How to use Liquity on Instadapp and earn INST rewards
Derrick Nguyen
September 8, 2021
In this post, I’ll provide a step-by-step guide on how to use Liquity on Instadapp—which provides powerful tools for interacting with Liquity and other borrowing protocols in the DeFi ecosystem.
Quick Disclaimer: This tutorial is not a recommendation and interacting with DeFi protocols can be risky. Please do your own research and use your best judgement.
What is Instadapp?
Instadapp is a full feature platform built for users to leverage the full potential of DeFi. The Instadapp protocol ('DSL') acts as the middleware that aggregates multiple DeFi protocols into one upgradable smart contract layer.
At time of writing, Instadapp’s usefulness has allowed them to reach a TVL of $12.36B!
Instadapp recently integrated Liquity, which allows users to manage their Troves with Instadapp’s “Deposit and Borrow”, “Payback and Withdraw”, “Save”, “Leverage”, and “Close Trove” functions! The “Refinance” function on their UI that allows one-click migration between their supported protocols (Maker, Aave, Compound) is still in progress for Liquity.
All of these functions are one-click transactions consisting of multi-step processes. Usually, these processes would have to be performed separately and would ultimately cost users more gas fees.
Additionally, Instadapp’s DeFi Smart Account allows users to add additional “authorities”, which means that users can manage their positions from multiple Ethereum addresses.
If you’re a Liquity Frontend Operator looking to give your users access to Instadapp, we recently published a tutorial outlining how you can do so here.
DeFi Smart Account (DSA) Explained
When you open a position with any protocol using Instadapp, you’re creating it on a DeFi Smart Account - similar to DeFi Saver and their Smart Wallet. The DSA is a proxy smart-contract that allows for the complex transactions that I mentioned above. Another potential use case for the DSA is automation (i.e. automatically protects position from reaching liquidation thresholds), though this is still a work in progress.
If you already have a Trove that was created using other Liquity frontends, it will not be compatible with Instadapp’s DSA and tools. To migrate, users will need to close their existing position and re-open their Trove on Instadapp.
If you already have a Trove created on Instadapp’s DSA, they may or not be compatible with other Liquity frontends. In order for them to be compatible, they’ll need to implement Instadapp’s SDK.
As most of you know, Liquity was recently integrated by DeFi Saver - a similar protocol with similar tools. Both protocols have their own versions of proxy-contracts, but it’s important to keep in mind that they are not compatible with each other. You’ll have to do your own research if deciding between these two, but you can find my previous guide on DeFi Saver here.
With that said, let’s get into this tutorial.
Landing on Instadapp’s Dashboard
First, you’ll need to access the Instadapp dashboard and connect your wallet by following the example below.
Note: Notice the blue disclaimer at the top? Bookmark the official Instadapp UI to stay safe!
Optional: Simulation Mode
Another useful feature that Instadapp offers is Simulation Mode. Entering this mode creates a simulated account with fake funds (100 ETH). For beginners, this may be the optimal route since it allows use of the protocol without any real funds at stake.
Otherwise, you can create your DSA and continue!
Opening a Trove
Once you’ve entered Simulation Mode or created a DSA, the next step will be accessing the Liquity Dashboard and creating a Trove:
Note: Instadapp users can create multiple DSAs with the same Ethereum address. This function is out-of-scope for this tutorial, but you can read more about this here.
When opening a Trove, you can input your desired amount of ETH collateral and debt. I’m opting to deposit 10 ETH and borrow 20,000 LUSD. Any inputs are allowed as long as your Trove is ≥ the minimum debt (2,000 LUSD) and is ≤ the maximum loan-to-value ratio (90.91%).
As you can see, many stats appear on the right-hand side of the dashboard as I input values. You can hover your mouse over each one and an explanation will appear. I’d recommend going through each explanation before opening a Trove.
Resource for Trove owners: Kolten previously wrote a guide on Trove management here.
The Liquity Dashboard also allows users to deposit into the Stability Pool and stake LQTY in the bottom two tabs, but I won’t cover those here.
Note: Instadapp’s Kickback Rate is 100% — meaning they take no cut out of the LQTY you earn from the Stability Pool!
Liquidity Mining
When opening a Trove through Instadapp, users will begin earning INST (Instadapp’s governance token) liquidity mining rewards. You’ll earn the APR displayed above on the net value ($ value of collateral - $ value of debt) of your position. For example: a Trove with a $25,000 net value will earn 3.02% on that amount in INST rewards.
The accrued rewards will be displayed on the UI and available to claim every Thursday. After earning the rewards, you can use INST to participate in Instadapp’s governance and help shape the future of their protocol!
Adjusting a Trove
Now that you’re officially a Trove owner, you can utilize the management functions (strategies) displayed above. The captions provided explain how they work pretty well, but I’ll provide an example of how to use the Leverage function:
Liquity’s high loan-to-value ratio allows for leverage up to 11x and combining this with Instadapp’s one-click leverage sweetens the deal quite a bit. Now, users can leverage their positions with minimal effort.
Authorities
Users can also add multiple “authorities” to their DSA. In short, this means that you can manage your DSA from multiple Ethereum addresses. All you have to do is find “Account Settings” on the UI as displayed below, input the address, and confirm the transactions:
One of the most powerful use cases for authorities is minimizing your risk. For example, if you lost access to your main Ethereum address, you could still access your DSA and funds through an additional authority. On the other hand, you should consider the importance of only adding addresses that you control, since any authority has full power over your DSA.
Learn more about additional use cases for authorities here.
What’s next?
You should have most of the information you need to get started with Instadapp! To learn more, check out their resources here:
Liquity Resources:
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