camDAI beginner strategy
DeFi doesn't need to be complicated. This article presents how you can enter DeFi using Mai Finance with a low risk strategy and still get reasonable interests.
Last updated
DeFi doesn't need to be complicated. This article presents how you can enter DeFi using Mai Finance with a low risk strategy and still get reasonable interests.
Last updated
Most people are scared when they think about DeFi. There's always a risk factor to take in account when using crypto currencies, the volatility of this market can make one loose a lot of money, and there are so many possibilities that finding a right strategy can be quite complex. However, when you're using the correct tools, some easy and low risk strategies can get good results, and can probably compete with more complex and risky options.
In this guide, we will try to present an investment strategy based on leveraged stable coin, with a touch of risk for higher interests.
We are in the far west, during the great gold rush. Banks want to buy gold to be able to lend money to people and get interests on these loans, and miners want to get rich by selling their gold to banks.
You're a miner, but not very lucky. You only found a single nugget. However, you're super clever, and instead of mining, you have another plan!
You go to a bank and explain that you have gold. You can deposit the gold to the bank as a collateral, meaning that you let the bank use that gold for people who want to use it, and the bank will give you some interests on your deposit.
Also, because you lended some gold, the bank agrees to let you borrow money from them, and in case you cannot repay your loan with some interests. The bank will pay itself using the gold you deposited. Cool, now you are earning interests on the gold you have at the bank, and they gave you some cash.
With that, you decide to go see a fellow miner and buy his gold with your cash. This is letting him focus on mining and he gets cash for the gold he found. Everybody is happy.
You go back to the bank and deposit the gold you bought. This implies more interest, and now the bank lets you borrow more cash from the extra gold you deposited. You have more gold exposed to the bank's interests, and some more cash. Time to go back to see if your friend found more gold, then repeat again and again.
This is what is called leverage. Now imagine that you can find a bank that lets you borrow cash at 0% interest and you have a solid money printing machine only from the interests you're getting.
AAVE is a lending and borrowing platform where you can deposit your assets. By lending on AAVE, your deposited tokens will earn yield. For our strategy, we'll be lending DAI, a stable coin (pegged to the US dollar). On AAVE, $100 worth of DAI will potentially generate between 4% and 10% rate of return over the span of 1 year.
When you deposit your assets on AAVE, you will receive a proof of deposit. In our example, since we are depositing DAI, we will get amDAI tokens in our wallet (aave market DAI). You absolutely need to keep this receipt because you will need it to remove your DAI from AAVE. This is the bank that will accept your gold in our far west comparison.
Mai Finance is a lending platform that will let you deposit some assets in a vault, and borrow against the value of this deposit. If we go back to the bank analogy, it would be a bank that lets you take a loan, but the loan doesn't come from what other people are lending. Instead, the bank prints money corresponding to your personal deposit, so you only borrow against yourself.
Mai finance will accept the amDAI on its yield instrument. The yield instrument is just an intermediate tool between AAVE and the vault on Mai Finance. As you can see in the AAVE screenshot, lending DAI will make you earn 8.75% in DAI (that is compounded), but also 2.01% reward in MATIC. The yield instrument on Mai Finance will harvest this MATIC reward and swap it for more DAI that will be added to your DAI deposit. The APY (Annual Percentage Yield) on the Mai Finance site is hence showing the aggregated interests from AAVE.
Once you deposited your amDAI on the yield instrument, you will get some camDAI in your wallet (compounding amDAI). This is a receipt that indicates your share of the amDAI pool in the yield instrument. As a side note, because camDAI is a representation of your share of the amDAI pool, the ratio between amDAI and camDAI isn't 1:1. See this article for more details.
You can now deposit your camDAI tokens in a vault on Mai Finance, and will then be able to borrow some MAI (a stable coin pegged to $1) against your collateral. In our far west comparison, this is a second bank that will let you take a cash loan based on the amount of gold you deposited in the first bank. This second bank accepts the receipt from the first bank as a guarantee in case you cannot repay your loan.
