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How to Use the Crypto Credit Markets: A Countercyclical Borrowing Opportunity

Traders Magazine Online News, April 15, 2019

Andrew Gillick

The infrastructure for decentralized lending and credit markets is falling into place for an alternative credit market that moves countercyclical to the wider economy which could provide an opportunity for investors to take advantage of the crypto recession.

Similar to how equity is being tokenized with security tokens, debt is also being issued on the blockchain with tokens representing lenders’ terms and conditions and creating profit opportunities for creditors, debtors, underwriters and arbitrageurs in the market. [IMGCAP(1)]

Decentralized finance is an exciting new landscape to explore with many new and unfamiliar features and concepts so we will navigate it here from the perspective of a first-time borrower, starting with the core currencies and protocols that enable it to the different lending platforms and their respective dashboards to become familiar with the important metrics within their systems. To save any confusion note there are numerous dashboards for each project built by the community which use slightly different formulas/parameters to arrive at the same metrics, so there is can be some dispartity in values across the dashboards.


Wrapped ether (WETH) is an ETH token represented on an ERC20 contract backed 1:1 with ETH, created last year. As Ethereum’s native currency ETH was created before ERC20 became the industry standard for smart contracts, ETH isn’t compliant with its own network’s ERC20 standards and so cannot be traded on decentralized exchanges against other ERC20-based altcoins. WETH is ETH converted to ERC20 giving it a lot of the same functionality of other altcoins, and the original ETH is locked away while its WETH equivalent is in circulation but can be unwrapped again by converting it back again through a decentralized platform such as Radar Relay etc.

WETH is a medium-term solution to this compliance paradox while the ETH codebase is being updated to make it compliant with ERC20 standards and other ERC standards.

As mentioned, WETH can be used on decentralized platforms and on Maker DAO it can be pooled with other collateralized ether funds to create PETH (Pooled Ether) that is locked up as collateral to draw the DAI stablecoin. Users can convert their ether to WETH using Radar Relay or 0x Portal before turning it to PETH on Maker DAO.

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