As mentioned in this post, putting your tokens to work can be a good choice rather than just holding them.
Many options allow you to get the most out of your ETH, and Oasis.app can make your life easier!
Your next question could be: how can I choose the right position for me?
Oasis.app gives you access to different protocols: Aave and Maker (and soon more).
This article is made to help you assess which position suits you best on Oasis.app.
The main differences are Cost, Oracle mechanism, Supported Assets, and Governance.
1. Consider the cost
Not all positions cost the same; some are cheaper, and some are more expensive. This depends on the protocol design and if you want to borrow or multiply.
- For borrowing:
For example: in the case of Aave, while you are borrowing, your collateral is also being lent out, and you earn some yield.
This makes the borrowing cost lower than Maker in many cases.
- For Multiplying: the vaults that cost more have higher multiple, while the ones with lower multiple are cheaper.
Depending on how much extra exposure you want to get, you can choose the right one.
For example: Maker ETH-A has a max-multiple of 3.22x
and ETH-C has a max-multiple of 2.42x
Aave is a single max-multiple for all positions of the same token, for ETH is 5.71x
Another cost is the Liquidation penalty, which is 13% in Maker and 5% in Aave. This difference happens because each protocol has a different liquidation mechanism. If you are liquidated, your debt will be increased by the % amount indicated in the liquidation penalty. Since you have 1 hour before liquidation in Maker, this puts the protocol at risk of having some bad debt. To counteract this, Maker uses a higher liquidation penalty. Aave liquidates immediately as positions become insufficiently collateralized.
2. Oracle mechanism
- Maker utilizes its own Oracle network to derive prices. For price updates, it has a one-hour delay; this means you have 1 hour to adjust your position before liquidation. You can see the next price in the UI to know at all times if you need to update your position
- Aave uses Chainlink oracles; the updates depend on each token configuration but can be considered to be continuous for practical purposes. This means that if you see a sudden big change in the prices of tokens you are multiplying, you need to adjust your position because prices in Aave will update fast. Aave use of Chainlink allows for lower rates and higher multiples than maker since the risk of bad debt is reduced with faster oracles.
- Aave uses an off-chain governance system, which means voting and proposals are not directly recorded on the Ethereum blockchain. It also employs a simple majority voting system, with proposals passing if more than 50% of votes are favored.
- Maker, on the other hand, uses an on-chain governance system, providing higher transparency and security. It uses a more complex voting system involving two types of votes: Polling and Executive votes. Polling votes use a simple majority rule, while Executive votes require a higher level of consensus through a continuous approval voting mechanism.
Remember that these platforms serve different purposes within the DeFi ecosystem, so your decision should also be based on the specific financial products and services you wish to utilize.
You can learn more about the differences between Aave and Maker protocols
in this article.
4. Supported Assets
Another important decision to make is which collateral you want to use. This will obviously depend on which tokens you hold, but at least for ETH users these days one big debate is: should I use ETH? stETH? rETH? How can I pick?
In these cases, it all comes down to the staking yield; with Shapella being a successful fork and withdrawals from Lido coming soon, the differences between holding ETH and a staking derivative will be considered a big opportunity cost with staking yields between 4% and 5.5%.
For people who are looking to borrow or multiply, the difference between pure ETH and liquid staking tokens (LST) is stark.
All protocols offer more borrowing power to ETH holders than to LST holders. You can borrow more with ETH, and you have access to higher multiples. This difference might be relevant if you are multiplying or if you need a higher collateralization buffer when borrowing.
There is also the inherent risk of each LST, which can't be fully eliminated even if it's much reduced once all the deposit and withdrawals flow works as expected.
If you have any questions regarding Summer.fi in general, you contact us at email@example.com or on our social media.