If you are new to DeFi and crypto lending systems, no need to worry because it is similar to what we do in banks. When you supply some cryptocurrencies such as the wrapped form of Bitcoin, Ethereum, or native coins of certain blockchains, you are provided chances to utilize lending operations according to your deposit and the health factor.

If you deposit $1000 worth of X coin and borrow $500 cost of stablecoin, there would never be a problem like liquidation of your supply unless the price of X coin drops around 50% before you pay for your debt. In a situation that you keep your health factor, the ratio of supply over borrow, then all you pay for is the APR of your borrow.

*The lending operations are only less stressful and less risky when the market is in an uptrend and you keep your collateralization at normal and logical levels. In a downtrend, especially in the early phases, lending can be a huge threat to your portfolio. Thus, take your risk accordingly.

Though there are serious risks of lending, it also has benefits for different situations. For example:

• In the case of Airdrop, it increases your volume and total value locked on the testnet.
• If the coins on the market are around the long-term support levels (e.g., 19K in BTC), you can overcollateralize and profit from higher APR or make more crypto investments.
• You do not sell your crypto for further investments, as long as you make 1% more than borrow APR, you are in profit.

How To Maximize Lending Profits

First of all, start with minimizing the risks. Let's go over the cases with real examples.

I have supplied 450 SUI (SUI @0.48) and borrowed 34 USDC on Navi Protol. My supply APR is 17% (which is too high because there is an event on SUI) and the borrow APY is only 1.48%. So, basically, I am getting higher revenue when my capital, SUI in this example, is supplied. When I borrow cheap USDC with low APR, I get some more advantages.

First of all, have a look at the health factor* that I secured.

1.00 liquidation value is the level which you lose all your capital. Personally, I prefer keeping the health factor at least 2.00 so that I can pay my debt and unlock my funds in a sharp drop that may reach up to 50% in crypto.

Now that I have a nice health factor, it is time to enjoy this cheap money!

Option 1 - I can keep it as USDC and supply it for higher APR than borrow APY. This is the safest way unless it reaches break-even point. Option 2 - I may buy cheap ETH, SUI or another promising crypto that is tradable on this blockchain Option 3 - Cross-chain the funds to find a project that yields better returns than your borrow APY.

All these options are possible. I stick to both options 1 and 2 according to the market and the support / resistance level of the coin.

If you believe that this is the dip level or you are almost there, then you can also buy more of the native token and supply it, as well.

With the "good debt" that you get for low APY, you can increase your token holdings and keep generating revenue on the lending platform. This case has its own risks but this might be a degen move obviously 😉

Do not forget that the APR might not be stable and the coins may crush because of a hack, problem on chain, or FUD. Take all the risks while putting your money on a platform.

For SUI, SEI, APTOS, and many other new projects, there are several lending platforms where you can take some cheap money for low APY and turn it into good debt.

Share your experience of having good debt in recent times below 👇

Hive On ✌🏼