The DeFi engineer used an offset loan through a TradFi process. An offset loan is an account that directs a savings account’s interest towards paying down a mortgage. Notional Finance provides fixed-rate loans for up to six months for users that deposit crypto collateral in wrapped BTC, ETH, wrapped ETH, or DAI.
The engineer had to pay off his bank loan first in AUD. He then had to borrow the USD pegged stablecoin USDC from Notional at a fixed rate. He then added around $1 million in wBTC and wETH as collateral to Notional against which he borrowed around $500,000 of USDC which was converted to AUD to pay off the bank.
Borrowing rates on Notional Finance for USDC are approximately 6% but some of that can be recouped by earnings from liquidity provision. There is the added bonus of maintaining a position in a bull market without having to sell crypto assets and incur a capital gains event upon which there would have been taxes to pay.
The ability to use these assets as collateral is the first step in making “mortgage” loans on Ethereum available to a wider audience.
Leading DeFi protocol Aave has started dipping its toe into the mortgage industry. In an announcement on Feb. 2, Aave stated that the scheme was in collaboration with RealT, a firm that tokenizes real estate in order to allow users to stake their property as collateral to take out loans.