Borrowing against low cap interest-bearing assets is not healthy for the future of DeFi.
Let me explain 🧵👇
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Let me explain 🧵👇
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We’ve seen so much innovation in DeFi these past couple of months, but borrowing against interest bearing assets coupled with a bear cycle has completely wrecked projects that should be waay higher valued.
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Here’s how it works:
1. Deposit an IB asset as collateral
2. Borrow stables against that interest bearing asset
3. On platforms like abracadabra.money users can then take the borrowed stables, purchase more of the interest bearing asset, collateralize, repeat
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1. Deposit an IB asset as collateral
2. Borrow stables against that interest bearing asset
3. On platforms like abracadabra.money users can then take the borrowed stables, purchase more of the interest bearing asset, collateralize, repeat
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Now this is very common in the DeFi world with bluechips like stETH, stSOL, sAVAX, bLUNA, etc.
Borrowers will receive any accrued interest whilst being able to borrow funds against the asset!
Now obviously, there are drawbacks to this👇
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Borrowers will receive any accrued interest whilst being able to borrow funds against the asset!
Now obviously, there are drawbacks to this👇
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When the market is bearish, the value of the collateral can fall below the amount borrowed, resulting in liquidation of collateral. (Undercollateralized)
Liquidators are rewarded a fee to liquidate assets (usually 5-10% on top of collateral), resulting in a quick profit.
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Liquidators are rewarded a fee to liquidate assets (usually 5-10% on top of collateral), resulting in a quick profit.
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These liquidators have no problem dumping this collateral off into stables to secure the quick profit.
With large cap IB assets, this won’t greatly affect price, unless it’s a massive liquidation.
With small caps? Totally different story.
Here are some examples:
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With large cap IB assets, this won’t greatly affect price, unless it’s a massive liquidation.
With small caps? Totally different story.
Here are some examples:
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$xBOO:
Yes, that’s a one day chart.
Just a reminder $BOO’s marketcap was about 100 million, didn’t take very much to dump the price.
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Yes, that’s a one day chart.
Just a reminder $BOO’s marketcap was about 100 million, didn’t take very much to dump the price.
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$xJOE:
Believe it or not, this is a 1 week chart😭
The arrows indicate 15% price dumps from liquidations.
Good thing $xJOE doesn’t exist anymore🙃.
Since the defunct of $xJOE (and borrowing against it), we haven’t seen this outrageous volatility anymore.
Coincidence?🤔
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Believe it or not, this is a 1 week chart😭
The arrows indicate 15% price dumps from liquidations.
Good thing $xJOE doesn’t exist anymore🙃.
Since the defunct of $xJOE (and borrowing against it), we haven’t seen this outrageous volatility anymore.
Coincidence?🤔
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$wMEMO:
Ah yes, everyone’s favorite.
Believe it or not, this massive daily 50% drop was due to cascading liquidations. (The second half of liquidations was due to funds being Sifu😉)
Borrowing against a hyper-inflationary asset?
Who tf thought this was a good idea?
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Ah yes, everyone’s favorite.
Believe it or not, this massive daily 50% drop was due to cascading liquidations. (The second half of liquidations was due to funds being Sifu😉)
Borrowing against a hyper-inflationary asset?
Who tf thought this was a good idea?
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$ICHI:
The king of cascading liquidations; $ICHI dropped 90% IN ONE DAY.
Why should we be able to borrow against the most degen token in DeFi?
Read more about why this happened👇
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The king of cascading liquidations; $ICHI dropped 90% IN ONE DAY.
Why should we be able to borrow against the most degen token in DeFi?
Read more about why this happened👇
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Lending/borrowing is obviously extremely important in DeFi, but why must we borrow against highly volatile low cap gems?
Just stake your tokens SMH🤦♂️.
@Route2FI
@milesdeutscher
@cryptomanran
@thedefiedge
@hnt_guy
@jonwu_
@OnChainWizard
@TheBreadMakerr
@DU09BTC
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Just stake your tokens SMH🤦♂️.
@Route2FI
@milesdeutscher
@cryptomanran
@thedefiedge
@hnt_guy
@jonwu_
@OnChainWizard
@TheBreadMakerr
@DU09BTC
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Thank you for reading
Like and retweet this thread!
Oh, and your gonna want to follow me for daily crypto threads 😏
@BarryFried1
Let me know if you agree or disagree👇
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Like and retweet this thread!
Oh, and your gonna want to follow me for daily crypto threads 😏
@BarryFried1
Let me know if you agree or disagree👇
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