My next diversification plan is to invest in a small amount of Ethereum and utilize the MakerDao to increase the amount of Ethereum appreciating in my account by 100% using the Collateralized Debt Product or CDP on the Ethereum blockchain.
This is my proposed investment model on the Ethereum blockchain using the CDP or Collateralized Debt Product provided by the MakerDao.
I buy and ten Ethereum worth $1500 USD.
I deposit $1500 worth of Ethereum in the MakerDao.
I can now borrow 750 Dai, using my $1500 worth of Ethereum as collateral. The interest rate (called a is 3.5% per annum.
I then exchange 750 Dai for $750 USD on the exchange.
I then buy $750 dollars worth of additional Ethereum.
I deposit this additional $750 worth of Ethereum in my MakerDao account.
Now I own $2250 dollars worth of Ethereum.
So by using the MakerDao CDP collateralized debt product, I am able to increase the amount of Ethereum I hold from $1500 to $2250, a 50% increase, but without investing any additional capitol.
While I pay 3.5% interest on the additional $750 worth of Ethereum, as long as Ethereum appreciates at greater then 3.5% per year I still get a positive ROI without increasing my capitol invested.Plus if I add to my Ethereum holdings by using the CDP again to borrow half of what I deposit, I can borrow an additional $375 when I deposit 750, then borrow $187.5 when I deposit 350, borrow $93.75 when I deposit 187.5 and $46.87 Dai when I deposit 93.75, each time I convert to Dai to dollars and then Ethereum. Each time I deposit the additional Ethereal in my MakerDao account to increase my Ethereum holdings. I could end up with close to $3000 dollars worth of Ethereum in my MakerDao Account with only a $1500 dollar investment.
Start with $1500
Borrow 750
Borrow 375
Borrow 187.5
Borrow 93.75
Borrow 46.87
Total $2953.12
These transactions result in a Total of $2953.12 worth of Ethereum under my control and 1,453.12 in DAI loans ar 3.5% per annum. If I estimate that Ethereum appreciates at 10% per annum I increase my net ROI by doubling my capitol while paying 3.5% of my gain, I have a 10% gain on my original $1500 worth of Ethereum and 6.5% gain (10%-3.5%) on the 1453.12 of additional Ethereum, I acquired using the MakerDao CDP. Now I have a estimated averaged rate of return of around 8.25% (10% plus 6.5% / 2 = 8.25%) on $2953.12 worth of Ethereum.
There is a potential downside
Now, I could get wrecked if Ethereum crashes more then 50% and I do nothing and get liquidated. Then I could lose half my banked Ethereum. But since that means I ending up with close to my original investment back, minus the liquidation fee I think it’s not as risky as it sounds. Plus, if Ethereum price starts to crash, I can always add to my Ethereum deposits during such a crash. Since I borrow 1/2 of what I deposit, I can easily stay above the 1.5 ratio of deposits to debt with additional deposits.
That’s my investment model.
What do you think?
✍️ By Shortsegments
A blockchain based social media blogger for 23 moons 🌝