🏡 Behold: The 1st DeFi-Enabled Mortgage
(that we know of). Also, un-collateralized DeFi lending in emerging markets, Hashmasks blow up Twitter, Yearn vote
Hello Defiers! Tons going on today,
(What may be) the first DeFi-enabled mortgage
Goldfinch says its enabled $1M of un-collateralized DeFi loans
Hashmasks is the latest NFT craze
NFTs try to fix freelance writing with $Essay
Yearn holders vote to mint more YFI
and more :)
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TLDR The first ever DeFi mortgage may have just gone through. An engineering lead at a top DeFi protocol, who asked to remain anonymous to keep his personal finances private, on Jan. 22 paid off his mortgage loan with Commonwealth Bank of Australia, and now is paying down his refinanced home loan through DeFi protocol Notional Finance, which provides fixed-rate lending and came out of stealth mode last month.
“I feel like I’m in full control of my situation,” he said. “People should be all over this stuff.”
SO WHAT This development marks a major step in a sector often derided for lacking use cases beyond speculation. The rise of fixed-rate lending protocols in decentralized finance may attract users seeking stability in longer-term investments and loans, such as mortgages.
CONTEXT There is currently $5.2B in outstanding loans in DeFi, according to data from DeBank, with over 80% issued on MakerDAO and Compound Finance at variable rates. A growing number of DeFi protocols are tackling the fixed-rate market, including Notional, Yield Protocol, Mainframe and Aave.
Notional provides fixed-rate loans for up to six months. Users can deposit WBTC, ETH, WETH, or DAI, and then take out a loan with these crypto assets as collateral.
HOW DID IT GO DOWN First he had to pay off the home loan from the bank, for which he needed Australian dollars. The engineer went to Notional —after reading about the project on The Defiant’s Jan. 13 newsletter— to borrow USDC at a fixed rate. But, noticing there was slippage due to the nascent platform’s low volume, he provided USDC liquidity to the protocol, equal to the amount he wanted to borrow.
After adding liquidity, the engineer added ~$1M collateral to Notional (as WBTC and ETH), against which he borrowed ~$500K of USDC. Borrow rates for USDC are at ~6% on the platform currently. He then converted the USDC to AUD with a crypto off-ramp to pay off his loan to Commonwealth Bank.
ADVANTAGES OF USING CRYPTO COLLATERAL
The obvious one: borrower gets to keep his exposure to crypto in a bull market.
If a home’s price rises, a person can’t sell part of the house to pay down the mortgage. If the collateral on Notional and similar systems appreciates, users are able to maintain their collateralization ratio but also liquidate part of those assets to pay off a portion of the loan, reducing the total interest paid.
He is also able to offset some of the borrowing costs thanks to the fees he’s earning from his liquidity provider position.
Putting up crypto as collateral rather than selling and buy a house with that, is a way to avoid triggering a taxable event. If he had sold his crypto he would have had to pay taxes on his capital gains.
BUT FIRST HE HAD TO WRESTLE WITH TRADFI The path towards what seems to be DeFi’s first mortgage started last month, when the borrower was seeking to refinance his home loan through a vehicle called an offset loan, which would direct a savings account’s interest towards paying down a mortgage. But it was tough to do so in traditional finance.
“Banks are being very cautious about lending during this time of economic uncertainty,” he told The Defiant. Despite the fact that he and his wife have been called a “golden brick” by a mortgage broker, and have sizable incomes and assets, this engineer has been rejected for a basic credit card for four years.
NO-PAPERWORK LOANS There was no need to fill out any forms or applications to perform his refinance. It was based on pseudonymous on-chain data. He even tried to use centralized crypto lending platform BlockFi, but couldn’t get past the KYC process because his passport photo had him sporting hair before he went for a new “bald look.”
“I couldn’t think of anywhere in TradFi where I could sit down on my computer, quickly shop around the lending markets, and be like, that’s a good rate, I’ll just do that. And it’s done,” he said.
