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I realized after I finished recording that this is how fractional reserve banking works. With Defi, you can become your own fractional reserve banker!
Transcript:
All right. So this is a special post at the request of some people in the Leo finance discord, talking about how with that you can, you can actually have positive funding rates on both the borrower and the. Lending or on the deposit and the borrowing site. And you compare me that up if you want to and to a whole stable coin thing.
So this is auto.com or app dot com. This is the deposit dashboard. you can see where you can deposit stable coins and the APY that you get is it has two parts. So this is this ABA has different markets. This one's the Ethereum main net. And on di you get at the moment, 2.9, 3% of In-kind interest and you also get 2.03% APR in terms of the state audit token.
G USD a little bit juicier lot. Juicer actually a 2.7, two and 7.27 and USD at 2.48 and 6.2, three USBC, a little bit lower 2.35, 2.1. So USBC and di running about four to four and a half, 5%. And G USD and USD are run at about 10%. you can just deposit earn 10% and you're good. Right.
But if you want to take it to the next level then you can start to borrow at positive rates and pyramid the whole thing. first, let's make a spreadsheet cause they called me and the spreadsheet for a reason. let's say we are depositing. Let's do G U S D. Cause that looks the best at the moment.
Okay. So deposit. let's say we take 10,000 and then we are making let's see, what was it? APY? Yeah. Two seven two and seven, two seven, two points two and 7.27 C interest APY and rewards APY. So rewards are claimable interests that just build into the position automatically. daily or hourly, or however often you can go in and claim your rewards and then do what you want with them.
Those are annual numbers. So daily it's going to be let's see that plus that divided by 365. So 0.02, 7% a day. And then. Daily yield is that by a hundred times? That, so not a whole lot, right? Two bucks $2 73 cents on 10,000. Okay. So that's part one. Then we go over to the borrow.
Borrow, we're also looking for stable coins and you can see that the AP wise, I mean, you can pay, you can get a fixed. Interest rate, which you're paying, much higher rates, or you can get a variable rate, you can pay lower rates, and you're also getting rewards as you can see here. So let's keep it in G USD, because the one that has attractive rates and two, it just makes things simpler.
Cause it's cut out a step. Let's see borrow G USD. Right. And let's see. Interest paid APUI rewards APY. Interest paid is 3.8. Eights and rewards are 9.42. Okay. Remember interest paid is increasing the amount you owe. That's a negative carry cost, but the rewards are positive.
The rewards outweigh the interest owed and so you end up with positive funds of 6% or so. There is you can't, if you deposit 10,000, you can't borrow 10,000 because there are loan devalue limits. If you go back to deposit the GTV, Oh, can't use this as collateral damage.
Alright. So we're going to go back and we're going to fi use, can we use USDT? No this is an important point USCC. Okay. So here, so we can't use a G U S D as a deposit because we need to be able to use it as collateral for this whole thing to work. So we're not going to get quite as much juice out of this, as I thought two, three, five, and.
2.1. Okay. So now our daily yield is much lower because rewards are, are much lower. So now we can go over to the bar so we can use collateral. We have deposited as collateral to borrow the G U S D. So do USD is Gemini, right? So this is depositing a stable coin, barring a stable coin.
There's not going to be a whole lot of fluctuation there. Unless we have a deep pegging of one of the coins, in that case, the whole thing blows up. So that's a risk factor, but as long as the US dollar coins, USD, USD, USD, T Dai, all those maintain their peg within a center.
You can do this because, with Adda, you have to keep a loan devalue below a certain ratio. On USBC here, it tells you that. Your maximum LTV is 80% and your liquidation threshold is 85%. So if you deposit 10,000, you can borrow 8,000 of it. That's 80%. And if the borrowed value raises to 8,500, which is 85% of the 10,000.
Then you get liquidated and the position on wine, if you get charged a penalty, you lose a bunch of money. that's a risk when you have volatile assets, but it's not such a risk when you have a stable coin and a stable coin. But let's say we take 75%, right? We're going to take 0.7, five That amount.
Okay. So now we're borrowing 7,500 G USD. We're paying 3.88% on that 7,500. And we're receiving 9.42% in terms of the Ave state rewards on that 7,500. So let's look at the daily here. So we're going to have the negative. Oh of this, plus that to go to buy a 365. So we're earning a 0.015 on the borrow and we're paying.
Sorry, we're earning 0.012 on the deposit or we're earning 0.015 on the borrow. So daily yield is this times that by a hundred. Okay. So not a huge amount. But, we're doing okay. So remember this whole, thing's going to be on $10,000. Original investment. Okay. Now, what's happened.
