Discovering Over-Collateralized Lending with QiDao

Most people’s relationship with crypto is buying and holding their funds on an exchange such as Coinbase or Binance. However, users are increasingly sending their digital assets on-chain to stretch in the world of decentralized finance (or “DeFi” for short.)

DeFi found its informal roots in a project called MakerDAO, which launched four years ago and allowed users to take out loans against their “collateral” (at first, Ethereum, but later, many other collateral types.) However, MakerDAO only operates on Ethereum. If you want to do this on other chains, you’ll need to find something like it.

Enter: QiDao. QiDao borrowed the foundational ideas of MakerDao — allowing users to make vaults, deposit assets, and take out loans against them in a stablecoin — and put it on a handful of cheaper chains like Polygon, Fantom, Avalanche, Arbitrum (and some lesser known ones like Cronos, Moonriver, and Harmony to name a few.)

People are using QiDao, and its contemporaries, to make more money on their money. To understand more about QiDao and strategies users are using, we chatted with justkila, a member of the QiDao core team who handles strategy, business development, modeling, and the like:

ST: How did QiDao come about?

Justkila: I got started in the space through hackathons … and the majority of our team met from hackathons. In 2014, I went to a hackathon in Vegas called Money20/20, one of the biggest future of money conferences, and was introduced to blockchain for the first time. There was a company called Blockchain.com sponsoring it and they had an API and a challenge for using it. So we ended up using that API. The next year, I went to Money20/20 for another hackathon and that was the year that everyone at the booths were talking about something called Ethereum. I was thinking that it was either going to be really big or a complete scam, like an MLM where people try to get you to sign up (and then you lose all your money.)

So I decided to dig in. From there, the love of blockchain kind of continued to grow. I started hosting hackathons across the U.S. for blockchain where I got to meet a lot of really interesting and smart people; great builders. We had conversations about new protocols and what industries needed, and we loved Maker because it was such a fantastic protocol – but we were also university students and spending so much on gas fees for Ethereum transactions. We wanted to use Maker more than we could, so when we saw layer-2 chains and cheaper chains, we decided: “Hey, let’s see if we can take elements of Maker and bring them to chains that might be more accessible.”

So that’s what we did. We took elements of Maker and Liquity, and other protocols. Then we launched on Polygon on May 4, 2021. It was a solid launch and Polygon gave us a lot of support. It also came at a time where Polygon was just starting to pop off.

ST: How are people using QiDao to grow their returns and make more money?

Justkila: There’s a bunch of different ways people are using QiDao:

1) If you’ve got tokens you plan on sitting on for a while – things you don’t wanna sell, but wanna use its value – then it’s a great way to do that. Like if you’re sitting on a lot of ETH and you think it’ll go up in value, but you have bills coming up and you don’t want to sell to pay it. You can start accessing some of that value at 0% interest through QiDao by using that as collateral and borrowing our stablecoin against it. You don’t have to sell long positions if you need money.

2) It’s not just if you need money, either. If you want to maximize the yields you get – you’re sitting on idle value with a lot of your tokens if you’re just HODLing on them. With QiDao, we allow you to access that “idle value” and put that value to work for you. So you can take those stablecoins and throw them into farms by putting them into stable farms (and generate 20-30%) or go seek out higher yield farms … and so that’s another way of using our protocol.

3) If you just wanna diversify your portfolio, you’ve got tokens – like you wanna sit on ETH, but you wanna own SOL or MATIC – then you can use your ETH position to go and get MATIC or SOL or FTM and increase and diversify using the tokens you already hold. What’s also really nice about borrowing against your tokens vs. selling them for stablecoins is that you’re reducing your number of taxable events by borrowing. I’m not a tax guy or CPA or financial advisor, but it’s not a taxable event unless you sell or swap your tokens. So people will use QiDao to help reduce taxable events while accessing the value of their tokens.

4) I think another really cool thing is that we allow you to use interest-bearing tokens as collateral. Thats uncommon in the crypto space… to use those as collateral. What that means is that your collateral amount, the amount of your collateral, is rising without you having to do anything. This becomes even more powerful when you realize that with QiDao, you’re borrowing at 0% interest. If your debt interest never increases and your collateral amount increases through interest-bearing collateral, you’re in a really interesting scenario where you can sit on debt for a long time, for 30-40 years… and it won’t make a difference in terms of how much you pay back. And this can become very powerful when you use the growth of your collateral to pay back debt.

ST: Obviously you went and expanded to more chains than Polygon since launch. A lot of early and mid-stage crypto investors struggle to keep up with happenings on the “large-cap” chains, so what do you see as the benefit of supporting so many chains (and how are people using them?)

Justkila: Each chain has its own unique benefits, or unique niches, that they’re trying to hit. In terms of how you can benefit from other chains – besides testing them and learning – is: 

1) On new chains, or early chains, you see a lot of high-yield assets. So if you’re looking for really high yields, a lot of those new chains will have those high yields you’re looking for (100%+ APY.) Where high yields come, be careful, because they will mean higher risk.

2) You’ll get exposure to new projects. Some of these will do well, others will disappear relatively quickly. The thing is that there are different vibes and feelings when you hop onto different chains and different communities, and what I think people like about exploring different chains is that they’ll find a community within those chains – so you sort of “find your tribe” by going out.

3) What’s beautiful is these new chains are so cheap to go out and test. You won’t spend hundreds of dollars to go test out a chain and test their dapps. You can probably do a lot with $10. The hard part is bridging to those chains… you’ll need a gas token and a good bridging solution. One really great “tool” is the Elk Bridge, which you can use to transfer from say… Polygon to Cronos. 

Not every chain is going to have blue-chip apps. Some chains are built out a little more than others, but it’s fun to go around testing things out, especially as games and other dapps pop up. You’ll be able to test things out and find really interesting hidden gems, as well as solid yields.

ST: What are you building next?

Justkila: We’re on a bunch of chains and we have a few more lined up, we’re just waiting on some partners. We’ll be on xDAI, Aurora, and quite a few more that will be popping up. The biggest thing we have to wait for is Chainlink oracles, so we can make sure that the price is something we don’t have to worry about. We’ll also be launching self-repaying loans, with features to repay.  

Another thing to mention is that we have two tokens, MAI (our stablecoin) and Qi (our governance token.) If you use QiDao, you’ll get some QI and you can hold on to that to vote on different proposals. Almost any big decision in the protocol is put to a community vote, so you can have a say. And if you stake Qi, you earn part of the protocol’s revenue.

We’ve also just finished up our first “vault incentives gauge”, which will allow the community to decide where our borrow incentives will go towards – like what collaterals we will incentivize borrowing against, so if you hold some Qi, you’ll get to decide the collateral types that get vault incentives – and you can vote for your favorite token.

ST: If people are interested in QiDao, and in DeFi, what is the best way to start?

Justkila: We have a community member who has created an “unofficial resource guide.” He made guides for getting started, how to get onto new chains, where you can use your crypto and MAI on different chains, and that’s probably a preferred place to start.

If you’re looking for more pointed help, our Discord is also a great place to get a start – it’s very friendly and warm and welcoming. You’re not gonna find guys saying “to the moon” or shilling assets … It’s usually very thought out discussions on different strategies, how to make Qi better, and how to expand, and the