Perverse Asset Purchasing With DeFi

over 2 years ago (Edited)

DeFi has the potential to change the way we buy assets. I had a perverse idea on how to buy my next car or major appliance, which is related to the lifetime beer endowment. First, let me give you some background.

Lately, I have been enthralled with DeFi. The recent launch of tectonic.finance made it simple and affordable for me to dabble in DeFi. I had experimented with Uniswap and the like until ETH gas fees got high. Since then, I have hesitated to use BSC, Polygon, or other alternative smart contract chains. I just didn't want to bother with modifying MetaMask. But, Crypto.com has made moving in and out of the Cronos blockchain very easy. Cronos is where Tectonic is running their money market smart contract. So, I've deposited CRO and withdrawn USDC to pay off some credit cards. It is so easy.

At the moment, I have enough collateral CRO to be able to do some "velocity banking" to help me pay off debt quickly, or at least at lower interest cost. But, this got me thinking about another technique called "infinite banking". This is where things get perverse.

Perverse Finance Number 1

I could, theoretically, get to a point where I purchase large amounts of CRO every paycheck, thus increasing my credit limit. Coupled with capital appreciation, perhaps one day I could have hundreds of thousands of dollars worth of DeFi credit. That alone wobbles the mind, as Kelly Bundy would say.

There is also some arbitrage opportunity. USDC loans on Tectonic are currently around 4% interest. USDC deposits on Crypto.com Earn are currently paying 12% interest. I could take a loan from Tectonic to deposit in Earn. Then, I could use the interest to pay off the loan over time without ever having to pay money out of pocket. In fact, I'd pocket the difference. This 8% is pocket change when we're talking about a few thousand dollars. What if I did it with a few tens or hundreds of thousands? Suddenly, 8% is real money.

Perverse Finance Number 2

Similarly, I could continuously deposit CRO, WETH, or WBTC into Tectonic with no intention of withdrawing. CRO currently has the highest interest rate, at about 13%. At least for now, my collateral is growing faster than my loan. I may potentially never have to pay back the loan as time will only reduce the utilization of the collateral. This means that I would have more and more credit without ever paying back the loan.

Obviously, I don't intend to have infinite loans. I'd rather have unencumbered collateral, if possible. Although, I have no incentive for ever withdrawing my deposit. Having a credit line that grows at 13% annually means that I can access the value of my savings for personal needs and business opportunities. Having a full line of credit means that I can buy the dip, which is something I often fail to do due to lack of cash.

I only ever have to buy crypto. I never have to sell. Borrowing is extremely tax efficient.

This is what is so perverse. My credit will increase daily from interest. It will increase every payday when I buy more collateral. And, my credit will increase thanks to capital appreciation as the crypto market grows!

Perhaps someday I will be able to buy a house using a DeFi loan. I buy used cars, so buying a car from a DeFi loan is certainly within reach. And, at the right scale, I could allow arbitrage to make my car payments. This is sick.

I am my own bank.

Hive Can Do Some of This

Currently, HBD is paying 12% interest from deposits in Savings. This is perfect for setting up personal endowments, such as my lifetime beer endowment. In a way, you can use HBD Savings to buy things at no cost to you if you save enough. It's not the same as a credit line. But, it is fixed income. The more you save, the greater your monthly income. $10,000 buys you $100 per month. Scale that up, and you have a financial target. For example, if I want $500 per month extra income, I would need to save $50K.

I know. It's not easy to whip out $50K. But, on the way to $50K, you need to pass by $1 per month. You need to pass by $10 per month. You need to pass by $20 per month. These are all achievable goals. Achieve bigger and bigger goals until one day you're getting your expenses paid from interest.

It would be amazing if Hive eventually has a DeFi lending service. Along with HBD bonds, having a money market could revolutionize Hive. Certainly 12% interest is a good start.

My Life Has Changed

I've only been at this crypto thing, actively, for about three years. My life has changed as a result. I have never had as much savings as crypto has produced. And, I've never had as large a credit line as DeFi is offering. The same tools that are available to the wealthy are within my grasp. All I need to do is double down and keep growing my cryptos. Along with good money management, I feel like my future and that of my family is assured. For comparison, I've had a pension with my employer for the last 5 years. My vested pension value is $15K. I have more than that from mucking about in crypto. There really is no incentive to play by the old rules of finance.