We had a 10,000 USD seat. Put it on deposit with Audrey. Now we borrowed out 7,500 of the G U S D. And so now what? Right. And it's just sitting there. Well, we can take that G U S T and we can swap it for USB-C, and then we can put that USCC back on deposit with others. So, and this is how the pyramid begins.
Let's see new borrowings and this case. It's just that. So now what we're going to do is we're going to deposit that new borrowing. Back into eBay and yes, you're going to pay a little bit of commission trading fees and stuff when you do the swap, but we're going to ignore that for purposes here.
The rewards are all the same, so that's the same daily yield. We went from 1.2 up to 2.1 now, and now we can borrow up to 75% of the 17 500. Now we've already borrowed 7,500. So let's see, we can say that we can go up to 13, one 25. Right. And now we're earning a dollar 99 on the 13 one 25. So the new borrowing though is the difference between the previous round and this round.
Now we're taking. We, our first borrower in of 7,500, we increase that size by 56, 25. So now we take that 56, 25 go back and deposited into. And will you just repeat, so now we're up to 23,000 on deposit, 17,000 on the borrow, and we're going to, you know, so we increased our borrowing by 4,200 bucks and we're earning.
Two 63 there, and we go again and we go again. And obviously, there's a diminishing return here because you're only getting a 75%, a fraction of the new deposits. It's not perfect recycling. This won't go on forever, but you can go on for a while. Let's see how many rounds we can get out of this.
And I'll call it 500 right there. Okay. Let's do that. That is 10 rounds of this cycle. And now we are earning we're earning four 29 on the yield on the barring and we're earning four 60 on the deposits. What does that total, right? So that total is the sum of those two things. So it's eight 88, 89 a day in both.
USBC position increasing and in-state auto rewards. And then you can unstick those rewards and sell them or whatever. You can just continue to compound whatever you want to do. Now, what is that? What does that how much are you earning? Cause remember this whole thing started with just 10,000 USD.
That's the capital base that we are using to achieve this $8 and 89 cents. That's all it's around it. All of them, say 90 cents a day. So if we annualize that for an APR time 365 and then divided by the original capital. We're at 32%. That's not terrible for very low capital risk. What is at risk though?
Is that the value of the OD rewards? So this rewards APY will vary with the price of the token. So that's going to go up and down. And the interest that we're paying here is variable. And in some coins, you'll see it move a lot more. So you SDT sometimes like within a day it can be like 2% borrowing interest costs and that could spike up to 15%.
I've seen that you know, quite a bit over the last few days, especially with all this market volatility. You have to watch that. And that will change the math on everything. But in terms of capital risk where the whole thing. Is your $10,000 at risk.
It's relatively low. And you can play with the percentages. You can say, well, instead of 75%, we're going to go more conservative. Let's go 60%. And now we're earning 19% on our original capital base. And whether it's 10,000 or a hundred thousand, I mean, the percentages will remain the same which is okay.
This is how the ABI pyramid works. And there are tweaks you can do. Gerber was mentioning that you can put things into curve. The curve has a stake of a pool and you can earn a stake. On top of your curve reward and then compound the thing over that way. There are a million different flavors to this whole thing, but this is the basic idea of using leverage capital in stable coins to achieve pretty attractive returns.
If you're doing straight-up defy yield farming, then you're. Your percentage returns can be higher or probably will be higher. But you have a lot more volatility in terms of the tokens that you are dealing with. Everything's a bouncing game. How much volatility do you want to accept for the rewards and how much management do you want to do?
These are all questions that only you can answer and you have to consider when. Constructing your own portfolio. This is a strategy that personally I don't use very much. I might do like around or two with some extra funds. But I will, it's not a whole, a whole pyramid that I build up to this diminishing returns point.
Just FYI, for your information. The other thing I want to point out is eBay has multiple markets. I've been using the polygon markets and the rates are different. If you want to look at a stable coin here, you can see that USB-C is lower on the APY deposits, but higher on the rewards.
And here you're getting rewarded in medic, which is the gas token of the Polyon network on the borrowing site. Again. Rates are different. So here G U S D found an option. You can get positive rates on all of these right now. USD T is the juiciest and it's the most volatile. Just to tell you that from experience, so, if you want something let's, I'll tell you.
Deposit USBC bar USD, and then just run it back through. But if you want to go a little bit more aggressively, you would deposit USD and borrow USD T swap for USB-C redeposit. But the general structure works the same. So, you know, interesting stuff that's possible in the world of.
