I use Crypto.com to take loans out using my bitcoin as collateral. I’ve written pretty extensively on this, so if you need a refresher as to how that all works, I recommend checking out these two letters.
In November, the Crypto.com Exchange shut down the ability to take out loans. Then in December, they shut down the ability to take loans on the App. This was rather unfortunate as I much enjoyed the ability to take out a loan against my bitcoin. It allowed me to strategically take on debt in the pursuit of financial gain.
Thankfully, with the launch of Cronos (the Crypto.com EVM sidechain), I am once again able to collateralize my bitcoin to take out a loan. But there are some added caveats and perks. Let’s dig in!
Introducing Tectonic
Tectonic.Finance is a borrowing and lending smart contract platform. Any DeFi ecosystem really must have a smart contract that allows you to lend, and borrow assets. Credit and debt are essential financial services, and so without this ability, I wouldn’t really consider a DeFi ecosystem “complete”.
If you’re already familiar with MKR/DAI on Ethereum, or Venus on Binance Smart Chain, then you’re already aware of how Tectonic works. It’s basically all the same smart contract functionality, but on a Crypto.com ecosystem.
APY For Lending and Borrowing
With Tectonic, there is incentivized lending and borrowing.
Users who lend assets to Tectonic obviously are compensated with interest paid by the borrower. But they’re also compensated in TONIC tokens for supplying assets to the protocol.
Users who borrow assets from Tectonic pay an interest rate to borrow the assets. But, they also receive TONIC tokens for borrowing from the protocol. If the APY of the rewards are higher than the interest you’re paying on your borrowed assets, then the net result is profit.
How Does it Work?
One word; inflation. Tectonic can offer incentivized borrowing by giving borrowers tokens that it mints out of thin air. As long as there is a market for TONIC tokens, then they can continue minting these tokens for borrowers and lenders.
As you can see from the above screenshot, both the supplier and the borrower of the assets can earn an APY from the platform. The APYs are determined by the supply and demand (“Utilization”) for the assets within Tectonic.
When utilization is low, there is more demand for borrowers, so Tectonic will pay more TONIC to borrowers. When utilization is high, Tectonic will pay more TONIC to suppliers because there is more demand for that asset.
My Collateral and Loans on Tectonic
IMAGES AND CONTENT REDACTED — [ May 1st 2022 ]
Should You Do This to Make Money?
Probably not, but it is up to you. The intention of this letter is to make you aware of what you can use this smart contract for, as well as the risks involved in using Tectonic.
The smart contract (Tectonic) is brand new to Cronos, and has not been “battle tested” so to speak. There is always the possibility that hackers will exploit the smart contract and run away with funds.
Then there is the possibility of flash crashes in the price of bitcoin which seem to be quite the common (monthly-ish) occurrence nowadays. Although 25% in one day is uncommon, it’s not impossible.
As always, please reply, comment, or reach out to me through one of the many social media channels you can find me on. I love interacting and engaging with my readers, and will always respond to each and every comment and email I get from you. Be safe, and have fun.
Regards,
Keegan
The process, tools, and services discussed and outlined within this newsletter does not constitute investment advice. I do not recommend you follow the investment I laid out in this letter. Should you do so anyway, you’re deciding to do so on your own volition. Borrowing money against your cryptocurrencies is extremely risky as you stand to lose all of the collateral in the event of a significant downturn in the market.
Resources
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