here they will be putting up $1m in assets to borrow $500k .
but wont it make more sense to put up $700k in protocol tokens, $200k in LP ($900k total) then borrow $450k at 8%, then use the $100k of stable coins to borrow $70k on aave for a lower APR% (2.5% right now) so they get a $20k bigger loan and pay slightly less in interest ?
overall , i like the general idea, but it has its risks.
i also have the same questions as aidan
- Why would they borrow Frax at a higher against their aDAI that may be generating at 2-3% APR?
- Has any protocol shown interest in borrowing through DebtDAO?
It seems to me like the risk/reward for Frax is close to investing in the DAO, and if that is the case and we wanted to invest in another DAO, it would be better for us to buy their tokens in exchange for stablecoins because the potential upside is much bigger than the lending rate for us. We also have a similar partnership with OndoFinance in which we lend Frax so that DAOs can build and own the liquidity pools of their tokens, and imo with a lower risk of undercollateralization.
Also, if a DAO is able to borrow $1m at a 5% APR and repay it within a year, means they probably have a decent revenue, so with this revenue I also don’t see how it may be necesary to take a loan.
This is just my first impresion, there may be DAOs that can present good reasons to why they need a loan, how they are going to use it, repayment plan, clearness about how they are going to collateralizate, etc. But I would prefer to find those cases first before commiting into supplying capital.
