Opportunity cost, quantifying the benefits of Savvy.
Savvy is a decentralized finance (DeFi) service that changes the opportunity cost of owning cryptocurrency. Opportunity cost refers to a loss of the potential gain of choosing one option over another. Savvy allows anyone (yes, anyone!) to take out an auto-repaying loan against their cryptocurrency collateral.
For instance, Sam owns 50 USDC. Theoretically, Sam could buy a wrist watch or a stock. By purchasing the watch, Sam loses the possibility of making or losing money in the stock — that is Sam’s opportunity cost.
With Savvy, Sam can borrow a 25 USDC equivalent Savvy token (svToken) against her 50 USDC in collateral. By borrowing the maximum amount, Sam now owns 25 liquid dollar-denominated svTokens and 50 illiquid USDC (75 USDC total).
At this point an astute reader may think, “why would anyone do this if the USDC is illiquid?”
Savvy allows anyone to borrow against volatile assets like stablecoins, BTC, and ETH equivalents. To see why this changes the utility of money, let’s walk through another scenario.
Davvy has a car payment and 1 WBTC, a bitcoin equivalent token. Davvy borrows 0.5 BTC equivalent svTokens (svBTC). Davvy now owns 1 illiquid WBTC, and 0.5 liquid svBTC. Davvy can swap his 0.5 svBTC for dollar denominated tokens and pay his car bill. Davvy received immediate capital borrowed AND still owns the WBTC. Through Savvy, Davvy is borrowing against the future yield of his money.
Davvy is now at a financial advantage due to the time-value of money. The time value of money is a financial concept that a unit of money will generally be worth more now than that same unit in the future. For instance, due to a variety of factors including inflation or potential investment return, 1 dollar now could be worth 5 dollars in the future. Through Savvy, Davvy has access to more money now.
How do auto-repaying loans work?
Savvy allocates Davvy’s collateral into various yield earning strategies like staking protocols and liquidity provision. The revenue from these strategies gets attributed to the balance of the loan, thus creating auto-repaying loans.
To learn more about Savvy and how it enables auto-repaying loans, check out our documentation. Learn more and join our community:
