A guide by High Stakes 🇨🇭

Lending/Borrowing is one of the pillars of DeFi and offers multiple investment opportunities.
However, this discipline is not without risks to your capital, and it is important to understand its mechanisms to use it wisely and benefit from leverage in your investments with minimal risk.

Introduction to Lending/Borrowing

Lending/Borrowing is relatively easy to understand and can be compared to credit activities in traditional finance.
It involves borrowing a certain amount of money by providing collateral.
In the case of DeFi, the collateral consists of tokens that you deposit.
This collateral allows you to borrow tokens for an amount proportional to the value of the collateral provided and, as we will see, based on the nature of the tokens.

Multiple Strategies Are Possible

There is no single Lending/Borrowing strategy, but rather a multitude of variants. It depends on your preferences, investment capabilities, willingness to take risks, and more.

Depositing stablecoins or tokens as collateral, borrowing stablecoins or one or more tokens — almost anything is possible!

How to Get Started?

A good technique is to start slowly, without rushing, by initially adopting a simple deposit strategy to generate interest.
Then, borrow a small amount that you can use in various ways.
Once you have a solid understanding, you can implement more complex mechanisms, which may involve slightly higher risks.

Umee.cc, a Leading Lending/Borrowing Platform in the Cosmos Environment

Umee.cc is a Lending/Borrowing protocol that operates on both Ethereum and Cosmos.
Umee, within the Cosmos ecosystem, is particularly interesting because it offers a wide range of assets, going beyond the scope of Cosmos itself.
For example, you can find assets such as $BTC, $ETH, $MATIC, and $DOT, made possible through the use of Axelar solutions.

Umee.cc: First Contact

To explore Umee, visit the website at https://umee.cc/. This will allow you to learn more about the protocol, read blog articles (https://umee.cc/blog), and, of course, use the platform by clicking on the “Launch App” button located in the top right corner of the main page.

Even before connecting your wallet, you can discover the Markets screen, which provides various statistics and a list of available assets.
For each asset, you can find information regarding its interest rate as a liquidity provider and borrowing rate.

By clicking on an asset, you will access a comprehensive information screen about it. It is crucial to understand the different indicators to make the best possible investment decisions.

Let’s take the example of $ATOM, the star asset of Cosmos…

The two charts represent the state of deposits/borrowings for the asset since Umee’s inception. The “Supply Information” and “Borrow Information” sections represent the status of your deposits/borrowings for the asset.

By clicking on “APY,” you can review the historical deposit/borrow rates, which provides valuable information for your future deposit/borrow choices.

The Market Details panel contains essential information that you need to be familiar with:

Price: The current price of the asset.
Available Liquidity: The total quantity available for borrowing.
Utilization Rate: The rate of utilization of collateral deposited by users.
Reserve Factor: The percentage of interest paid that contributes to the protocol’s reserves.
Max LTV: The maximum percentage of your collateral value that you can borrow.
Liquidation Threshold: The percentage at which your collateral will be considered insufficient to cover your debts.
Total Collateral: The total amount of collateral deposited by users.

Understanding Max LTV and Liquidation Threshold is crucial when performing borrowing operations.

We will not delve into the details of these concepts in this introductory article on lending/borrowing…

Providing Liquidity — How Much Does It Yield?

It is simply impossible to answer this question! The interest earned when providing liquidity primarily depends on the utilization of the deposited funds.

If you deposit an asset that is in high demand, the interest rate will be very high. Conversely, it may be low if the asset is abundant.

The interest rate depends primarily on the Utilization Rate, which, in turn, depends on the deposits and borrowings of users and thus evolves in real-time!

The Umee Token

To interact with the protocol, you need to have some $UMEE tokens, which you can obtain, for example, through Osmosis. As you will see, the fees are minimal, and you only need a small quantity of $UMEE to perform your operations.

It is worth noting that the $UMEE token offers a staking yield of 18% with an annual inflation rate of only 7% (https://www.mintscan.io/umee).

High Stakes is a validator for the UMEE chain and offers very low commission fees, guaranteeing you the best possible yield!

How to Deposit Assets on Umee

It is straightforward, and a few clicks are enough! Let’s take the example of providing $ATOM liquidity.

1. Connect your wallet (click on the Connect button in the top right corner).

2. Click on the “Transfer” button located on the right side of the $ATOM line.

3. Choose the amount to transfer to UMEE (remember to leave a minimum amount of $ATOM in your wallet to cover the fees) and click on Transfer. Your $ATOM are now ready to be deposited as collateral, which will earn you interest and borrowing capacity.

4. Click on “Dashboard” at the top of the interface.

5. Simply click on the “Supply” button to choose the quantity of $ATOM to provide. The display will show you the current rate and your borrowing capacity.

6. Click on “Supply,” and you’re done! You are now earning interest, and you can borrow tokens!

From now on, it’s up to you to regularly visit the Umee website to check the market conditions: interest rate you are being paid, borrowing rates…

What’s Next?

Depositing collateral is just the first step in protocols like UMEE. Especially since the returns are often lower than what you can achieve by directly staking your tokens.

However, it can still be a good way to put your liquidity to work without it being locked for 21 days, as is the case with $ATOM, or if you’re not comfortable with the concept of liquid staking.

Once you are familiar with the concept of providing liquidity, you can consider moving on to the borrowing stage and implementing simple strategies with a level of risk that you can adjust.

But that’s another story, which we will be happy to share with you in a future article!