From Zero to an 8.75% Crypto Savings Account

Hello Defiers! Here’s what’s going on in decentralized finance,

• DEX.AG unveils new trading interface
• MakerDAO’s Dai Savings Rate was raised by 1ppt to 8.75%
• Most DeFi projects have admin keys, Chris Blec shows
• Aave’s flash loans enable a collateral swap in one transaction

and more :)

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Exclusive: DEX.AG Unveils New Interface Today

Decentralized exchanges are increasingly adopting the look and functionality of their centralized counterparts. The latest one to make strides in this direction is DEX.AG.

DEX.AG, the dex aggregator owned by Concourse Open, today plans to upgrade its trading platform with an interface called Expert Trading, according to Concourse Open co-founder Scott Lewis. The new site will include a live order book and price charts, while the previous interface focuses on simplifying the experience with only a few, straightforward options.

Image source: Concourse

The shift comes as dex users demand some of the more sophisticated features available in centralized trading venues. Last week 1inch also made strides in this direction and launched limit orders.

A live order book allows traders to split up a larger trade to get a better price for each smaller order. The platform includes prices from decentralized and centralized exchanges to help users asses what platform is offering the best rates and whether there are any arbitrage opportunities.

Dex volume has gained steam this year, with Kyber and Uniswap approaching $20 million of tokens traded per week. Dex aggregators like DEX.AG are lagging though, with weekly trading volume averaging $1.7 million in the past three months, according to Dune Analytics.

[More on Dex aggregators here: Dex Aggregator Game Heats Up With 0x as the Latest Player]

How to Earn 8.75% on Your Savings

The “DeFi central bank” has raised its savings rate to just under 9 percent, which means anyone can start earning that right now on a dollar-pegged digital asset.

Holders of MakerDAO’s MKR this week voted to increase the Dai Savings Rate by 1 percentage point to 8.75 percent. — To be more precise, they voted to increase the Dai Stability fee to 9 percent, and with the stability fee spread to DSR at 0.25 percentage point, that means DSR is now at 8.75 percent.

💡DSR is the interest MakerDAO pays users for locking up their Dai in one of their smart contracts (this is done through Maker’s Oasis platform). DSR is paid with the stability fee, or the fee users pay for borrowing Dai through the system. Both DSR and the stability fee are mechanisms MakerDAO uses to control the supply of Dai, so that it retains the one-to-one peg to the dollar. 💡

The rate MakerDAO pays users to lock their Dai in the system is at least 4x and as high as 8x U.S what banks and apps offer for dollar deposits. Fintech apps like RobinHood and Betterment offer savers about 1.8 percent, while the average overall bank savings rate in the U.S. is at a paltry 0.09 percent.

That said, MakerDAO is probably 8x riskier and nobody should be putting in a significant portion of their total savings in DeFi. But you can allocate a small amount today, see what the internet of value is like — and start earning almost 9% on your Dai.

From Zero to Crypto

There are different ways to buy ether, then Dai, then deposit Dai so it can start earning DSR interest. but (inspired by @DeFi_Dad’s tweet) I’m sharing what’s probably one of the easier paths into DeFi for someone who doesn’t even own any crypto.

Steps:

1. Download Argent wallet. Argent is an Ethereum wallet, which doesn’t hold users’ funds, has a password recovery mechanism, and integrates to DeFi platforms, but has made the user experience similar to traditional Web2 fintech app.

[Here’s my interview with Argent co-founder Itamar Lesuisse: How to Bring a Billion People to Crypto ]

The app is now allowing a limited number of users in, but the following link can skip the line: https://argent.link/defiant. Once you’ve downloaded the app:

1. Click on ‘Add funds’
2. Select Apple Pay
3. Buy Dai (1 Dai = ~$1)
4. Click on Finances
5. Click on Grow Your Holdings
6. Click on Dai Savings and on Open Savings

And that’s it. You’ve gone from dollars earning nothing in your bank account to Dai earning 8.75 percent via Argent. Total amount of time to do: Minutes. Fees: $1.02.

Some caveats:

1. Be sure to have adebit card loaded to Apple Pay, otherwise it won’t work.
2. Wyre, Argent’s payments partner, isn’t operating in seven states including New York, New Hampshire and Connecticut, and in some countries including Venezuela, Ecuador and Lebanon. Here’s the full list.

So why is DSR increasing in the first place?

It’s a product of ETH bullishness. Dai is issued when people deposit ETH or BAT in MakerDAO as collateral, and withdraw Dai in return. The main reason why people issue Dai, is to buy more ETH, or other cryptocurrencies. This means the more bullish people are getting on ETH, the more Dai is getting issued to buy it.

