.
Interest bearing Dai tokens account for 40% of the portfolio, yield aggregators are 20%, liquidity pools are 20%, and the remaining 20% is split between PoolTogether’s no-loss lottery and TokenSets’ automated trading strategy.
The best performing investment so far against the 100 Dai invested is TokenSets, up 17%. The best-performing interest-gaining token is Fulcrum’s iDai. Liquidity pools, which had been the most hit during the market slump in March, have now recovered and are up for the period.
DeFiZap and DeFiSnap Merged to Create Zapper
DeFiZap and DeFiSnap merged to create asset management platform Zapper. DeFiZap is a platform which cuts down the number of steps required to execute DeFi strategies, while DeFiSnap is a DeFi portfolio tracker. The merger of the two aims to provide a portfolio tracker with added functionality, and allow users to trade directly from the tracker. One such feature is multipooling, users can add liquidity to many DeFi pools in once click using one token like ETH.
Chart shows that while ETH outperformed most ERC20 tokens, there were a few coins that stood out and hugely outperformed the rest. SNX, DAG, LINK, HYN and LEND were the biggest gainers, @ceterispar1bus said.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.
Click here to pay with DAI.There’s a limited amount of OG Memberships at 70 Dai per annual subscription ($100/yr normal price).
About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.