Self-repaying loans

Imagine being able to borrow crypto without ever having to worry about repaying the loan.

This revolutionary concept is now a reality thanks to self-repaying loans in the DeFi space.

These loans leverage the yield generated from your collateral to automatically repay the borrowed amount over time.

What Are Self-Repaying Loans?

Self-repaying loans are a financial product within the DeFi ecosystem. Unlike traditional loans, where the borrower is responsible for making regular payments, self-repaying loans invest the user collateral and use the yield generated to repay the loan over time automatically.

This innovative approach ensures that the borrower can access funds immediately without worrying about the burden of ongoing repayments.

How Do They Work?

1) Collateral Deposit: The user deposits an asset, typically a stablecoin or WETH, into a DeFi protocol designed to handle self-repaying loans. Then, he can borrow up to 50% of the collateral deposited.

2) Yield Generation: The protocol utilizes the deposited collateral to generate yield. This is usually achieved by deploying the collateral into various yield-generating strategies within the DeFi space, such as lending, liquidity pools, or staking.

3) Automatic Loan Repayment: A portion of the yield generated from the collateral is automatically redirected towards repaying the loan. This process continues over time, gradually reducing the borrowed amount without the user needing to repay manually.

4) Collateral Release: Once the loan is fully repaid through the generated yield, the user can withdraw their original collateral. The entire process is automated, providing a seamless experience for the user.

This mechanism effectively means that users can take out loans without having to repay them themselves, as the system handles the repayment process automatically.

Use Cases

Self-repaying loans provide liquidity and financial flexibility by allowing users to access funds without selling their assets.

This is particularly useful in volatile markets were holding onto assets can be more advantageous than liquidating them.

At the same time, users can also leverage these loans to make timely investments or cover unexpected expenses without disrupting their long-term investment strategies.

Moreover, self-repaying loans serve as automated savings and investment tools. For users who regularly earn a yield on their crypto assets, these loans can act as a set-and-forget strategy to grow their wealth.