Making mistakes is inevitable, but learning from them is a choice
It is not only a sign of wisdom but also a powerful tool for personal growth and success
Join me in this ✍️ as I share one such mistake so that you can avoid similar mistakes
DeFi & Web3 offer incredible opportunities, but with great opportunities comes FOMO
As these ecosystems are still in their infancy, research is vital to avoid costly mistakes
Let's see how I lost out paying an APY upwards of 15 percent to borrow Stables
/1
@SturdyFinance is a lending/borrowing protocol
‣ It offers interest-free borrowing and high-yield lending
‣ Enables yield farming with up to 10x leverage
‣ Borrowers achieve high leverage on their stablecoin or ETH yields with minimal liquidation risk
/2
Strategy keeps the liquidation risk low by allowing users to borrow "like against like" (stablecoins against interest-bearing stablecoin-denominated assets like Convex LP tokens)
As an early user, I was rather focused on securing an interest-free loan
/3
Interest-free loans (except where a reserve's utilization is > 80%)
Borrowers only pay interest when the reserve utilization is > 80%
Utilization rates > 80% trigger interest rates that increase by 3% for every additional percent
At 100% utilization, borrowers pay 60% APR
/4
Borrowing
Borrowers on Sturdy use interest-bearing staked assets as collateral
Yield from the borrowers’ interest-bearing tokens is harvested and used to pay interest to lenders
It also uses Lido's stETH as collateral
/5
stETH (Staked ETH)
@LidoFinance is a liquid staking solution
It lets users stake their ETH - without locking tokens
stETH is liquid, allowing users to participate in other on-chain activities like lending
Users earn roughly about 4% APY (atm) by just holding stETH
/6
Borrowing Stables on Sturdy using stETH/ibTokens ❓
‣ Using stETH as collateral means forfeiting the 4% APY
‣ Plus, if the utilization of the stable pool exceeds 80%, you'll be paying interest on your borrowed position
This is exactly what I did!
/7
Eight months ago ⏳
Deposited 7 stETH as collateral to borrow 4500 DAI
Closed my position recently & paid back 4572 DAI
Interest = 72 DAI (APY of 2.4%)
Plus,
Lost out on stETH staking rewards
4% APY = 0.186 stETH = 390 DAI (roughly at the CMP)
/8
While Sturdy has some great options to max leverage the yield, borrowing stables against the interest-bearing is not a wise choice
An option to use stETH
- Wrap stETH to wstETH
- Use it to borrow stables
- Transfer wstETH to other L2s to borrow (low gas)
/9
Some DeFi Lessons ⚠️
‣ Do not FOMO into a project just because (Be patient and take your time)
‣ Read the docs carefully (easier said than done) - DYOR 📜
‣ Drop in the discord and ask questions
‣ Remember there are always better ways of doing things