TLDR

• Both AAVE and CIAB (Cat-in-a-Box) allow users to deposit stETH as collateral in order to borrow ETH which can be used on your favorite DeFI protocol or to buy NFTs while enjoying a positive net yield on your ETH

• At the time of this article CIAB provides a better net yield than AAVE until a LTV of 82.5%

• For a reasonable LTV of 40%, CIAB gives a 2.4x better net yield

Hey all you cool cats and kittens, after our last article explaining the core mechanics of CIAB, you should already be enjoying some juicy APR. If you haven’t read it yet, that’s your bad. But please go through it in order to fully grasps the concepts of this article.

https://mirror.xyz/nemoventures.eth/z23IWN4TMgOpABq66v53YI_oCj97rfHBiuAlkAFEbbQ

You must wonder why you should use this protocol instead of AAVE in order to unlock the utility of your stETH. Both platforms allow you to deposit stETH as collateral in order to borrow some ETH which can be enjoyed on your favorite DeFi protocol or to finally buy your long awaited Azuki. But the net yield for the borrower is very different with the ghost or the kitty. In this article, we are going to go full nerd and establish mathematically which protocol makes more sense to use and under which conditions. LFG!

On AAVE you receive the LIDO staking yield and pay the ETH borrowing rate on the ETH that you borrowed. Therefore your net yield is:

A CIAB borrower receives two yields. The first one corresponds to 99% of the yield (due to the 1% protocol fee) on his unlocked stETH.

By using LTV = deposit / debt we can rewrite the equation as:

The second part of the yield corresponds to 74% (due to the 1% protocol fee on all stETH yields + the 25% of the protocol fee on all locked stETH yields) on all the locked stETH proportional to the amount of the user’s unlocked stETH to the system’s unlocked stETH. System metrics are denoted with a start sign.

By using LTV_system = deposit_system / debt_system, we can rewrite the equation as follows.

All in all, the net yield of the CIAB user is:

In order to find under which condition the CIAB net yield outperforms the AAVE one, we have to solve for

This gives an inequation where the user’s LTV should be lower than the following quantity

At the time of the article we have the following values:

• LIDO staking yield: 7.1%

• AAVE borrowing rate on ETH: 3.96%

• CIAB system LTV: 74%

It means that a borrower gets a better net yield on CIAB until a LTV of 82.5%. Also for a reasonable LTV of 40% the user gets a 2.4x better net yield.

If you want to play around with different values and see how the protocols compare, we put at your disposal the following interactive plotting tool.

https://www.desmos.com/calculator/ifae9uynut

From the plot, we can notice the following relationships:

• A higher system leverage is beneficial for the CIAB user as it allows to draw a higher LTV and still be better off compared to AAVE

• A tight spread between the LIDO staking yield and the AAVE borrowing rate for ETH makes CIAB a preferable choice

TLDR

• Both AAVE and CIAB (Cat-in-a-Box) allow users to deposit stETH as collateral in order to borrow ETH which can be used on your favorite DeFI protocol or to buy NFTs while enjoying a positive net yield on your ETH

• At the time of this article CIAB provides a better net yield than AAVE until a LTV of 82.5%

• For a reasonable LTV of 40%, CIAB gives a 2.4x better net yield

Hey all you cool cats and kittens, after our last article explaining the core mechanics of CIAB, you should already be enjoying some juicy APR. If you haven’t read it yet, that’s your bad. But please go through it in order to fully grasps the concepts of this article.

https://mirror.xyz/nemoventures.eth/z23IWN4TMgOpABq66v53YI_oCj97rfHBiuAlkAFEbbQ

You must wonder why you should use this protocol instead of AAVE in order to unlock the utility of your stETH. Both platforms allow you to deposit stETH as collateral in order to borrow some ETH which can be enjoyed on your favorite DeFi protocol or to finally buy your long awaited Azuki. But the net yield for the borrower is very different with the ghost or the kitty. In this article, we are going to go full nerd and establish mathematically which protocol makes more sense to use and under which conditions. LFG!

On AAVE you receive the LIDO staking yield and pay the ETH borrowing rate on the ETH that you borrowed. Therefore your net yield is:

A CIAB borrower receives two yields. The first one corresponds to 99% of the yield (due to the 1% protocol fee) on his unlocked stETH.

By using LTV = deposit / debt we can rewrite the equation as:

The second part of the yield corresponds to 74% (due to the 1% protocol fee on all stETH yields + the 25% of the protocol fee on all locked stETH yields) on all the locked stETH proportional to the amount of the user’s unlocked stETH to the system’s unlocked stETH. System metrics are denoted with a start sign.

By using LTV_system = deposit_system / debt_system, we can rewrite the equation as follows.

All in all, the net yield of the CIAB user is:

In order to find under which condition the CIAB net yield outperforms the AAVE one, we have to solve for

This gives an inequation where the user’s LTV should be lower than the following quantity

At the time of the article we have the following values:

• LIDO staking yield: 7.1%

• AAVE borrowing rate on ETH: 3.96%

• CIAB system LTV: 74%

It means that a borrower gets a better net yield on CIAB until a LTV of 82.5%. Also for a reasonable LTV of 40% the user gets a 2.4x better net yield.

If you want to play around with different values and see how the protocols compare, we put at your disposal the following interactive plotting tool.

https://www.desmos.com/calculator/ifae9uynut

From the plot, we can notice the following relationships:

• A higher system leverage is beneficial for the CIAB user as it allows to draw a higher LTV and still be better off compared to AAVE

• A tight spread between the LIDO staking yield and the AAVE borrowing rate for ETH makes CIAB a preferable choice