Get Liquidity Without Selling Your Crypto
Selling your Crypto is not the only way to get value out of it. Borrow vaults with Summer.fi make accessing the value of your crypto assets simple and straightforward, here’s how:
Use case #1: Financing a big purchase
Many people want to buy a home or a car in their lives and see their crypto asset holdings as a way to do so. Though, it does not have to come at the cost of giving up exposure to your crypto by selling it all for cash or cash equivalents.
By depositing your crypto in a borrow vault and borrowing a stablecoin against it, you can get the money you need for that big purchase, without selling. Of course this is not a free lunch, as you still have to payback the borrowed amount.
How do you do it?
Pick the real world asset you want to buy and know its total cost.
Choose the crypto asset that you don’t want to sell (WBTC, ETH, stETH etc).
Consider the borrow rate. It is highly likely that you will want to filter for the lowest borrow rate available via the Summer.fi product finder.
Determine the liquidation price relative to the total amount that you need, and make sure you believe that the liquidation price will never be hit.
Deposit the collateral and borrow the stablecoin.
Send the stablecoin to an exchange that has your bank account connected to it.
Swap the stablecoin for the fiat currency of your choice (USD, EUR, CAD, etc) and send it to your bank account.
Buy your real world asset.
Monitor your position and payback your borrow position over time with convenient management on summer.fi.
Key things to consider and the why behind doing this
The borrow rate you choose is very important because its the cost of financing the purchase.
Your crypto collateral can go up in value throughout the duration of the loan, you can then use the collateral appreciation to payoff the loan.
Your crypto collateral can go down in value through out the duration of the loan, which in some cases may make you a forced seller if you do not have cash on hand to reduce your outstanding loan.
Flexible payment terms, payback when you want.
Real Life Example:
John wanted to buy a new house but did not want to sell his ETH. The cost of the house was 2.1 Million USD and he owns 3500 ETH.
He determines that the best option for him is a WSETH/DAI Borrow Vault on Spark Protocol, and makes sure he is comfortable with his liquidation price of 880.50 ETH/USD. He borrows the 2.1M DAI and sends it to the exchange he uses to purchase the home. He pays back the loan over time when he can, but ultimately expects the price of his wstETH to rise substantially.
Use case #2: Accessing new protocols
Accessing new DeFi protocols is one of the best ways to learn about DeFi, but its also one of the best ways to get an edge in the market and earn token rewards. Though, not everyone wants to use their crypto assets to do so, or sell their crypto assets to do so.
Borrow vaults on summer.fi make it easy to borrow against your most high conviction crypto assets, so that you can protect them while earning rewards on the borrowed assets.
How do you do it?
Pick a protocol that is offering token rewards. For example, AJNA Protocol offers exclusive token rewards on Summer.fi
Set expectations and or do the math. Make sure you calculate how much you expect to earn vs the cost to borrow the assets that you need. Sometimes you might even be willing to take an initial loss if you believe the token you are earning will be worth more in the future.
Pick your position type, based on what you need. Determine the borrow rate and type of assets you’ll need to borrow to use in the new protocol.
Deposit collateral, borrow your tokens and deploy into the new protocol.
Monitor your position and claim your token rewards.
Key things to consider and the why behind doing this
Think about your strategy when accessing new protocols and make sure you understand the downside risks
Utilize protocols you trust most to borrow with, so that you don’t compound your risk.
Even though less capital efficient, borrowing against assets lets you retain exposure to the assets you have highest conviction while allowing you to access new protocols.
Real Life Example:
Susan owned 150 ETH and was constantly looking for new protocols to try and earn token rewards. Finally she heard about AJNA, and the exclusive token rewards available to Summer.fi users and wanted in. Unwilling to use or sell her coveted ETH stack, she deposited it in her most trusted protocol, AAVE, and borrowed USDC against it, with an extremely conservative liquidation price of 453.23 ETH/USDC. That gave Susan 55,000 USDC to lend in AJNA and immediately allowed her to start earning exclusive token rewards without selling her ETH.
Use case #3: Capturing Carry Trade Opportunities
A carry trade is when you borrow an asset at a low cost of borrowing and then invest that borrowed capital at a higher rate of return. Sometimes in DeFi these opportunities emerge and present the conditions for income opportunities.
Borrow vaults on Summer.fi make it really easy to do the borrowing and managing of positions, so that you can focus on constructing your strategy, and not worry about the difficulties of execution.
How to do it?
Identify the yield bearing rates available Summer.fi Product Finder
Identify the borrow rates available for collateral that you own
Determine the spread between the borrow rate and the earning / yield rate.
Determine the daily, weekly, monthly etc net profit.
Key things to consider and the why behind doing this
When it comes to carry trades timing is key, make sure that the payoff is worth it given the time that you expect the strategy to last.
Consider your gas costs. The cost of capital is not the only cost that will determine your profits. Its important to calculate your gas costs for all transactions involved, event though summer.fi is actively working on ways to make these strategies even more cost effective from your borrow vault.
Real life example:
A crypto native fund that uses Summer.fi was aware of the spread between the 8% DAI savings rate, and the much lower cost to borrow both DAI and USDC. Thus, this fund opened a borrow vault on Summer.fi, took their DAI and deposited the DSR, thereby earning the difference of the rates as profit.
Use case #4: Unlocking liquidity for new and different investments
Some of the biggest opportunities in crypto are usually ones that are less well known, that go on to become extremely successful. If you are one of the few that has the knowledge and foresight to participate in one of these events then generally speaking you have to sell cash or crypto to participate.
For example, in order to participate in the little known 2014 Ethereum token sale you had to spend BTC to acquire ETH.
But now there is another way. You can borrow against your crypto to purchase other assets or investments that you believe have the potential for hyper growth.
How to do it?
Identify the type of asset that you want to buy and its potential for growth, be it an NFT or Small Cap DeFi Token or an Angel Investment.
Choose the borrow vault that is best for you related to the borrow rate, Max LTV percentage and protocol that you trust.
Determine the investment size relative to the risk you want to take in terms of liquidation price. For example, if you are borrowing against your ETH and want to make a $25,000 investment in YFI, then you’ll need to determine what amount of ETH you will have to deposit to borrow $25,000 at a low liquidation price.
Key things to consider and the why behind doing this
Make sure to consider the borrow rate into your expected payoff of the investment. If your borrow rate is, for example, 5% then an investment that you plan to return 25% no longer earns 25%, it earns 20%.
Think about what happens if the investment doesn’t play out as you expect, how would you recover the assets that you deposited as collateral.
Real life example:
David holds WBTC and had been tangentially involved in the Uniswap ecosystem for about a year. During the bear market he determined that given what he was seeing and his additional analysis, that the UNI token seemed undervalued and poised for great growth. The problem was that he didn’t want to sell his WBTC for a more speculative token, so he opened a WBTC borrow vault instead.
David owns about 60 WBTC, and bought about 100,000 USDC worth of UNI at ~4.12 UNI/USD. That left him with a liquidation price of 2,136.50 WBTC/USDC. The investment is still playing out for him, but he was able to do it without reducing exposure to his highest conviction asset, WBTC.
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