Zapper is a Swiss army knife of DeFi on Polygon. This platform will let you farm yields in liquidity pools, lend your assets on AAVE directly from their platform, presents a dashboard of your different investments, and will let you swap some currencies for other currencies. This is the last feature that we will be using in order to exchange the MAI stable coin we just borrowed for more DAI.
In our far west example, Zapper is the gold miner that will accept your cash and will sell you gold.
As you can see in the screenshot above, Zapper is using Balancer has the protocol to operate the swap. Balancer is an automated portfolio manager, liquidity provider, and price sensor where you will be able to provide liquidity (and get fees from this) or swap currencies using the liquidity pools.
For our guide, we will use Balancer to expose our investments to a little more volatility and get better interests. This is 100% optional though.
Even if we explained what AAVE is, our strategy will use a feature from Mai Finance to automate the DAI deposit on AAVE, the amDAI deposit in the yield instrument and the camDAI deposit in the camDAI vault.
The Zap in using DAI button opens a popup that lets you deposit your DAI in the vault and operates the AAVE deposit under the hood. This is saving a lot of time, and some gas.
This will be our first step. Assuming we have $100 worth of DAI, we will deposit them on Mai Finance in a camDAI vault. This will allow us to borrow MAI against this initial deposit.
The minimal CDR (Collateral to Debt Ratio) for camDAI is 110%. This means that the ratio between your collateral (the $100 worth of DAI) and the loan we're about to get needs to remain above 110%.
If this CRD ratio reaches the minimal value of 110%, it means that your collateral is losing value and your debt may become bigger than the value of your collateral. At this point, your vault can be liquidated: someone can repay a part of your debt and get a part of your collateral as a compensation. However, since both DAI and MAI are stable coins pegged to the US dollar, the risk of getting a big difference between the 2 assets is very low, which makes this strategy fairly safe.
In order to maintain the liquidation risk fairly low, we will try to stick to a CDR of 115%. In order to know how much MAI we can borrow to stay at a 115% CDR, we will use this formula:
With a collateral value of $100, no debt yet, and a target CDR of 115%, here's how much we can borrow:
​You can then swap the MAI you borrowed for DAI and repeat. Here's what your collateral and debt should look like:
| Loop # | Collateral | Debt | Available loan | Equivalent APY | DAI liquidation price |
|---|---|---|---|---|---|
1 | 100.000 | 0.000 | 86.956 | 10.42% | 0 |
2 | 189.956 | 86.956 | 75.614 | 19.48% | 0.512 |
3 | 262.571 | 162.571 | 62.751 | 27.36% | 0.681 |
4 | 328.323 | 228.323 | 57.175 | 34.21% | 0.765 |
5 | 385.498 | 285.498 | 49.718 | 40.17% | 0.815 |
6 | 435.216 | 335.216 | 43.233 | 45.35% | 0.847 |
7 | 478.449 | 278.448 | 37.593 | 49.85% | 0.870 |
8 | 516.042 | 416.042 | 32.690 | 53.77% | 0.887 |
9 | 548.732 | 448.732 | 28.426 | 57.18% | 0.899 |
10 | 577.158 | 477.158 | 24.718 | 60.14% | 0.909 |
11 | 601.877 | 501.877 | 21.494 | 62.72% | 0.917 |
12 | 623.371 | 523.371 | 18.691 | 64.96% | 0.924 |
13 | 642.062 | 542.062 | 16.253 | 66.90% | 0.929 |
14 | 658.315 | 558.315 | 14.133 | 68.60% | 0.933 |
15 | 672.448 | 572.448 | 12.289 | 70.07% | 0.936 |
16 | 684.737 | 584.737 | 10.686 | 71.35% | 0.939 |
17 | 695.423 | 595.423 | 9.293 | 72.46% | 0.942 |
We're stopping at 17 loops but you can operate more if you want to.
