DeFi Lending with MakerDAO’s Dai and Chai. A How-to Guide.

Photo by Clint Adair on Unsplash

What is DeFi

“Decentralized finance (known as DeFi, for short) essentially involves a brand-new monetary system being built on public blockchains.” — Cointelegraph

DeFi does not require an intermediary or middleman (banks) to act as a custodian when you make financial transactions. This allows you to trade, borrow, save, send payments, raise funds etc with just your mobile phone without going to the bank to open a savings or trading account.

You don’t need to submit documents and wait for your loan application to be approved with DeFi products or be subjected to queries, expensive fees and submission of personal information when sending money abroad.

DeFi transactions are;

  • Decentralized
  • Borderless
  • Not subjected to government censorship
  • Neutral
  • Open
  • Permissionless
  • Trustless

To put it simply, you get to make spending and investing decisions without the intervention of banks or governments.

Crypto-collateralized Stablecoins lead the way for the adoption of DeFi.

Stablecoins were created as a solution to the volatile cryptocurrency market. Stablecoins are generally backed by an asset class like fiat currencies, traditional assets or crypto assets. It can also be backed by user expectations (algorithmic Stablecoins)

There are 2 types of widely used Stablecoins;

  1. Centralized: Collateralized by a central custodian and
  2. Decentralized: Collateralized by crypto assets on the Blockchain

The major difference between the 2 is that one is collateralized on the blockchain and the other by a central custodian ie banks and governments. Both types of Stablecoins are pegged to a fiat currency like USD at a ratio of 1:1.

Dai is the first and currently most popular decentralized Stablecoin launched in 2017 by MakerDAO, a decentralized credit platform built on Ethereum.

There are currently 34.9 million Dai locked in for lending, Maker has 74.15% dominance of the decentralized lending market.

Dai locked in DeFi Lending. Image from DeFi Pulse.

The total value of cryptocurrencies locked in lending today is $460.9 million and statistics indicate continuous growth in the market.

USD Locked in DeFi Lending. Image from DeFi Pulse.

If you are new to DeFi products, the MakerDAO platform would be a great place to start. Before buying Dai, you have to standby Ethers in your hard-wallet like Trezor or Ledger. A convenient and easy option would the Ethereum wallet, Metamask. It allows you to download the app as a Google Chrome extension.

5 Industry Transforming Blockchain Applications | Data Driven Investor

MakerDAO introduced some changes as part of the launch of the much anticipated Multi- Collateral Dai ( MCD ) late November this year. I will take you through the new version of the platform.

Oasis has replaced the Maker CDP (Collateralised Debt Portfolio) platform.

You can then choose to trade, borrow or save Dai on Oasis.

Borrow Dai

CDPs are now called Vault. You only have to generate it once. When you connect Oasis to Metamask, you will be prompted to open your first Vault.

To get started, you must first choose your collateral. At the moment, you have two collateral choices, Ether (ETH) or Basic Attention Token (BAT). There should be more types of tokens added in the future.

Next, wait for your Vault to be configured.

Once done, you can choose the amount you would like to place in your Vault to generate Dai. Note that you need to generate a minimum of 20 Dai per transaction. The Collateralized ratio and Liquidation price is automatically calculated. The Stability fee indicates the percentage you need to pay when you decide to unlock your Vault and claim your Eth or BAT. The fee is not set and can fluctuate.

Next, review Vault details before confirming your borrowing.

Oasis then generates a tab on the left for your left, in this example its called ETH-A 191% where you can view details of your borrowing.

Save Dai

You also can save using Dai on the Oasis platform. There are two ways to do this.

Option 1

You use the available Dais from the loan you secured and place it in DSR (Dai Saving Rate). The DSR today is 4%.

Option 2

Generate Dai by wrapping Ether to produce WETH which you can then use to buy Dai. Here’s how you do it. First, ensure you have sufficient Ether in your Metamask or hard wallet and connect it to Oasis.

Then, click on the ‘Trade’ tab on the left. Select ‘Account’ to view overall Asset balances. To generate Dai, you need WETH (wrapped Ether).

Click ‘Wrap’ and enter the amount of Ether you want to wrap. Once the transaction is confirmed, click on the ‘Market’ button.

Next, create an order to sell WETH to receive Dai.

Once the order is complete, click on the ‘Save’ tab and deposit the amount of Dai you want to save. You can monitor your earnings through the same page.

Alternatively if don’t want to lock your Dai into DSR, you can instead use Chai to generate interest and still be able to use your Dai.

This is not available on Oasis. Instead, you need to go to chai.money, connect Chai to your Metamask Wallet, convert Dai to Chai and accumulate interest.

Governance of Dai and MakerDao

As Dai is a decentralized Stablecoin by MakerDAO, the governance of Dai is done through a voting system. To be able to participate in voting for changes on the Risk Parameters in the Dai Credit System, you will need to purchase the Maker token, MKR.

Detailed information can be found on the Maker platform and its forums. The Governance tab under ‘Products’ on the site takes you to the voting platform where you can set up your account and start voting.

The MakerDAO community is the best place to engage and get updates on your Dai investment.

Conclusion

The new Oasis platform is user-friendly and very straightforward to trade, borrow and save once you understand the borrowing concept and terms like Stability fee, Wrapped Ether, DSR etc

Brewing Chai to grow your Dais are even easier!

If you face issues using Oasis, you can ask for help and get your questions answered using the chat feature on the MakerDAO platform.

Resources

https://makerdao.com/en/

DeFi Pulse | The DeFi Leaderboard | Stats, Charts and Guides

https://medium.com/media/0707f5c806284d01a4a13c7b13a91ce3/href


DeFi Lending with MakerDAO’s Dai and Chai. A How-to Guide. was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.