How To Use DAI With Leverage?

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Archimedes' quote that he said he could lift the world with long enough leverage is probably apocryphal, but in a financial market it is quite doable. The metaphor is interesting: just as a lever can increase the physical strength of an individual, the leverage effect can multiply the gains, but also the possible losses of a financial transaction. In the crypto ecosystem, it is now possible to use this leverage with the DAI stablecoin.

Buy any asset at 100 € and sell it when it is at 120 €, you will have earned 20 €. But if you could have borrowed $ 900 before your transaction, you could have bought ten times as much of the asset in question, earned $ 200 in profit, and paid off the loan.

How To Use DAI With Leverage?

This is the leverage effect. We will deliberately neglect the extremely improbable case which would consist for you to have predicted a rise which would never have occurred, and which would lead to potentially unfortunate consequences for your portfolio.

DAI is a stablecoin created by the MakerDAO project, an asset whose price hovers around $ 1, and whose value is guaranteed by a pawnshop. Just as our ancestors left their watch as a pledge to collect cash at Crédit Municipal, with the hope of being able to repay after a few months, it is now possible to block ether in a smart contract to recover an equivalent of cash, DAI.

On two conditions, however: to leave at least 150% of the value that we were able to obtain in DAI blocked in ethers, and to pay a variable interest rate on the loan obtained, and which may have fluctuated in the past between 0.5 and 21.5%, depending on the price of DAI.

Leverage through an example

Let's see how to combine the two and thus use the DAI to generate leverage.

  • Take 10 ETH.
  • Go to, and open a loan agreement, also called a vault.

Your 10 ETHs are blocked, and give you the right to generate up to 6.6 ETH in DAI. For safety, limit yourself to 5 ETH, which is the current price of $ 145 per Ether, 725 DAI.

  • Go to Uniswap, and convert these 725 DAI into 5 ETH.
  • Go back to, and add these 5 ETHs to your existing contract.

You now have the right to generate additional DAI corresponding to these 5 ETH, that is to say 362.5 DAI which you will convert into 2.5 ETH. Repeat the operation as many times as you want, and each time you will get half the Ethers more.

Leverage with DAI in just a Few Clicks

Good news, you can spare yourself the various steps to build this position with manual lever. The most fundamental interest of decentralized finance is that it is possible to build tools that rely on existing services.

So, for example, you can use to generate your leveraged position automatically, which is faster, more efficient, and error-free. We could have started there, but you had to explain how it all works.

For the moment, the only other asset that allows this mechanism to be used through MakerDAO is the BAT, since it is already available as collateral to generate DAI. But it is likely that more assets will be gradually added.

Apart from MakerDAO, the dYdX or Nuo Network platforms also offer to trade ETH, DAI, USDC and other Ethereum tokens with leverage positions. These platforms rely on their own contracts to offer these services, proof of the technological richness of the DeFi ecosystem.

If the minimum collateralization rate of MakerDAO contracts decreases one day, it will be possible to create positions with a much greater leverage effect. But is it a good thing? Leverage is like a chainsaw. In the hands of people who know what they are doing and are willing to take the risks, it is a powerful tool. Otherwise, you could see your starting capital quickly disappear. So if you have two left hands, stay away from them.


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