Curious how to start engaging with CDPs? The Dai Stablecoin System allows for opportunities for both profit-seeking traders and stability-seeking holders to participate in a decentralized ecosystem. To create Dai, you send Ether to a Collateralized Debt Position (CDP) on the Maker platform. Anyone can lock their tokens up as collateral and issue Dai against them.
The Dai Stablecoin System, with CDP creation at its core, is a completely decentralized infrastructure. Users can interact with the system in numerous ways, without relying on any third party and without any permission. MakerDAO is just an infrastructure provider and we are excited users are finding multiple use cases for our platform.
Users have been creative in their reasons for creating CDPs. We heard interesting and compelling stories about users who took out and paid off car loans, repaid mortgages, paid household allowances, those who borrowed with financial interest and more.
Here are some highlights of how users have been using CDPs.
Buying a Dream Car
District0x team member PJ shared with us that he had been in the market for a new car for quite some time, but held off for numerous reasons. He had the opportunity to buy his dream car by leveraging his ETH to generate Dai and ultimately get USD for a loan for the new car. Additionally, PJ clarifies his thoughts on Dai, “Being able to generate an instant loan from a decentralized bank is the actual manifestation of what makes the crypto ecosystem so promising and exciting. The use of CDP’s in conjunction with DAI is a game changer for the space, and for those who chose to take advantage.”
Here is his full story: (/u/misterpeej) “I’ve been in the market for a new (used) car for quite some time, and I’ve held off all year for multiple reasons:
1) I have a sub 700 credit score so interest rates would be high.
2) I didn’t want to “settle”. I wanted what I wanted and I was willing to wait for the right car to come along.
3) I haven’t been willing to sell my ETH to buy a car (that would be foolish right?)
So fast-forward to December of this past year; my brother and I were sitting in the kitchen talking about Dai when we realized we could use a CDP to leverage my ETH, generate Dai, and either buy more ETH or (lightbulb…ding!) convert it to USD and use THAT as a loan for the new car. So instead of borrowing from the bank and getting robbed with a high interest rate and fees from the dealership; I could simply leverage a CDP against portion of my ETH holdings, pull out USD and go buy the car for cash.
So I did. I am now the proud owner of a BMW 335i Sport Sedan self funded by a CDP using DAI and Ether. I just keep falling in love with crypto more and more. May need to look into a “THX DAI” vanity plate.”
Repaying a Mortgage
User MrStormLars shared: I bought ETH at ca 10 USD, and as you know this has been extremely profitable. When Sai (and later on Dai) launched, I got the opportunity to repay my mortgage while maintaining my ETH position, since I still see a huge upside for ETH in the long run. For my wife, the gains from my crypto-adventure went from being pure theoretical to becoming reality — that was a lot of fun 🙂
Buying a Coffee Cart
Users even created CDPs for fun, quirky reasons that they were personally interested in.
User Ernmkr shares: “[I] withdrew about 4000 Dai from my CDP to buy a coffee cart! Just need to find a coffee machine. I want to accept Dai as payment for coffee lol!”
Paying Off a Car Loan
User /u/latetot shares: “I had a car loan where I was paying 4% interest. If I sold eth to pay it off, would owe capital gains taxes. So instead used cdp to create Dai and pay off loan. Now my interest rate is 0.5%. Amazing.”
Getting Leverage
Here are two users who created CDPs to gain leverage and buy additional ETH. Read below for their reasoning:
/u/klugez: “I created a CDP to generate DAI which I used to buy extra ETH. I did it both to get a leveraged position on ETH and because the idea of getting a loan from the blockchain seemed like something from science fiction.”
/u/song_of_the_free: “I created CDP to mint DAI, used that to buy ETH which in turn was invested in few Ethereum projects I believe in. The idea of getting instant loan from ‘decentralized bank’ just spending few cents is fascinating. Mostly, I just wanted to play with the smart contract.”
Borrowing
/u/tarpmaster: “I have locked about 10% of my ETH into a CDP. I bought some additional MKR with about 20% of that 2 or 3 weeks ago. Price is now up 35% over what I paid for it. I used the rest to buy ETH during the current downturn. Bought ETH as low as $940. I am collateralized about 275%. To create my DAI, I used Parity so I can use my regular Ledger Wallet account.
I plan to buy a house in a few months. I intend to use some of this ETH that I am “borrowing.” I will also pay my tax bill using CDP money. All my trading is on Bibox. Good volume and it’s all been very pleasant. It’s a good feeling when I buy some ETH using DAI and enter it into my Blockfolio without taking something else out. It’s all additive.”
Paying for Children’s Allowances
We even heard stories of users debating unique situations like paying for their children’s allowances at home. One suggestion that was provided was using Raiden to reduce on chain fees which could help with the distribution of Dai allowances. By pre-loading the channel with Dai, a user could avoid the on-chain fees every time the allowance is distributed.
