Summer.fi: The best place to borrow and Earn in DeFi

October 2, 2023

In conclusion

Many apps have grown from the roots of established predecessors in the DeFi landscape, Summer.fi, which sprouted as Oasis in 2016 as an extension of the “OG” DeFi pioneer, MakerDAO's DAI, is currently drawing significant attention and interest within the space.

Now, If you've been in the crypto world for a while, you probably remember the first DeFi summer. Since then, summers have come to signify peak performance periods in the crypto sphere—until now. Summer.fi is boldly challenging the inherent seasonality tied to the "Summer tag" and is audaciously declaring every season as “Summer season”! 

While this screams utopia, with over 2 billion United States “Gensler protected” Dollars in deposited assets (TVL), we can't quite say that it is unrealizable in the context of Summer.fi, not especially when they’ve displayed an undaunted resolve to be more than the frontend for access to MakerDAO, rather, to become the most trusted place to deploy your capital into DeFi! 

To achieve this, Summer.fi has introduced a handful of protocols, products, and concepts that enhance the performance of deposited assets and allay the fears of depositors —prioritizing user safety, user experience, and capital efficiency. 

It is in the light of this that we cross-examine in the following few paragraphs, the new additions that figuratively give you and I, the cape and superpower to traverse DeFi unscathed. 

Summer.fi Power-ups products/features

Summer.fi has teamed up with a few protocols like Ajna, an “Oracle-less, Permissionless, zero-governance protocol, AAVE, MakerDAO, SparkDAO (a subDAO associated with MakerDAO), and more to come, to create a giant of a money market with the most friendly interest rates you possibly could find across DeFi. The contributions of the underlying protocols cut across three main actions: Borrow, Multiply, and Earn with each of them having their respective mechanisms of operation. Think of Summer.fi as a gateway access to these protocols. 

Borrow

Summer.fi provides access to loans from associated protocols. For example, a user can borrow DAI from Maker, cbETH from Ajna, and other assets from Aave, as well as other curated assets, depending on their preference. 

Using Ajna via Summer.fi, Users are able to engage in lending and borrowing within isolated pools containing a collateral asset and a debt asset. This ensures that individual pools have zero exposure to subsequent pools containing similar assets. What this means is that borrow rates will differ from pool to pool, and in a situation where one pool faces bad debt risk, other pools are not affected even though they may contain similar Debt or Collateral tokens. For Aave, this is different as it pays interests on collateral deposits thanks to operating via a unified pool exposing every pool to every token risk. 

Borrowing from the Summer pool grants access to a diverse range of protocols, each offering varying accepted collateral options at highly competitive borrowing rates, all without imposing any specific borrowing schedules. Nonetheless, should your collateral fall increasing your loan-to-value ratio beyond the max, you will be liquidated. It’s important to stay overcollateralized to avoid being a victim to the grim keeper’s fate. 


Summer.fi combines the safety of borrowing in the oldest and most trusted lending protocol that is Maker and its expansion protocol Spark, the comfort of borrowing at the efficient AAVE markets and the innovative Ajna, with a product for every need.


Ajna protocol, exclusively offered via Summer.fi, has no preset max LTVs set by governance or any entity, it’s purely market-driven by the activity of lenders and borrowers. This means that Ajna can offer higher or lower max LTVs without the need for a lengthy governance process, letting users borrow more against their assets and lenders get higher yields for lending against riskier assets. With no oracle system, Ajna represents a pure market-driven protocol, a bold take that you can explore in Summer.fi.

But if Ajna is too experimental for you, borrowing in AAVE or Spark will be just what you need. Backed up by chainlink oracles with known and standard LTV ratios determined by their respective governance, this feature will be right in your lane if you’re looking for comfortable borrowing against many supported assets.

Multiply

Summer.fi's multiply feature empowers users to amplify their exposure to the collateral asset by utilizing borrowed assets in a single transaction. For instance, you can deposit cbETH to borrow USDC at a designated LTV ratio and, within the same transaction, deploy the borrowed USDC to purchase more cbETH through 1inch. This seamless process is executed through the utilization of flash loans. After opening a multiply position, you can decide to either buy (long) that position or sell some of the collateral (short it). A 0.2% fee is also charged on the value of the transaction per multiply action. 

Earn

The Summer.fi earn products allow you to lend your capital and earn yields as it's utilized through multiple strategies. Simple strategies like deposit to the Dai Savings Rate allow users to access a safe stablecoin yield provided by the Maker protocol. 

For holders of ETH, many strategies are enabled to multiply the yield from the liquid staking tokens such as cbETH, stETH and rETH taking advantage of AAVE and Ajna protocol to do so. A familiar interface that explains each strategy allows users to earn a yield on their assets and track their earnings. 

How liquidations work

Summer.fi provides the interface for the integrated protocols and at that, all of these protocols have their own specific liquidation process and mechanism. For MakerDAO, a minimum collateralization ratio is set to ensure that you are not at risk of getting liquidated. Moreso, Maker makes use of Oracles which provides information on the liquidation price. Should the collateral price fall below the minimum collateralization ratio, you are at risk of getting liquidated immediately, as your collateral will need to be sold off to cover your debt. One more thing to note is that during a liquidation event, you are charged a fee which will be deducted from your collateral. 

