After hitting a wall with banks, a borrower has turned to DeFi to pay off his mortgage.
A software engineer has taken decentralized finance to a new level of practicality, by paying off his mortgage with Commonwealth Bank of Australia and refinancing the loan through fixed-rate lending protocol Notional Finance.
The move marks a major step for the fledgling DeFi sector and more fixed-rate lending protocols in DeFi may attract additional users seeking mostability in longer-term investments and loans, such as mortgages. Currently, the ecosystem is largely populated by yield farmers looking for quick gains on their crypto collateral.
The DeFi engineer attempted the process through TradFi by seeking an offset loan, which directs a savings account’s interest towards paying down a mortgage.
Speaking to The Defiant, however, the borrower stated that banks are very cautious about lending in times of economic uncertainty, especially to those that are self-employed. He added that he had been rejected for a basic credit card for four years.
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 approach was far from simple and user-friendly for noobs, however. 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, providing his own liquidity to avoid the slippage and fees on the new low volume platform.
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. He said:
“I feel like I’m in full control of my situation. People should be all over this stuff.”
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.
He added that the process was fast compared to traditional finance;
“It felt like it would’ve taken months of applications, finding tax returns and bank statements for the bank to refinance me, but I was able to do it all in one day, under my own agency,”
Leading DeFi protocol Aave has also started down the mortgage path with its latest partnership. 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. The ability to use these assets as collateral is the first step in making “mortgage” loans on Ethereum available to a wider audience.
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