QiDao is a protocol that allows users to lock tokens as collator and borrow MAI stable coin interest free. MAI is the stable coin used on the QiDao protocol and its name comes from miMatic, which represents MATIC on the QiDao protocol. Qi is the governance token for the QiDao protocol.
The first step is to post some collateral and borrow some MAI. On QiDao you do this by creating a vault, adding collateral, and then borrow MAI against that collateral. In my case I have some CRV tokens on the Polygon network. Ideally I would like to stake those CRV on Curve Finance to earn staking rewards, but that has to be done on Ethereum and I don’t have enough CRV to justify the Ethereum gas fees, so I will deposit my CRV on QiDao, borrow MAI, and yield farm on Quickswap. Here we go.
Create a vault
There is a different vault for each eligible digital asset. In the screen shot below you can see that I choose the CRV vault, so I can Depsit CRV and then I can Brorrow a portion of the collateral value in MAI, but I have to keep the collateral value above 130% of the amount of MAI that I borrowed. When I am done with the MAI, I can Repay the loan. There is no interest expense, but there is a 0.5% flat fee to repay the loan. Once the loan is repaid, I can Withdraw my CRV to complete the cycle. Of course, if I let the collateral value drop below 130% I am subject to liquidation, so I will have to keep an eye on that.
Let’s look at a real example. In deposited 34.4 CRV token with a collateral value of just under $175. The app tells me I can borrow almost 135 MAI.
Borrow MAI from your vault
Next I click the Borrow button and borrow 72.6 MAI, which gives me a collateral to debt ratio of 240%. This is way above the 130% minimum, so I am not at risk of being liquidated anytime soon. I like to be conservative when investing with DeFi.
Add Liquidity to a Pool
Now that I have some (borrowed) MAI in my wallet, I want to look for a pool to add liquidity to. I went to Quickswap Exchange, clicked on Pool and looked for a pair where I had both assets. Most pools are MAI and something else. I have some of my favorite MATIC tokens, so I choose the MATIC/miMATIC pool. (Recall that miMATIC is another name for MAI). I deposited the 72.5 MAI that I borrowed along with 36.6 MATIC that I had in my wallet.
Get LP tokens
After I approve the transaction I end up with 41.49 MATIC/miMATIC LP tokens.
Depost LP tokens on Quickswap
Once I have my LP tokens, I still need to deposit them before I can start to earn rewards. As the screen shot shows, my 41.49 MATIC/miMATIC LP tokens are worth about $143 at the time of deposit.
The entire pool pays out 1.55 dQUICK reward tokens each day. Given my share of the pool (which is very small), I should expect to earn (an estimated) 0.0001995 dQUICK per day. With a dQUICK price of around $535.00 at the time of writing, I expect to earn about 10 cents per day, or $36.50 per year. If I earn $36.5 on $143 invested, that is an APR of 25% which is not bad. I probably won’t get rich doing this, but it is a good way to support QuickSwap and the Polygon network.
This process was a little bit more complicated than the other yield farming examples I wrote about earlier, mostly because it involves a lot of different tokens. I suspect there is almost no limit to the types of convoluted processes which someone can dream up in DeFi. QiDao is taking a different approach by offering interest-free loans and it will be interesting to see if this protocol becomes popular in the future.
These posts are for informational and educational purposes only and should not be construed as investment advice or a recommendation to buy or sell any tokens. In this series I am just outlining what I am doing to learn more about the cyrpto space. Just because I am comfortable doing this, that does not necessarily mean these activities are suitable for you. I have not received any compensation from any of the products or services mentioned herein. Please do your own research and stay skeptical. These markets are not normal.