Introducing saveDAI (coming soon)
The easy way to open an insured, high-interest savings account
DeFi savings accounts are a revelation. Open an account and deposit your money in seconds. No banks or KYC. Take your savings anywhere. High interest rates.
Amazing!
There’s just one problem: they’re risky! DeFi is a nascent ecosystem that relies on untested technological and financial protocols. We don’t yet fully understand all the risks and dynamics at play.
Savings accounts aren’t for taking risks; they’re for keeping your money safe while maintaining its value against inflation — and maybe adding a little more on top. All the awesome DeFi features are worthless if you lose your entire savings because of a smart contract bug or unexpected financial event.
Adding insurance is a good start, but it’s not enough
Traditional banks have risks too. Because they lend out most of the money deposited in checking and savings accounts, a run on the banks would result in many savers not getting all their money back. To protect against this possibility, national governments typically provide deposit insurance up to a certain amount — in the US, for example, FDIC insurance covers up to $250k.
Here in DeFi land, the only way to protect yourself from risks thus far has been to purchase smart contract coverage from Nexus Mutual. Nexus Mutual does a good job insuring against hacks and protocol bugs, but it doesn’t cover other risks like governance or financial issues. And, while Nexus Mutual does cover many smart contract protocols, any single Nexus Mutual plan offers protection on just a single protocol.
That means, for example, that if you have DAI savings deposited in Compound (i.e., you own cDAI tokens), you’d need Nexus Mutual contract coverage on both the MakerDAO and Compound protocols to protect your deposit. ANd that still would only cover hacks and protocol bugs; not issues like the recent financial events that nearly compromised MakerDAO.
DeFi deposit insurance from Opyn gets us closer
The advantage of deposit insurance is that if something bad happens — whatever the cause — the value of your savings is protected. Thankfully, DeFi now has deposit insurance in the form of opyn protocol’s oTokens.
If you have savings deposited into Compound (i.e., you have cDAI or cUSDC tokens), you can now cover the principal by purchasing insurance oTokens (ocDAI or ocUSDC). If something happens to the value of your savings deposit, you can redeem your oTokens and get back ETH equivalent to just less than the original value of your deposit.¹
For example, in the cDAI example from above, if you’d bought ocDAI tokens instead of Nexus Mutual contract coverage, your principal would have been fully protected had MakerDAO been forced into an emergency shutdown.
Insurance must be built into DeFi savings accounts
The one downside of Opyn insurance is that purchasing oTokens is an extra step. This added friction to opening a DeFi savings account will leave some savers vulnerable to significant risks, prevent some would-be DeFi savers from opening accounts in the first place, or both. Here at saveDAI, we believe that for DeFi savings accounts to succeed— indeed, for most of DeFi to succeed — adequate insurance needs to be built in.
saveDAI brings built-in insurance to DeFi savings accounts
saveDAI combines interest-generating tokens from Compound together with the insurance tokens from Opyn to create a DeFi savings account with built-in insurance.
With saveDAI, opening an insured savings account with DAI takes just one step: deposit your DAI into saveDAI. That’s it!
If you don’t yet have DAI, we’re working to make it as easy as possible to deposit into saveDAI using Authereum and Wyre. Our goal is to remove as much friction as possible so that anybody can open an insured DeFi savings account in just a few clicks.
What can I do with saveDAI?
This section explains how saveDAI works and what you can do with it at a high level. For those interested in more detail, keep an eye out for a follow-up post on how saveDAI works under the hood.
When saveDAI launches, you’ll be able to open a savings account by depositing into saveDAI. Once you’ve done that, what can you do?
First, saveDAI is an ERC20 token. This means that you can transfer it to any Ethereum account, or even sell it! We anticipate most people will take advantage of this feature to move their saveDAI between wallets.
Second, if something happens to the value of the interest-generating portion of your saveDAI, you can redeem the insurance portion for ETH worth the equivalent of just less than the value of what you originally deposited.¹
Third, you can remove the insurance. Choosing to remove insurance will destroy your saveDAI and send you the component parts to do with as you please. You may want to do this if…
- the insurance is about to expire and you want to renew (more information on this coming soon)
- you’re able to sell the insurance for more than its worth to you
- you want to withdraw some of your savings to spend or invest elsewhere
And remember, because saveDAI is an ERC20 token, you can take any of these actions on any fraction of your saveDAI.
What’s next?
When we announced saveDAI on Twitter a couple weeks ago, we were blown away by the response. A lot of people are excited about saveDAI, and that just makes us more committed to our goal of creating self-insured savings accounts.
So, what’s next?
We‘re hard at work building saveDAI.
We’re committed both to creating a smooth user experience and to ensuring the security of your savings. In some cases these goals directly support each other — such as built-in insurance — but in other cases they may be at odds. We are thinking carefully through the design decisions that best navigate those trade-offs.
Shortly, we’ll post an article with more detail on how saveDAI works under the hood and explain some of the decisions that led to that design.
Once it’s ready, we’ll open-source our smart contract code so the community can review it and provided feedback.
And finally, we’ll release our application for people to use — we can’t wait for this part!
How can I follow saveDAI’s progress?
Opening a saveDAI account will not require any sign-up whatsoever. In that same spirit, we are not collecting your email addresses. Instead of a newsletter, you can keep tabs on our progress by subscribing to this blog, following us on Twitter and on Github, or checking out savedai.xyz.
Please get in touch if you have questions — we can’t wait to hear from you!
Notes
- The amount covered by Opyn insurance is the principal (e.g., how much DAI you deposited into Compound) minus a little bit, known as the “max loss”.