TLDR Goldfinch, which launched in December, today said it’s working with PayJoy in Mexico, Aspire in Southeast Asia, and QuickCheck in Nigeria, which have collectively drawn down $1M from the Goldfinch protocol and deployed it to thousands of their end borrowers.
“And it’s having an immediate impact,” Goldfinch said in a blog post. “To list a few examples, the capital is being used to help people buy smartphones in Mexico, cover short-term expenses in Nigeria, and purchase equipment for business operations in Vietnam.”
HOW DOES IT WORK The protocol works by extending credit lines to lending businesses. These businesses draw down stablecoins from Goldfinch’s token pool, and then they exchange it for fiat and deploy it on the ground in their local markets. On the investor side, crypto holders can deposit into the pool to earn yield. Lending businesses’ interest payments to the protocol are immediately disbursed to all investors.
FUNDING ROUND Goldfinch today also announced it has received $1M in funding from investors including Kindred Ventures, Coinbase Ventures, IDEO CoLab Ventures, Stratos Technologies, Variant Fund, Alex Pack, and Robert Leshner.
TLDR NFT collectors are flocking to get their hands on Hashmasks - a collection of 16,384 unique digital portraits. Each portrait features a combination of five traits with different levels of scarcity. The sale window opened with seven price tranches, quickly breaching the 100 ETH threshold and selling out yesterday morning for a total of $14M in ETH.
GOOD PULL All Hashmasks were revealed when the hard cap was reached, allowing collectors to see which random traits they received. This led to a flury of Tweets as collectors shared their Hashmasks to compare various levels of rarity, or “pulls.”
NAME CHANGING TOKENS Hashmasks go beyond the visual appeal by including a naming feature using fungible Name Changing Tokens (NCT). To name a Hashmask, collectors must burn 1830 NCT - currently valued at ~$500 at the time of writing.
Early purchaser received NCTs worth two naming rights. Additional tokens are earned by holding Hashmasks at a rate of 3,660 tokens per mask per year.
TLDR Mirror is a new publishing platform, akin to an open source, DeFi-oriented take on Medium. The platform will allow individual writers to crowdfund their work by minting their essays as NFTs. Backers will be able to exchange ETH for $ESSAY tokens, which give them an ownership stake in the finished work, and can be bought, sold, or exchanged just like any other ERC-20 token.
10 ETH FOR A POST The first experiment, an essay written by Palmer titled Scissor Labelsabout grifts perpetrated for narrative control, has already closed its crowdfunding period, massively outperforming its initial request of 2 ETH with a final contribution total of 9.9 ETH ($13.7k USD).
TLDR Yearn Finance token holders voted for the protocol to mint 6,666 new tokens, prioritizing the implementation of a funding model for contributors over keeping a hard cap. Holders of 1.66k YFI (83.4%) voted “yes,” compared with 330.5 YFI (16.6%) voting “no,” on the off-chain governance tool Snapshot.
THE PROPOSAL In a recent proposal, Yearn Finance laid out its intention to mint 6,666 new YFI (a 22% increase over the current total supply of 30k). One-third of the new YFI would be allocated to key contributors as vesting retention packages, while the other two-thirds would be allocated to the Yearn Treasury to be used for contributor incentives, staking rewards, talent acquisition, and anything else that may better Yearn’s future prospects.
“The Secret AMM has been deployed to testnet, paving the way for a mainnet release during the week of February 15th,” Secret Network said in a post. “It is the only front-running resistant, cross-chain AMM, providing lower fees and more privacy protections for users than Ethereum-based AMMs. The Secret AMM allows users to exchange any Secret Token for any other Secret Token.”
“Digital asset manager Grayscale Investments said Monday its Ethereum Trust is again open to accredited investors,” CoinDesk reported.
✊ Head to THEDEFIANT.IO for more DeFi news 📰
🧑💻 ✍️ Stories in this newsletter were written by Daniel Kahan, Owen Fernau, and Cooper Turley, and edited by Camila Russo.
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