Intro to Decentralized Leveraged Trading Part 2: Leverage Boogaloo
You may remember my post last week, in which I walked you through the steps of getting a loan using https://dai.makerdao.com, and showed you how to use that loan to make leveraged trades on DDEX. Shortly after publishing our post, the MakerDAO team released a new portal that makes it even easier create a collateralized debt position (CDP), quickly acquire some DAI to leverage to your hearts desire.
With this week’s post, I thought I’d quickly walk you through the steps of using the new portal, and also take you through a few other ways DDEX and the rest of the DeFi ecosystem are creating revolutionary new leveraged trading opportunities. We love MakerDAO, but it’s not the only way you can get decentralized leverage for trading on DDEX, so I’d also like to take this time to introduce you to Dharma and dY/dX.
First though, let’s quickly walk through MakerDAO’s sexy new portal, shall we?
At a base level, most of the rules of my old post still apply. You still need some Eth and a plan to use your leverage, and pretty much everything that happens behind the scenes is the same. The main difference is that about 4–5 of the steps have been abstracted away, so everything is nice and easy and you can go from hitting the CDP portal to trading on DDEX in 5 steps instead of 9. You can also trade directly from your hardware wallet now too, so that’s a nice bonus of the new UI.
The last thing I’ll note before jumping into the steps is that, by abstracting away some of the process, the new portal costs slightly more gas to get a loan. So if you’re looking to be as efficient as possible — or if you just want to more fully understand everything that is going on in the MakerDAO CDP process — the old method is for you. For the vast majority of users who don’t mind paying a few extra cents for a simpler process, the new portal is the way to go. Here’s the way to do it:
- Visit https://cdp.makerdao.com
- Select Metamask or the hardware wallet of choice, connect to your wallet and hit “Open CDP.”
- You will see two fields. One with the amount of Eth you’d like to collateralize, one with the amount of DAI you’d like to generate. If you enter in the DAI first, it will tell you the minimum amount of Eth you need to make that loan. Again though I would recommend to use collateral well above the minimum requirement to lower your chance of liquidation.
4. Click Collateralize and Generate DAI. Agree to the terms on the following page, and click finalize and create your position. You’ll then need to approve the transaction on your hardware wallet or in the Metamask interface. The Portal will then take your Eth through the process it needs to use it as collateral and generate DAI — this usually takes about 4–5 minutes, give or take.
5. Take your new DAI and go trade on DDEX!
6. Wait until your token of choice pumps, then return to the CDP portal to close your loan.
That’s it! As you can see, all of the wrapping and pooling and other actions that happened on the back end for the old MakerDAO portal have been abstracted away, and it makes for a much more user friendly overall process. Pretty cool huh?
But MakerDAO isn’t the only way you can get decentralized leverage for trading on DDEX. Now let’s have a look at a few of the other ways we can margin trade with Ethereum.
Although with MakerDAO you can only use Eth as collateral (at this time), and you can only get your loans in DAI, with Dharma you can get a token loan for virtually any major asset on Ethereum today.
For example, on the Dharma powered relayer Bloqboard you can create loan opportunities backed by BAT, DAI, ETH, REP, ZIL and ZRX, and receive loans in any of the top 50 ERC-20 tokens. You can then use those assets for swing trading, market making or other profit opportunities on DDEX.
Other Dharma powered lending and leverage options are also on the way. From Dharma Lever to Quickline to still others yet to be announced, there’s lots of great ways to get funding for new opportunities on DDEX.
dYdX has what is perhaps the most unique method for providing leverage to traders — it does so directly in the token itself.
Currently, there are 2 types of margin trading tokens powered by dY/dX — the Leveraged-Ethereum Token (or LETH) and the Short-Ethereum token (or SETH). The neat thing about these tokens is that they allow you to skip all the steps of creating loans or otherwise getting into position with CDPs.
The entire lending process is abstracted away just by owning the token. Loans still have to be repaid of course, so each margin token only lasts 28 days, and every token that is created expires on the 15th or 30th of each month. At the end of that period, all of the sourcing and repayment is done automatically. So if you have leveraged tokens in your wallet at the time of close, they will automatically be locked in value for the amount of Eth you gained or lost using leverage, minus interest. If you buy SETH, this is negatively correlated to ETH on roughly a 1-to-1 basis — i.e., for ever dollar lost in Eth you profit the equivalent amount. If you buy LETH, profits are positively correlated with the Eth price but with a higher ratio.
Pretty cool right? And guess what? dY/dX margin tokens are coming to DDEX! So soon you’ll be able to margin trade Eth with just a matter of clicks without even leaving our trading portal.
Whether it’s making bets with stable coins, sourcing loans for market making, or simply taking easy margin opportunities to long or short Eth, we think you can find thousands of great ways to make profits by trading on DDEX. So get out there and start planning your trades today!