What's better - CeFi or DeFi? And what it takes to borrow against your crypto?

Hundreds of dollars, if you ask me!

Okay, I ain't talking about borrowing from centralized wallets like BlockFi, Celsius, Nexo etc. or from centralized Exchanges. It doesn't cost me much when I borrow against my deposits in these wallets but these days I've moved almost all my crypto out of centralized wallets.

But as I told you yesterday that my fingers were itching to invest in newly created 1INCH-BNB pool on BSC despite I didn't had any liquidity to buy any of those coins. So I chose to borrow some funds from DeFi - the abbreviated term for Decentralized Finance.

Since it was my first time borrowing from any DeFi lending platform, I'd like to share my experience here.

At first, I was very much discouraged by the ongoing high ETH gas prices. So I almost gave up the idea. But then suddenly market started to dump. 1INCH dipped below $4, BNB was also around $200. ETH prices too crashed. So I thought gas prices would come up reasonably affordable at this time and I chose to proceed with my plan.

I have some SUSHI staked as xSUSHI. Although xSUSHI was approved for collateral on CREAM Finance some 3 weeks back, it's Collateral Factor (that defines how much can I borrow) was listed as 0 on its website. I was expecting it to be 60% but thought CREAM Finance will take longer to execute it.

So I proceeded to AAVE platform. There too xSUSHI is accepted as collateral but is categorized as high-risk asset and carries a Collateral Factor of only 25%. I was a little reluctant but I didn't had much choice. I don't have any other established coin that I could collateralize. I do have some RUNE but I don't know if it's accepted as collateral anywhere yet.

So I enabled my xSUSHI for spending on AAVE. Since I'm too frugal on spending Gas, I chose GWEI figure that was even less than the SLOW GWEI recommended ...lol!

So now I had plenty of waiting time for that transaction to get approved. But meanwhile, I stumbled upon this:

CREAM Finance has approved CF for xSUSHI to 60%. Obviously, now I wanted to borrow from CREAM. This is how my transactions went through:

1. I spent gas for enabling xSUSHI on AAVE
2. I spent Gas to cancel that transaction mid-way.😃
3. I enabled xSUSHI on CREAM Finance.
4. I supplied my xSUSHI to CREAM Finance.
5. I enabled my supplied xSUSHI as Collateral on CREAM Finance.
6. Oops, By now I ran out of Gas. No more ETH in my wallet to borrow!!!
   Now I spend some Gas to transfer some ETH from my another wallet to this wallet.
7. Finally, I borrowed some USDC against my supplied xSUSHI from CREAM Finance.
8. Transferred borrowed USDC from Ethereum chain to Binance Smart Chain hot wallet through their bridge.
9. Swapped USDC to BNB.
10. Swapped half of that BNB to 1INCH.
11. Supplied both the assets to 1INCH-BNB pool.
12. Staked LP tokens in 1INCH DAO for farming.

In above steps from 1 to 8, I spent Gas fee in ETH on every step. From step 9 onwards, I paid Gas fee in BNB which were merely some cents. So I've not detailed all the steps for it.

Although I mostly chose SLOW transaction speed for incurring low Gas fee in almost every step until step-8; can you believe that I spent over $200 in ETH even when ETH was below $1500?

So of course, I borrowed more than what I originally planned because borrowing small amount doesn't make much sense.

Now the question to ponder over is if borrowing from DeFi platforms better than borrowing from CeFi wallets?

CeFi wallets do have some risks, obviously because of their centralized control. You need to entrust all your funds to that centralized entity. They may take more time to approve your loan. But when using DeFi, we still need to trust on various smart contracts.

Smart Contract vulnerability is not very uncommon. Remember the ALPHA exploit on CREAM Finance last month? And FURUCOMBO proxy's compromise affecting $15m just a couple of days back? So can we put our trust in smart contracts of DeFi platforms even if they have gone through multiple audits?

E.g. I need to trust Sushiswap's smart contracts to hand over my SUSHI for xSUSHI and then again to supply this xSUSHI to AAVE's or CREAM's platform, I need to trust their smart contracts.

Although supplying my Sushiswap liquidity tokens (SLP) to CREAM Finance makes sense economically as they are offering all of the pool and farm rewards of Sushiswap, plus I can add additional interest to it for supplying my asset; I'm still undecided to provide my SLP to CREAM.

Strange world I find myself in!

• What do you feel about borrowing small amounts through DeFi?
• Do you feel secure when supplying large deposits for interest in DeFi platforms?
• Or do you prefer to spend on insurance for it?