Supply and Borrow on AAVE

I saw a video yesterday of someone depositing their ETH on AAVE, borrowing USDC and sending that to Coinbase to withdraw to their bank for a deposit on a house. So this got me thinking, what do you guys think of the following plan:

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1. Use a credit card to buy X ETH
2. Stake ETH on LIDO
3. Send stETH to AAVE
4. Borrow against the stETH and get USDC
5. Send USDC to Coinbase
6. Withdraw and pay the credit balance

Now other than the obvious downsides like; gas fees, the interest that AAVE requires which should be re-payed with the interest from LIDO, hacks, what else is there that could go wrong with this?

The idea of this is it allows you to buy a decent amount ETH at a low price, even if you have to pay a small fee every month/year.

What obvious downside am I missing?

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13 thoughts on “Supply and Borrow on AAVE”

  1. The risks of that is already priced into the trade. Its called a carry trade for those of you who are unaware and its finance bread and butter. Its also what cause half of the insolvency across the VC/Cefi scene lately as they all did carry trades in very poorly handled ways.

    So for this trade you are purchasing the risk of the steth already hence its lower price.

    What your friend did was different. He’s basically selling with an over collateralised position making a bet/speculation that Eth will rise from here substantially and definitely not go down.

    That way he basically sells his eth today at tomorrow’s price if he believes it will 2x for example. However his risk is over paying by 25% if the pice falls and the collateral is liquidated.
    This says nothing of how he may add more to increase health factor but its largely a moot point for explanation purposes and for most people turns into gambling there.

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  2. You are essentially extracting value from assets without selling them. Aave is good for this (also check out Mai Finance). The big factor here is making sure you remain overcollateralized and that prices hopefully go up.

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  3. Only downside I see is that you wouldn’t be able to pay off the card in full or that if eth has another big drop you get liquidated.

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  4. Why not just stop at buying with the credit card, and lendingit to lido? Why make it complicated? Or you simply just don’t want to pay the interest to a bank?

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  5. Because it’s not 1 to 1? Eg if I use 10k on my credit card back to the last leg I probably only get 5-6k? Then why not buy ETH with your credit card for 4k?

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  6. Be careful, if whatever happens, they won’t do anything as what is happening on harmony aave: all users funds are stuck because they did not consider properly the oracle they were using for all use cases. (Such as bridge hack)

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  7. Over collateralizing is a good way to not sell your assets and perhaps make money and pay your bills but you have to have substantially more than you plan to take out. If the collateralization rate is 150% you really need to keep it over 400% to sleep at night and you need significantly more collateral on the side to be able to see it until you are in profit. It’s not really that risky if you do that, as long as you believe Eth will not disappear and continue to go up in price in the next few years.

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