Defrost Finance has launched new Super Vaults to include certain Yield Yak yield-bearing assets as collateral. Mint Defrost Finance’s USD soft-pegged stablecoin H2O while you earn yield on your deposited asset. It’s a powerful combination to retain yield bearing capabilities while also gaining the ability to borrow.
For more information on Defrost Finance and it’s H2O and MELT tokens and how it leverages Yield Yak, see below.
What is Defrost Finance?
Defrost Finance is a decentralized protocol that allows you to leverage LP Tokens or other pool tokens from Avalanche and cross-chain protocols as collateral for generating H2O. Loans using your LP tokens as collateral are paid in the form of H2O (soft-pegged stablecoin) and each vault requires maintaining a healthy collateral position.
H2O is a stablecoin that can be minted by staking different LP tokens or other pool tokens in a vault, which will always be over-collateralized. It is soft pegged 1:1 to a dollar. Its stability is not mediated by any central party, nor does its solvency rely on any centralized authorities. LP tokens or pool tokens with abundant liquidity and market value can be used as collateral to mint H2O. This means that all circulating H2O is generated from vaults in Defrost smart contracts, and it can be used in the same manner as any other cryptocurrency.
MELT is Defrost’s utility and governance token. MELT is earned by providing collateral on their platform.
How Defrost Finance leverages Yield Yak
Users may stake Yield Yak YRT tokens in Defrost Finance’s new Super Vaults. Initially, the Super Vaults accept single-sided assets and begin with Yield Yak’s Aave AVAX and Aave USDC.e strategies, with more to follow.
A user can only borrow up to a certain percentage of the USD value of their collateral, depending on the collateral ratio. The minimum collateral ratio varies depending on the deposited asset.
Be careful and ensure you don’t run the risk of getting liquidated by exceeding your collateral ratio threshold. Learn more about how liquidations work on Defrost Finance’s Docs.
To ensure accurate prices of the collateral, a Chainlink oracle price feed is used as a source. The interest on the loan accrues according to the stability fee and is annualized.
The stability fee is like borrowing interest on the generated H2O. The rate is expressed as an APR. If a Vault becomes undercollateralized, as specified by each Vault type’s Minimum Collateral Ratio, it can be liquidated and have its assets automatically sold to cover the generated H2O as well as the Stability Fee.
For example, a loan of 1000 H2O with a 1% stability fee will mean that after 12 months, the user will owe 1% of the principal (1000 + 10 = 1010 H2O total).
Step by Step Instructions: How to Deposit your YRT token into a Super Vault and start borrowing H2O
As a first time user, you will need to begin by acquiring some MELT to pay for opening a vault. The amount of MELT required depends on the loan amount and can be considered a “ticket” to enter the Super Vault.
- Head to https://www.defrost.finance/superVaultII and click ‘Open Vault’
- Click ‘Approve’ in the bottom right hand corner and approve the transactions of the 3 step approval process
- Deposit your LP token & Mint $H2O in a single click