Fixed-Rate Loans for MakerDao Users
MakerDao is an incredible platform for borrowing, and the supply of Dai has exploded as users have adopted it. However, all borrowing in Maker is done at floating rates, and managing the risk of rising interest rates has been challenging. That’s why we created the Yield Protocol — to bring fixed-rate, fixed-term borrowing and lending to Dai.
Today, Yield Protocol is releasing RateLock, a new tool to permit Dai borrowers on Maker to lock-in a low interest rate with as little as one click. Visit our app to get started.
RateLock lets you view your existing Maker ETH-A vaults and preview available fixed rates. You may choose to borrow one of several different fixed terms (called “series”), up to the end of the year. For example, if you load the RateLock tool and select the March 2021 series, you might see a 2% fixed rate available to lock in your position. You can also view other maturity dates, such as June 2021, which may have a different fixed rate. After selecting a series, you can secure a fixed rate and migrate the loan to Yield with as little as a single transaction.
RateLock lets you migrate your entire loan at a fixed rate, or just a portion of the loan by specifying the amount of collateral and debt to migrate. Clicking “Use Advanced RateLock” permits you to enter an amount of collateral and debt to migrate. You must migrate at least 0.05 ETH. When you enter an amount of debt to migrate, the tool will update the expected APR based on current market conditions.
Loans created using the RateLock tool are ordinary Yield Protocol loans. After locking in a fixed rate, your collateral and loans can be accessed inside the Yield Protocol with the Yield app. Dai loans in Yield have a fixed rate for a fixed term. After the fixed-term expires, the Maker ETH-A stability fee is charged until the debt is repaid.
Visit our app to get started with RateLock.
You can learn more about Yield Protocol from our announcement post or our whitepaper. You can also join our Discord to join the community discussion.
Frequently Asked Questions
How does RateLock work?
Behind the scenes, RateLock migrates your Maker Dai loan to a fixed rate loan in the Yield Protocol. You can learn more about how Yield Protocol works here.
In the Yield Protocol, fixed rate loans are created by borrowing “fixed yield Dai” (“fyDai”) tokens using ETH collateral. fyDai tokens are Ethereum-based tokens (ERC20) that may be redeemed one-for-one for Dai after a predetermined maturity date. fyDai are analogous to zero-coupon bonds. Borrowers mint fyDai and sell it to lock-in a fixed rate loan.
RateLock migrates a Maker loan to Yield by flash-minting fyDai and selling it for Dai to pay off your existing Maker loan and free up collateral. The collateral is then transferred to Yield, and new fyDai is minted to pay off the flash loan.
Can I unwind my fixed rate loan before it matures?
The Yield App makes it possible to pay back a fixed rate loan early and retrieve your collateral. However, if interest rates change, the cost of early repayment may increase or decrease. You must hold your loan to maturity to receive the exact fixed interest rate that you locked in.
What happens after my fixed-rate loan ends?
After maturity is reached, you may return and pay your Dai debt in the Yield Protocol and retrieve your collateral. Until you do, your vault will be charged the Maker stability fee until the debt is repaid, just as it would be charged in the Maker system.
Alternatively, after maturity is reached, you can enter into another fixed-rate loan in Yield Protocol. In the future, Yield plans to introduce a tool to migrate your loan back to Maker after maturity.
How do I get the best fixed rate?
Yield Protocol uses separate liquidity pools for each series (maturity date) to match borrowers and lenders. The rate you are quoted in the RateLock tool is based on the liquidity available for that series. The most liquid series is the one with the nearest maturity, currently the March 2021 maturity.
If the rate you are quoted is high, you should consider locking in only a portion of your debt and checking back again later. Lenders are periodically checking the market, and you may be able to achieve a better rate by borrowing in smaller amounts to avoid too much market impact.
Visit us at yield.is to learn more and to sign up to our mailing list for further updates.
