On Using Defi to Power Real Purchases
Happy Monday!
Today I want to talk about using Defi and crypto to buy things in the real world. That’s right, those internet memes people people laugh at and call “magic internet money” can be turned into real assets, in the real world. Like a house, a car, or a condo. In fact, if we don’t want to sell our crypto (and incur the capital gains taxes), there are tools we can use to borrow against it as collateral, and even keep the passive-income earning potential of it in Defi.
Services that used to be available only to the rich clients of JP Morgan, Goldman Sachs, or some other bourgeoisie bank are now available to anyone – with just a few button clicks, I might add.
I have talked before about platforms like Celsius Network, which allow you to use assets such as Bitcoin, Ethereum, and others as collateral to borrow dollars against. In general, this maneuver has two benefits.
Defer the capital gains taxes incurred when selling assets that have appreciated in value
Enjoy access to liquidity (dollars) without having to sell your portfolio investments
With some newer Defi platforms, such as Abracadabra.money, we can now add a third reason
3. Enjoy access to liquidity (dollars) while still utilizing your crypto for passive income
That’s right, in Defi we can now collateralize our assets to borrow against, while they still earn yield!
Recently, I have been testing just such a maneuver in order to purchase property (as well as my dream piano – a beautiful 7 foot Steinway) here in Atlanta; without selling crypto, and while still earning passive yield. The interest on my loan, as you can see above, will be 3.5%. Meanwhile the yield on the collateral (the particular one I’m using) is ~16%.
The yield on my collateral will cover the loan interest… as well as my property taxes, HOA fees, and maintenance costs. I am being paid to own my own property.
If you’re not buying something as “big” as real-estate, you might be wondering: “this sounds cool, but how does it apply to me?” Well there’s no reason why this technique can only be used for real-estate… it can be used to make any sort of purchase: A Honda civic, a kitchen remodel, a new bicycle for Jimmy.
Why sell assets you have earmarked as long-term investments, when you can borrow against them and still earn yield?
The actual technique is a bit more “crypto-advanced”, but I am sure anyone with a little effort and patience can be well on their way to doing the same thing I am. The platforms I’m using are Curve (for yield-generating collateral, though there are some other options), and Abracadabra (the actual borrowing platform, mentioned earlier).
Of course, there are risks to this strategy. Your collateral can drop in value. Depending on what you’re using for this collateral (and options vary from less risky to very risky), the price can drop a lot, and suddenly to boot. You need to make sure you fully understand the product and underlying collateral before you borrow. On platforms like this – unlike with apps such as Celsius - your collateral will be liquidated with little warning if the price drops too fast.
Still - platforms and products like this signify massive innovation. They promise to change the face of finance forever. These are the types of groundbreaking, highly accessible products that Defi was designed to bring mainstream. It is still far from being “mainstream”, but it does work… And soon enough I expect to have a literal roof over my head to prove it!
If this kind of thing interests you - I encourage you to join our growing Discord community. Drop in, post an Intro in “#Intros&Goals”, and start exploring & asking questions :)
Join now (it’s free).
Crypto News:
Robinhood Acquires Cross-Exchange Crypto Trading Firm Cove Markets (LEARN MORE)
Strike Launches Dollar-Cost Averaging Product in US (LEARN MORE)
Sportswear Giant Nike Purchases NFT Fashion and Collectibles Startup RTFKT (LEARN MORE)
Polkadot Parachains Go Live, Capping Yearslong Tech Build for Ambitious Blockchain Project (LEARN MORE)
Have a great week!
Shahar
This newsletter is meant for informational purposes only. It is not meant to serve as financial advice. If you are interested in financial advice, please schedule a personal consultation with me, and be sure to read the accompanying disclaimer.
