[imsd]

DeFi is groundbreaking.

My wife and I paid off our student loan debts with a 0% interest loan and no need to go through a bank. Our position is well over-collateralized and interest generated from other DeFi lending positions will pay off the loan in full.

Not to mention, Ethereum as a settlement layer for stablecoins is gaining exponential adoption. There's a non-insignificant chance it disrupts the traditional banking rails (i.e. ACH, wire, SWIFT, etc.).

[acjohnson55]

I take this comment to mean that you had crypto investments that worked out well for you, and then you took a DeFi loan against them to pay off your student loans?

If so, that doesn't seem that groundbreaking. You could have simply liquidated enough of your gains to pay your student loans off. Instead, you're now in a leveraged position. It's very possible that your collateral could drop below the LTV threshold, causing a liquidation, which would magnify the losses you'd have if you weren't levered. There's no free lunch.

It's certainly interesting that DeFi creates new schemes for creating leverage, with minimal intermediation, but I wouldn't call it groundbreaking. It's an incremental development in financial engineering.

EDIT: read some of your other comments that you made while I was writing mine. It sounds like you're using stablecoins as your collateral, which seems like a smart move, and you've effectively converted your student loan into a DeFi loan at a lower rate. But I'd still be concerned that while your more mundane risks aren't that high (like asset prices and interest rates), you may have exposure to more complex risks.

[vmception]

Why move the goal posts, they weren't speculating on “price go up”, they took a capital efficient loan from an automated world bank instead of dealing with a boutique lender that wastes everyones time

[acjohnson55]

I didn't move the goal posts. I said what you just said, plus the caveat that there are still risks. Which the OP acknowledged.

I'm not saying this isn't innovative, but I still stand by the opinion that this is more incremental than revolutionary.

[vmception]

I’m of the opinion that its an option

Building these options is alot of fun and very lucrative

[imsd]

Your edit captures the situation pretty well. I used stablecoins as collateral and this was effectively a migration of the debt on my balance sheet to a lower (even negative) interest rate.

And yes, there are definitely risks; it's not for everyone!

[sexbeast420]

...if you paid it off with an over-collateralized loan, then surely you must have already had enough money to pay it beforehand. Also may I ask what DeFi platform facilitates 0% loans? I thought they all had some low interest

[imsd]

I did have sufficient funds but drawing a loan is more capital efficient. I responded to another comment in this post explaining why.

Also, this was not my scenario but a common view: it can make sense to draw a loan so that you're not liquidating long-term holdings. Imagine I hold $100k in bitcoin and need to pay off $15k in student debt. If I sell my BTC, I'll incur capital gains tax and also have a smaller long-term holding. Alternatively, I can borrow $15k against the BTC, pay no tax, and keep my BTC position in full. There are various ways to then generate interest on the BTC and pay back the borrowed funds.

Some platforms offering 0% loans include Liquity and Alchemix.

[spookthesunset]

I mean given crypto coins are going to the moon, every payment they make will have a higher USD(T) value than before. Deflationary currency is great for lenders!

In fact this “DeFi” thing should have a negative interest rate to compensate for the fact that this borrower will be paying them more and more each payment.

[eli]

I'm not disputing that it's made some people rich by allowing them to place big bets, but I don't think that's world changing. So did Bernie Madoff if you were lucky enough to get out early.

[VHRanger]

Why didn't you just pay off the loan if you had more than enough collateral already to get a >100% collateralized loan?

What happened is that you used DeFi to leverage your financial position, not pay off debts.

Don't lie to people.

[imsd]

For greater capital efficiency. I explained it here:

https://news.ycombinator.com/item?id=27845492

And I'm not increasing my overall debt position on my personal balance sheet. Rather, I shifted the debt from student loans at ~5.5% to a DeFi protocol where the borrow rate is effectively negative.

[hanklazard]

Your use-case sounds really interesting. Would you mind elaborating a little bit more? Sounds like you’re using compound.finance or liquity in some way …

[imsd]

I do use both of those protocols, but for this specific use case I'm referring Alchemix. I deposited $30k DAI and borrowed $15k alUSD against the deposit. Traded the alUSD for USDC and withdrew through Coinbase.

I didn't go into detail in the initial post since it sounds a bit crazy, but the loan will actually pay itself off since Alchemix is depositing my $30k into Yearn. The yields generated from Yearn gradually pay down my debt automatically. Other interest bearing positions (apps like Compound and "yield farming" on various new protocols) will also help me pay off the loan faster.

The alternative to this is that I could've taken $15k from the initial $30k and paid off our loans outright. But, using Alchemix is more capital efficient. Student debts are now paid and I also have $30k of capital generating yield instead of only $15k if I had simply paid the loans upfront.

[browningstreet]

How did you come to trust Alchemix with that much capital? I'm not familiar with them, but just checking their site doesn't give me a lot of confidence about sending tens of thousands of $ to them.

[rwiggum]

It's all open source. You can see the contracts yourself, or read an audit that someone else created. The beauty is that you don't have to trust them, because you can see exactly what can possibly happen with your money by looking at the code.

[imsd]

I trust people much smarter than myself to evaluate the contracts. Audits from highly reputable firms also help. Nonetheless, there's always risk.

[nnt38]

How long does it take until your loan has paid itself off?

[imsd]

My collateral is currently yielding 6.5%, which is gradually paying down the debt. At this rate, estimated maturity is 02/28/2029. This will vary depending on APYs for DAI in the Yearn protocol. But personally, I'll use other income streams to pay it off much sooner.