Savvy Overview and Flow of Funds
What is Savvy?
Savvy DeFi is a decentralized credit platform that lets anyone take out an auto-repaying, interest-free loan against their crypto (including ETH, BTC, and stablecoin derivatives) without liquidation risk. Savvy users can safely leverage their cryptocurrency holdings through a credit advance backed by their tokenized future yields.
Auto-repaying: The loans are auto-repaying because the collateral that you deposit is used to generate yield in various DeFi protocols. The yield generated by the collateral (minus a fee paid to Savvy) is used to repay your loan over time. Another way of viewing it is that you are getting an advance today on the yield your collateral will earn in the future.
No liquidations: You are not at risk of being liquidated because the loan you take out is denominated in an asset that is correlated to the price of the collateral that you deposited as collateral. For example, if you deposit ETH as collateral, you receive svETH as a line of credit. The value of ETH and svETH are correlated, so you can’t be liquidated due to fluctuations in dollar value.
With Savvy DeFi, you can deposit and borrow against stablecoins, ETH, and BTC derivatives.
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Lets illustrate using an example:
Alice has 1,000 USDC.e that she would like to borrow against. She goes to Savvy DeFi and chooses from the available yield-bearing strategies. Alice deposits 1,000 USDC.e into a high-apy yield strategy.
Savvy allows you to borrow up to 50% against your collateral. Alice decides to borrow 500 svUSD. The yield from her 1,000 USDC.e collateral will repay her loan over time.
What can Alice do with the 500 svUSD that she borrowed? She can swap it on a decentralized exchange for any other asset she wants. She swaps it for USDC and off-ramps through a centralized exchange to US dollars.
Alice’s loan is automatically reduced over time by the yield from her initial 1,000 USDC.e. As her collateral earns yield, 90% of it gets credited against her outstanding loan amount. However, since she’s already taken an advance on her yield in the form of a loan, the funds become owned by the protocol (to be detailed in the next blog post. Stay tuned!). The other 10% of the yield is paid to the Savvy Treasury.
Alice doesn’t need to make interest payments or monitor collateral ratios. However, if she wants to close her loan early and get back her asset, she must repay the remaining balance with USDC.e or svUSD to retrieve her original collateral.
For a visualization of the flow of funds for the deposit/borrow/repay mechanism, see the below diagram:
To learn more about how the svToken and base token price correlation is maintained, check out this article.
We invite you to browse our whitepaper if you are interested in the finer details of how the protocol works.
If you have more questions, you can reach us on Discord, Twitter, Telegram. Also check out our Website Medium Youtube Docs.