At the end of the 17 loops, you'd get $695.423 of collateral and $595.423 of debt. This corresponds to a CDR 116.79% which should be safe enough to prevent liquidation.
If we consider the 10.42% APY granted by the yield instrument, this would generate
If we consider that the initial investment was only $100, that's an equivalent APY of 72.463% on single staking a stable coin!
In order to get a little exposure to high volatility assets, you can use the same loop as above but only leverage 90% of the borrowed MAI, and use the 10% to buy something else. In this example, we will use the 10% to buy Qi (the native token of Mai Finance) and use the Qi-BAL pool on Balancer that currently has an APR (Annual Percentage Revenue) of 107.12%.
Since we're re-injecting less DAI in the camDAI vault, we will also operate less loops. The setup will look like this:
| Loop # | Collateral | Debt | Qi | Available loan | Equivalent APY | DAI liquidation price |
|---|---|---|---|---|---|---|
1 | 100.000 | 0.000 | 0.000 | 86.957 | 10.42% | 0 |
2 | 178.261 | 86.957 | 8.696 | 68.053 | 35.22% | 0.537 |
3 | 239.509 | 155.009 | 15.501 | 53.259 | 54.63% | 0.712 |
4 | 287.441 | 208.268 | 20.827 | 41.681 | 69.82% | 0.797 |
5 | 324.954 | 249.949 | 24.995 | 32.620 | 81.71% | 0.846 |
6 | 354.312 | 282.569 | 28.257 | 25.529 | 91.01% | 0.877 |
7 | 377.288 | 308.097 | 30.810 | 19.979 | 98.29% | 0.898 |
8 | 395.269 | 328.076 | 32.808 | 15.636 | 103.99% | 0.913 |
9 | 409.341 | 343.712 | 34.371 | 12.237 | 108.45% | 0.924 |
10 | 420.354 | 355.948 | 35.595 | 9.576 | 111.94% | 0.931 |
At the end of the 10 loops, you'd get
$420.354 of DAI as collateral
$355.948 of debt
$35.595 of Qi
The same math as in the previous case gives the following results
A final CDR of 118.09%, which should be considered as safe enough to prevent liquidation
$43.800 of interests on DAI from the 10.42% APY granted by the yield instrument
$68.139 of interests on your Qi from the Balancer pool, if you assume you will be compounding the Qi and BAL rewards in the Qi-BAL pool
A total APY of 111.94%
This strategy presents more risks in the sense that the investment in the Qi-BAL pool isn't guaranteed. However, you will get a little bit of exposure to Qi, which will let you participate to the QiDAO protocol. If you use the BAL reward on Mai Finance as a collateral and borrow against it, you will also be able to re-invest in the camDAI vault or in the Qi-BAL pool. If you do so, you will also be entitled to borrowing rewards paid in Qi every week.
With some minimal investment and low maintenance, you can get some pretty solid results simply by leveraging your DAI. Since DAI is a stable coin that has a lot of liquidity across multiple chains, the risk is relatively low for DAI to go off peg and for your vault to be liquidated. It's the kind of "set and forget" setup that can easily be a very good starting point for any DeFi beginner, and chances are this strategy will perform the same way in a bull market or in a bear market. Finally, we also explained how you can use the same strategy to grab a portion of your loan and test out the many possibilities that DeFi has on Polygon.
Everything presented in this tutorial is educational content made to illustrate the leverage option proposed by Mai Finance. We didn't talk about debt repayment because there are articles dedicated to this on this site, but you need to keep in mind that Mai Finance charges a 0.5% repayment fee on the borrowed amount. As always, make your own researches and don't hesitate to ask question on the Discord server of the DAO community.
Keep in mind that a strategy that works well at a given time may perform poorly (or make you lose money) at another time. Please stay informed, monitor the markets, keep an eye on your investments, and as always, do your own research.
