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DYED #2 - Be your own bank

Now that we have ETH, the logical and simple next step is to become our own bank. You’ve read it right, now let’s get to work!

Do-You-Even-DeFi-Mission-2

Glad to see you again!

Now that you’ve got your hands onto some ETH - it’s time to put them to work! To do so, we’ll use the ETH to mint some money of your own!

Leveraging ETH is nothing new and there are many ways you could achieve this, however, to keep things manageable & most insightful, allow me to dictate the service used: we’ll go with MakerDAO.


Why are we leveraging ETH?

ETH is a unique type of asset. Why sell it when you could use it as collateral and put the minted money to good use? This week, we focus on the minting part - there will be no deployment of the DAI minted yet.

If you are eager for the next steps already you can read this post I wrote covering the same topic, for more advanced users: 🎚 ETH exposure or DeFi yields: why choose?.

It might be a bit dense but it can help provide you with some context and help you figure out what the endgame looks like while leveraging your ETH.


Why Maker?

There are several reasons why I want you to go with Maker:

  1. Maker goes beyond just borrowing: it enables you to mint the DAI stablecoin itself. I couldn’t resist the idea of seeing you minting stablecoins on your second mission! Yes, it’s that easy!
  2. The service is live and running for almost 3 years now.
  3. The current fees are 0 - you will not pay anything more than gas for this operation.
  4. You have many tools available to help you open, manage and save Maker vaults.

DYED Mission 2

So here is the mission for this week: let’s open a vault on Maker: we’ll be locking up some ETH in a smart contract to use them as collateral to generate a debt received in the form of DAI. As you do so, you’ll have to make decisions - the most critical one being the choice of your collateralisation ratio/liquidation price.

Note

Open a Maker vault from ETH. As you do so, I’d like you to document two things:

  1. Rank your risk appetite on a scale on 0 to 10
  2. Explain your reasoning for your choice of liquidation price/ratio and tools used if any.

I think it will help you approach this experience with an insightful framework. It’s also a requirement for the bonus reward! Indeed, this week there is no extra step required to claim the bonus. Instead, I want to allocate it to those who thoroughly honoured this essential mission.

Tip

πŸ’Έ BONUS BUDGET: 15 x 10 TKN ($~9) up for grabs

🎯 Share your risk appetite estimation [0= lowest to 10 =highest] + the parameters you’ve chosen to open your vault and why on the dedicated Discord channel: #dyed-risk-profile (slowmode enabled) Send me (@TokenBrice) proof of the vault being opened, ONLY BY DM.


Managing Liquidation Risks

Warning

A position on Maker can be liquidated: it means your collateral will be (partially) seized and sold to cover your debt. Liquidation is, of course, a costly worst-case outcome you must avoid at all cost!

To do so, the best is to stay safe. If you’re not confident with ETH’s current price level, aim for a high collateralisation ratio (>240%) to have a wide margin enabling you to stomach a deep price decrease.

If you’re feeling more adventurous, you can push the ratio is the 200-180% levels. I would urge you to use DeFiSaver Save Automation feature to protect yourself from liquidation if you walk this path.

Good luck, don’t be reckless. It’s much better to learn in a stress-free environment. If you have any doubt, do ask your questions before rushing to the practice.

See you on the Discord!

updatedupdated2020-08-242020-08-24
typo fix