DeFi has a data availability gap that nobody is talking about
TLDR; All blockchain data on Ethereum is public, yet getting data off them is hard. It’s messy, disorganized and time-consuming even for an engineer. If you’re non-technical — forget about it. 😡 In this post we discuss a common use-case of MakerDAO with leveraged lending that can lead to a nightmarish situation when it comes to record keeping. We have a solution — Covalent — to this specific problem and broadly to what we call the DeFi data availability gap.
What got us here
Note: It’s not our place to pass value judgements on investment decisions.
THIS POST IS NOT FINANCIAL/INVESTMENT/TAX ADVICE.
Consider an investor who’s so bullish about the future price of ETH that they are going leveraged long. What this means is that they are borrowing in order to invest in ETH and gain exposure to any kind of price increase in ETH. The leverage just amplifies their gains (or losses). They don’t mind paying the interest on the borrow. The reasoning is that if ETH were to grow 2X-3X, what’s a single digit interest rate i.e., the cost of borrowing?
The MakerDAO system makes it easy to construct a portfolio that can do this. The investor deposits ETH as collateral to borrow some DAI, and then use that DAI to buy more ETH. They then place the newly bought ETH as collateral again to borrow more DAI. They repeat this process a couple of times to build their 3X, 4X, 5X leverage.
The DAI ➡️ ETH trade can happen on one of the many decentralized exchanges like Oasis, Uniswap, Kyber, etc.
This investor (or speculator 🤔) is additionally using a smart contract wallet. Smart contract wallets are all the rage these days and there are many solutions like Argent and InstaDApp that makes it easy to manage your DeFi positions.
To read the complete blog post on https://www.covalenthq.com/blog/defi-data-availability-makerdao-csv-export/
PS — Signup for the Private Beta for SafeKeep here.
