Platform use cases
Passive income - Lenders can earn two types of passive income:
- Interest paid by the borrower for taking a loan.
- Collateral in cases when the borrower fails to return the loan.
Leverage - Using borrowed capital to trade cryptocurrencies or other financial assets is referred to as leverage. It increases your purchasing or selling power, allowing you to trade with more funds than you presently have in your wallet.
Shorting with leverage on Aada V1
Example: You create 3 loan requests using ADA as collateral. In turn, you want to borrow stablecoin such as Djed USD, and you expect the price of ADA to rise. ADA price 0.50$ Loan #1: Set collateral of 100k ADA. Loan 40k Djed USD Using Djed USD, you buy more ADA, 40k Djed—- 80k ADA (current market price) Loan #2: Collateral 80k ADA. Loan 30k Djed USD You buy more ADA Loan #3: Set collateral of 60k ADA. Loan 20k Djed USD If the price of ADA matches your prediction and goes to 0.60$, it’s time to harvest.
Loan #3: You return a loan of 20k Djed and receive 60k ADA, which you sell for 36k Djed. Loan #2: You produce a loan of 30k Djed and receive 80k ADA, which you sell for 48k Djed Loan #1: You repay a loan of 40k Djed and receive your initial collateral of 100k ADA In conclusion, you returned your initial investment of 100k ADA + 14k Djed USD.
Longing with leverage on Aada V1
Example: Suppose you want to long AADA, and you have 300 tokens in your wallet. Loan request #1: If 1 AADA = 1.3 ADA, you could submit a Loan request asking for 200 ADA against your 300 AADA. Loan request #2: When your loan is funded, use the 200 ADA to buy 150 AADA and submit another Loan request for 100 ADA against your 150 AADA. Loan request #3: After you receive the 100 ADA, you can sell it for another 75 AADA and use the remaining tokens to borrow another 50 ADA. If the price increases significantly (e.g., +30%), you can return each loan in reverse order, selling the AADA tokens and keeping a hefty profit.
Shorting - Shorting is generally used when you feel bearish about an asset’s price. Still, it’s a great way to increase your asset’s positions. To short a CNT, borrow a cryptocurrency and sell it on an exchange at its current price. After a specified period, re-purchase the cryptocurrency to return the borrowed capital. If the price has dropped, you will exit with a profit.
Shorting on Aada V1
Suppose you want to short 10k ADA. Assuming the current market price of each ADA is 0.50$, the fiat value of the holdings equals 5000$. To short your ADA, you must borrow 10k ADA from the Aada Finance dApp at the current market price and sell it on an exchange. Let’s assume the market moves as expected, and the price of ADA drops to 0.30$. In such a case, you re-purchase the same (or higher) amount of ADA at this market price and repay the loan. As a result, you can safely book a 2000$ profit.
Longing - Longing or "long position" is a trading strategy in which crypto traders expect an asset's price to increase. If you believe the price of $AADA will increase, borrow the given asset and sell it at a higher position for a profit.
Longing on Aada V1
Hedge - Hedging is a typical solution for trading crypto. It involves borrowing an asset and indirectly managing the risk of dramatic price changes. If the loaned asset’s price increases, the loan gets liquidated with a profit. If the price falls, the borrower pays only the interest.
Yield farming - Some DEX platforms have liquidity pools with high APY. Users can borrow tokens and leverage the difference in percentages to profit.
Non-taxable liquidity - By obtaining a dollar-pegged loan with crypto as collateral, everyone can fund their costs without losing investment exposure or triggering taxable events.