How I took my first loan on Ethereum Blockchain — MakerDAO
Since the rise of cryptocurrencies, the term “decentralized” seems to be everywhere but the word of “decentralized lending” seemed to accelerate quite a lot this year, I couldn’t wait anymore to test the potential it had.
It was Sunday morning, I decided to borrow a loan using my Ether. This story starts 3–4 days back when I thought about it. Yes, I was afraid, because it was my first time borrowing a loan and on “the” blockchain and I didn’t want to lose my money because Ethereum was having its ups & downs.
I wondered what could be so different about the loans on blockchain and the loans we get from banks, I realized there are numerous differences. To start with: I did not have to be 18 to get this loan.
I connected my MetaMask mainnet account where I had my funds to InstaDApp’s Borrow page. I was connected in seconds. Let me just put it out there, I was not required to provide a single personal detail about myself. No filling-forms-signing-in crap!
I deposited the amount of Ethereum, I wanted to lock as collateral and entered the amount of DAI, I wished to generate. I kept my Issue/Collateral ratio low because it was my first time and I wanted to play it safe. Above 50%, it gets risky.
So what happens here is that if your ratio goes above 66%, your collateral (ETH) is automatically sold to pay your debt (DAI). So if ETH is $100 then I can withdraw~66 DAI as a loan (which is 2/3 of the collateral value in USD).
Every single Txn I made was mined in 2–3 minutes on blockchain which is clearly avoiding the unnecessary delays and traditional hurdles like documentation etc with centralized banks to provide immediate funding upon approval. Not to forget I was only charged $0.07 (3 Gwei, thanks to EthGasStation for keeping me up to date) as the txn fees.
Just within 2 steps, I loaned myself money in 5 mins! I went on to MakerScan, that is providing a sleek interface to observe the stats of my CDP.
This wave of decentralized loans is proving to be way better than bank loans;
- Low charges — It cost me just $0.07 issuance cost to get the txn mined on blockchain and 1.5% annual interest rate (at the time of writing). Dead cheap.
- No Documentation — I was not required to provide a single detail about yourself, not even my name!
- Instantaneous — Send, borrow, receive payments way faster (2–3 mins) than traditional systems.
- Secured — In this new financial system, you don’t trust humans, you simply trust the algorithm. Thanks to smart contracts, we can say goodbye to credit scoring, pay slips and bank statements.
- Anytime, Anywhere — Unlike banks, the blockchain runs 24/7/365, there are no public holidays. You can send payments to anyone around the world at any time.
- No Age Barrier — Anyone, literally anyone can take a loan, you don’t have to be 18 to take a loan.
This innovative cutting-edge technology has the potential to replace and disrupt our traditional bank systems and borrowing and lending money as we know it.
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