On Aave, liquidation events occur when the value of the debt exceeds a threshold parallel to the collateral which is set at 80%. What this simply means is that if you deposit ETH as collateral and borrow DAI, should the value of the ETH collateral drop such that the DAI borrowed is now 80% of the value of the collateral, a liquidation event will occur, selling the collateral to cover for the value of the DAI borrowed.

On Ajna liquidation works slightly different from the aforementioned. The liquidation process is somewhat fair to the borrower thanks to a grace period that allows the borrower some time to either add more collateral to their positions or pay back the debt. How this works is that in the case of a liquidation event in an Ajna position, a penalty of 90 days of interest is added to the position and the borrower is given a 1 hour grace period to do something – add more collateral or repay the loan. Once the 1 hour elapses, the collateral is moved to auction with a 7% fee added to the value of the debt, users can now bid to buy the collateral and repay the loan. 

Automation mechanism

Remember that we mentioned earlier that Summer.fi is more than just a pretty face that grants you access to some of the best yields across integrated money markets. Summer.fi goes beyond this to offer a unique user experience through various automation mechanisms that ensure safety and capital efficiency. 

These automation tools assist users in effectively handling their positions and, most importantly, safeguarding their assets from potential risks. 

One of the automation tools available to Summer.fi users is the automated “Stop Loss” feature that protects your collateral from liquidation should the collateral fall in price A stop-loss action is triggered if the preset minimum collateral value drops below the threshold. You can view this as setting a safety level such that once the price gets to that level, an automated mechanism ensures that the position is closed through a flash loan transaction. This transaction will sell collateral to cover the debt, and it’s carried in such a way that prevents sandwich attacks or other MEV losses for you, guaranteeing the best possible execution.

Summer.fi offers another handy tool known as the "Take profit" feature. Just like its name suggests, this tool lets you set specific conditions, and when those conditions are met, it automatically closes your vault for you. All you have to do is authorize it by signing a transaction, and it takes care of the rest based on the rules you've set.

In the same way that the automated stop-loss feature works, the Take-profit feature relies on the Keepers who monitor the price in order to execute the function.

How this works is that the keeper calls the smart contract to close the vault and execute a flash loan transaction that pays back the debt and swaps the collateral while depositing what is left to your wallet.

Other features include auto-buy and auto-sell features or tools that automate the management of your position’s collateral. Using the auto-buy feature, users can reduce the value of their collateral by generating more DAI and swapping it for more Collateral.

On the other hand, the auto-sell feature repays your debt thereby increasing the value of your collateral without closing the feature. Note that the auto-buy and auto-sell feature are relevant to the “Multiply” product we mentioned earlier and as such, attract a 0.2% fee on the swaps needed to execute these functions. Users can also choose to set up multiple features at the same time. For example, to fully automate the collateral ratio of a position in both directions of the market, a user can set up auto-buy, auto-sell, and stop-loss features as a complete hedge should the market become extremely volatile. 

Lastly, another important feature available to Summer.fi users is the ability to keep your Vault's Multiple factor at a specific value, automatically purchasing or selling the collateral whenever the ratio moves. This feature is specific to the multiply product and is called the “Constant Multiple” tool. To enable the constant multiple features, a total of 5 instructions are necessary to trigger the function: A sell trigger using the auto-sell feature, a buy trigger using the auto-buy feature, the target multiple stemming from the two previously set triggers, a max buy price, and a minimum sell price.

Making the most of Summer.fi 

If you find it challenging to grasp the integration of all these elements mentioned above, then this section is for you. Understanding Summer.fi on the fly can be complex, but it becomes clearer when you imagine the obstacles that hinder your financial success in these markets as adversaries, or more aptly, as villains.

For example, you’ve parked your capital because of how turbulent the DeFi space is at the moment in terms of risks, or perhaps, fear may have led you to rely excessively on centralized exchanges while others are enjoying the opportunities in DeFi, or maybe you’re put off by the excessive leverage being offered across protocols in the space. 

If you fall in any of these categories, then it’s important that you view Summer.fi and the features being laid out as DeFi Superpowers. As such, in this context, you can make the most of your parked capital without losing exposure to your asset by depositing into any vault of your choice, borrowing a stablecoin, farming yields across several pools including leveraged positions as well as incentivized positions, and accumulating these yields while never losing your ETH that was initially deposited. 

You can do all of this by leveraging superpowers such as stop-loss, Earn, Multiply, Take-profit, auto-sell/auto-buy, and the superpower of the yield loop when you combine the Earn glasses with the Multiply cape. 

Closing thoughts

Overall, Summer.fi is building a monster of a money market and making it more accessible by deploying to Arbitrum leveraging cheaper fees and access to liquidity! So, we have a keen eye on this one and are closely watching to see how Summer.fi continues to evolve. 

While it’s uncertain if Summer will have a native token of its own, feel free to join in the fun and get a feel of DeFi summer with a protective cover. You can also participate in the referral program and earn 5% of the fees generated by your referral paid in DAI stablecoin.

If you are going to use Summer.fi then consider using our referral link which will entitle you to earn 5% off the fees generated.

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