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Where does the yield come from?
Where does the yield come from?
Written by Alexander Wu
Updated over a week ago

Tori provides you a user-controlled wallet to interact with crypto applications. Our wallet is self-custodial which means noone - not even us - can touch or has access to your funds without your explicit permission.

Each crypto application has their own method for how they help you earn after you deposit digital dollars.

  • Digital dollars are tokens like USDC that are pegged to the USD. This means that it should always have a price of $1.

Here's a high level breakdown of how these applications work:

How do crypto applications help me earn yield?

Tori helps you interact with a lend-borrow application called Aave.

People using Tori will supply digital dollars on Aave to earn interest.

Borrowers are people who hold BTC or ETH but want to get digital dollars without selling their BTC or ETH.

Lend-borrow apps lets borrowers borrow digital dollars if they lock up BTC and ETH as collateral.

  • For example, a borrower can put $200 of ETH as collateral and borrow up to $100 digital dollars (USDC)

When a borrower does this, they pay interest to the people supplying the digital dollars.

  • In the example above, the borrower will pay 10% interest on the $100 of digital dollars they borrowed.

This interest goes to you when you supply digital dollars to the protocol!

Why do borrowers pay high interest instead of just selling BTC or ETH?

Borrowers don't want to sell their BTC or ETH because it means giving up these assets and incurring a taxable event. Whereas borrowing stablecoins means borrowers can continue holding BTC and ETH and still get money to spend without a taxable event.

This is why borrowers are willing to put more BTC or ETH than they borrow and pay you high interest to borrow your stablecoins!

What happens if the borrower doesn't pay back?

As a supplier, you don't have much to worry about because borrowers locked up more collateral than they borrowed.

If a borrower doesn't pay back or if the value of their collateral falls, the collateral is automatically sold to ensure suppliers don't lose money.

  • For example, if the borrower doesn't pay back the $100 they took, their $200 of ETH gets sold.

  • If the value of their locked up $200 of ETH drops to $150, it is also sold.

Their locked up collateral is used to protect people like you who supply digital dollars plus the interest you are owed.

Are there lockups or time commitments?

There are also no lockups or time commitments!

You're able to stop supplying your stablecoins and withdraw your money into your bank account at any time. There are no fees for stopping supplying or withdrawing.

More detail on Aave.

Aave is one of the safest and oldest crypto apps, running since 2017 with no major incident. It has $12B in assets and over 118,000 users. Aave has also been audited 7 times by leading blockchain security firms

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