With the launch of Moremoney and the possibility to use YAK as a collateral through their platform, we think it is a good occasion to give a quick overview on lending/borrowing strategies and how these can be applied to Moremoney.
Lending/Borrowing: a quick overview
When you deposit in platforms like Moremoney, your assets act as a guarantee for allowing you to borrow against it (like in a pawnshop when you leave a watch for example to borrow money).
Since it works as a guarantee, then you will only be able to borrow less than the value of your asset. This way in case your asset loses value, the platform can avoid insolvency by repaying your debt (liquidating your colleteral).
The maximum that you can borrow against your asset will depend on a parameter called minimum collateral ratio (cRATIO). Your cRATIO is represented by the formula:
cRATIO = value of deposited asset / borrowed amountSo if you deposit $15,000 worth of YAK and borrow against it $7,500, your cRATIO will be $15K / $7.5K = 2 (or 200%).
Tip: avoid borrowing too near the maximum since even a very small change in price will put you at risk of liquidation. The higher your cRATIO the less risk since you will be less likely to reach the liquidation threshold if the market goes down.
Moremoney applies a borrowing fee of 0.5% that you will have to pay to close your loan. So if you borrow 1,000 MONEY, your amount to repay will actually be 1000 MONEY + the 0.5% fee = 1,005 MONEY.
Tip: if you want to calculate the price your cRATIO will reach the liquidation threshold you can use this formula:
Liquidation threshold = minimum cRATIO * borrowed amount / deposited tokensExpanding the previous example, assuming 1 YAK = $2,300, $15,000 = 6.52 YAK so to reach the minimum cRATIO of 165%, the $YAK price would have to drop to a value of $1,898 (1.65*7500/6.52). In other words, the position could survive a 17.5% drop in price.
Moremoney also displays your liquidation price for a token like YAK directly in their app.
- Your liquidation price
- Your current Collateral Ratio (cRATIO); the higher this number is versus your Minimum cRATIO, the lower the risk of liquidation.
What happens if I get liquidated?
If your collateral decreases below your minimum collateral ratio, you will be liquidated, which means that part of your collateral is converted on your behalf into MONEY to pay back your loan, plus a fee of approximately 10% is taken.
Keep in mind though that when a liquidation happens you’ll still be holding the MONEY you borrowed, so in the end your loss will mostly based on the 10% fee.
Strategies for Moremoney
On Moremoney you can borrow MONEY against your YAK. MONEY is a stablecoin designed to be worth $1, backed by a similar mechanism as DAI and MIM tokens. The two main strategies that you can use are:
Strategy 1: Deposit YAK → Borrow MONEY → Buy YAK with MONEY
This will put you at a leveraged position long on YAK: If the price of YAK increases you sell borrowed YAK to repay your debt and keep the gains from price appreciation;
However, if the price goes down your cRATIO might go to a level where you risk liquidation and selling YAK might not be enough to repay your initial debt (since they’re now worth less than the amount you borrowed);
The most expert users can add a leveraged component to this strategy by depositing the YAK tokens bought with MONEY to borrow more MONEY, rinse & repeat. But this is a very high-risk strategy!
Strategy 2: Deposit YAK → Borrow MONEY → Farm with MONEY
- Deposit them in the MONEY Curve LP and then deposit those Curve LP tokens in Moremoney to farm $MORE;
- Or swap MONEY for another stablecoin and deposit them on Yield Yak in any stablecoin strategy.
This farming strategy is less risky than a leveraged strategy. While you will still be put at risk of liquidation if the value of YAK decreases, you will have the same amount of stablecoin you borrowed plus the amount you’ve gained by farming so you should always be able to repay your loan.
We used YAK here as an example, but you can also use these same strategies with AVAX, PNG and AVAX/JOE as yield bearing collateral.
The Magic of Moremoney x Yield Yak: Collateral that Strengthens Itself
The magic of Moremoney is that your deposits are held in YY strategies so your deposited collateral grows. This increases your cRATIO and lowers your liquidation risk and/or gives you more power to borrow MONEY.
Found a new strategy or have some feedback on ours? Head to our Telegram or Discord communities to share.
Written by Yak Guide MauroG
