Nexo, as the world’s only instant crypto credit lines provider to service 200+ jurisdictions and in 40+ fiat currencies, closely follows developments in the decentralized finance (DeFi) space. A central role in this dynamic and exciting part of the crypto industry has been taken by our partners at MakerDAO, creators of the DAI stablecoin.
The Reason For the Increase of the Stability Fee
After a series of stability fee hikes, the interest rate for Collateralized Debt Positions (CDP) from MakerDAO currently stands at 19.5% per year. The interest rate increases are aconcentrated effort to restore the intended DAI peg to $1 US dollar by incentivizing the users who have opened CDPs to buy DAI on the open market and repay their obligations thus pushing the price of DAI up to the intended dollar rate.
According to Grapefruit Trading’s analysis the mechanics of interest rate increases are inefficient in restoring the peg as CDP’s must be closed strictly by their owners. Despite the steep increases in the stability fee, owners might avoid closing their CDP because they are:
- Not able to do so. Closing their CDP requires enough free capital to purchase DAI on the open market. Furthermore, users who have spent the loan proceeds in the real world face additional friction as getting fiat money in-and-out of the system remains a challenge due to limited liquidity and big spreads and transaction costs even on reputable exchanges.
- Not willing to close their CDP. Retaining the collateral and its potential upside still outweighs the high interest rate.
Avoiding Liquidation and Lower Your Interest Rate
Nexo has already been approached by dozens of clients to help them refinance at a lower rate. It is Nexo’s intention to address the above issues and meet the specific needs of both types of users by offering CDP holders the option to refinance their obligations at an interest rate as low as 8%.
The users who chose to refinance or close their CDP through Nexo will enjoy the following advantages:
- Insurance on custodial assets of $100M provided by BitGo and Llyod’s of London
- Predictable interest rates starting from 8% and with a clear cap.
- No liquidation fees. No additional charges. No installments.
- Lower liquidation threshold — 120% of the outstanding loan
- Partial loan rebalancing instead of a full liquidation
- Bank/stablecoin transfers can be used for repayments as well as collateral sales
We have designed a fast and simple process to ensure a seamless easy transition and refinancing on the Nexo platform.
Refinance your CDP in 3 simple steps:
Bruce has a CDP with 10 ETH collateral worth 2,000$ and 1,000 DAI debt.
- Bruce requests a refinance of his CDP at email@example.com and creates an account on the Nexo Platform
- Nexo funds 10 ETH (worth 2,000$) to Bruce’s Nexo account, which are pledged as collateral
- Bruce transfers the ownership of his CDP to Nexo. Nexo buys 1,000 DAI at 0.99$ on the open market and pays 5$ in gas fees for unwinding the CDP.
Bruce now has an outstanding loan on the Nexo platform of 995$, secured by 10 ETH, worth 2,000$.
In order to be able to refinance with Nexo, your CDP should have a minimum outstanding debt of 5000$ and at least 200% collateral.
Benefiting All Stakeholders
By simplifying the closure and refinancing of CDPs without any additional fees Nexo helps:
- Users refinance at a lower interest rate as well as lower liquidation thresholds
- MakerDAO to more efficiently manage the DAI exchange rate towards the intended peg by reducing friction for users who want to close their CDP
- The DeFi ecosystem convince users they no longer need to look beyond the blockchain space to meet their financial needs
Nexo is thrilled to contribute the Defi ecosystem as a whole and will continue to look for collaboration opportunities with other projects in the space that will help revolutionize financial services and create noticeable value for the crypto industry’s early adopters.
Apply for refinancing by writing us an email at firstname.lastname@example.org