When Dai supply increases, the price drops below the 1-to-1 peg to the dollar, and MKR holders vote to raise rates to correct that. Crypto is having a good start to the year, so there’s a chance this trend holds up. Still, be aware that DSR is variable, and can drop as fast as it rises.

Flash Loans Enable First Collateral Swap

Things in DeFi are getting weirder.

Developer David Truong created the first collateral swap in DeFi (maybe anywhere?). He swapped the underlying collateral in a MakerDAO vault —that’s the assets locked up to use as collateral for Dai— with another asset in a single transaction. He used Aaave’s flash loan feature and Uniswap Exchange to do the swap.

This would allow borrowers to swap their loan’s collateral for a better performing asset, without having to use their Dai to pay back the loan. For example, if ETH is sliding and BAT is increasing, it will be safer to have the collateral in BAT than ETH, he wrote.

💡Aave is a non-custodial lending protocol. A flash loan allows borrowers to take out as much funds there are in Aave’s lending pool, without depositing any collateral, as long as they return the amount within the same Ethereum block. If they don’t the the transaction is reversed.💡

Here’s how he did it:

1. Took out a new flash loan in DAI on Aave to pay his loan on MakerDAO
2. Paying the DAI loan on MakerDAO released the original ETH collateral
3. Used ETH collateral on Uniswap to buy BAT
4. Opened a new MakerDAO Vault using BAT as collateral
5. Paid back the Dai loan

The result was that he was able to switch the collateral without the need to have Dai on-hand. He may have already used that Dai to buy more ETH. In this case, instead of cashing out and buying Dai again to do the switch, he took out a flash loan to pay the MakerDAO loan, and switch collateral… yes, it’s a lot to take in.

But flash loans are very technical and chiefly a tool for developers, so they can build frontends that abstract all this and the end user gets the benefits (in this case, a collateralized loan that’s less likely to get liquidated) without having to think about all these steps.

Most DeFi Projects Can Single-Handedly Change Code

Most DeFi projects can unilaterally make changes to their code, content creator Chris Blec said in a video.

Teams behind 10 out of 13 projects Blec reviewed, including Compound, TokenSets, Synthetix and dYdX, have the power to upgrade their contracts. Only Uniswap and InstaDApp are fully decentralized, while MakeDAO has a decentralized governance system which decides on changes, according to the spreadsheet.

Image Source: This is a section of Chris Blec’s spreadsheet.

This means that when you’re using most of DeFi, you’re trusting that the teams behind these projects won’t do anything malicious. This is the case with any other application or service you use in Web2. The difference is that with decentralized finance, the expectation is that users are in full control.

There are varying degrees of control. One key aspects to consider is the time buffer before a change is allowed. In the case of Compound for example, it’s 2 days, which would be enough for users to withdraw their funds if they catch on to malicious activity. Another key aspect is whether approval from more than one person is required to make an upgrade. This is done via multi-sig contracts. Six of the 10 projects with admin keys have multi-sig requirements, two don’t, and it’s unknown whether the remaining two do.

Most pf these projects plan to eventually move to fully decentralized protocols, but at this early stage, they’re reserving some degree of control to be able to quickly fix bugs or make improvements. Regardless of their reasons, DeFi is still not completely trustless, for now.

Things I wish I knew before building Ethereum #DeFi dapps: Andre Cronje

Developer Andre Cronje shares his experience in building a DeFi dapp with iearn.finance, main conclusion is that it’s very expensive and hard to do with no token. “Almost $20,000 out of pocket for my free, fee-less, open source project […] I don’t know how hard this has to be for a complete new entrant into the space.”

More social money! Tom Schmidt created TOM, which he is exchanging for memes.

Tom Schmidt @tomhschmidtToday, I'm excited to introduce $TOM, the first time the general public has gotten access to bespoke meme creation services: memesbytom.com

9:28 PM ∙ Feb 4, 2020125Likes6Retweets

Also, here’s an idea for anyone looking to build a cool DeFi project:

DeFi Italy (defi-italy.eth) 🇮🇹 @DefiItalyWe can build an @idlefinance for borrowers. It locks ETH in the lending platform which maximizes your borrowing power. When interest rate changes and another platform can give you more DAI, your debt is swapped thanks to #FlashLoans @compoundfinance @MakerDAO @AaveAave @bzxHQ10:06 AM ∙ Feb 5, 202048Likes8Retweets

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.

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.