Buying Real World Assets By Leveraging Crypto - The Defiant - Deepstash
Buying Real World Assets By Leveraging Crypto - The Defiant

Buying Real World Assets By Leveraging Crypto - The Defiant

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“What can you buy with it?” someone will ask, at which point the other person will shrug back “JPEGs on the internet?”

The truth is, you can use crypto to buy anything you want in the material world. You can even enjoy the same tax perks used by the wealthy when they buy things, by borrowing against your assets instead of selling them.


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But that’s not even the best part. The collateral I put up for the loan (all loans in DeFi are overcollateralized – more on that later), still generates yield while I’m borrowing against it. 

You heard that right. I’m being paid to take out the loan, and my collateral is currently yielding roughly five times the loan interest rate. That’s enough to pay the interest, monthly HOA fees, property taxes, maintenance, and still have some left over.


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Buying A Condo With Abracadabra

Lending platforms like these aren’t new, but where it gets really interesting is the type of collaterals Abracadabra is able to accommodate.

By building on top of existing Defi platforms including Curve.Finance and Convex.Finance, Abracadabra is able to allow users to collateralize yielding assets.


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Well, Curve.Finance has the perfect product for you. Tricrypto2 is a yield-generating position that maintains equal exposure to BTC, ETH, and the stablecoin USDT. That means if Bitcoin and Ethereum each fall by 30%, the Tricrypto2 position will only be down 20%, and vice versa. It gives investors some protection against volatility – and generates trading fees in the meantime.


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Abracadabra makes it easy to set the exact LTV you want, and even take on additional leverage. (risky!)

Now, a 90% loan to value ratio would be very risky, as the platform will automatically liquidate your position if the price drops more than 10% – effectively closing out the loan and leaving you with just the funds you borrowed. But there’s no need to borrow to the limit, as users can borrow at whatever Loan-to-Value makes them feel most comfortable.


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The Math Behind a Profitable DeFi Loan

First off, Abracadabra charges a 0.5% borrow fee up-front that adds $3600 to my outstanding loan balance.

The 0.5% borrow fee is the same for every collateral type on Abracadabra, while the other parameters vary depending on the collateral pledged.

The interest rate on the loan is fixed at 3.5%, which on my borrowed amount of $723,600 (720K + the borrow fee) equates to $25,326/year or $2,110/month.


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Unrelated to the loan but still relevant, my HOA fees are $860 per month and property taxes come out to around $1000 per month.

So, my total carrying cost of the loan + home expenses are  $3970/month

Meanwhile, the yield on my collateral of $1.2M in Tricrypto2 (necessary for a relatively safe 60% LTV) is ~15% (variable). That works out to $180,000/year or $15,000/month.

The position yield for Tricryopto2 (shown above) is variable. I used a conservative 15% estimate for these calculations.


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So, the yield on my collateral pays for the interest on the loan, HOA fees, and property taxes with an additional $11k/month left over*, which I can use to start paying down the loan principal.

It gets better. As I pay down the loan principal, the 3.5% interest charge starts to go down (as the interest is applied on a reducing balance). Very different from the “pay the interest first” methodology that you’d see on any regular home mortgage.

These services are made to work in our best interests, not the board of directors of BofA. Welcome to the new age of financial services.


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A Universal Strategy

Now, if you’re not in the market for something as “big” as real estate, you might be wondering: “this sounds cool, but how does it apply to me?” 

Well, the point is that this same process and strategy works for practically any significant purchase you might make. Now, you can buy the things you want while remaining invested in crypto, avoiding costly capital gains, and continuing to keep earning yield in DeFi.

Many people work towards building an investment account for years, only to have to liquidate their holdings to pay for an unexpected expense. A car crash, a hospital bill, having to miss time at work, are all things that all too often can derail even the best-laid investment plans and make it that much harder to get ahead.


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Wealthy people have been borrowing against their assets – deferring taxes and remaining invested – for generations through accounts and personal brokers at the likes of JP Morgan or Goldman Sachs. Now, anyone can do it, and in a fraction of the time. That’s the real magic behind DeFi.


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#engineering, #machinelearning and #crypto

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