Borrow GRAI with osETH on Gravita Protocol: How and Why To Do It
The ability to borrow crypto against ETH staked on StakeWise is finally here, and boy are we excited about it.
Our newest integration with Gravita Protocol allows you to borrow GRAI, a stablecoin issued by Gravita, against your osETH. Why would you do it? To do useful things like:
- take out a cheap loan against your staked ETH to spend it however you want,
- invest in higher-yield DeFi strategies while keeping your ETH upside, or
- participate in Gravita liquidity pools in exchange for more GRAI and Gravita Ascend points,
all while you continue to securely earn ETH rewards on StakeWise. Not a bad deal!
In this guide, we offer instructions for borrowing and returning GRAI loans, demistify all the things Gravita and GRAI, and suggest a few GRAI-based strategies for you to explore.
Let’s dive in! 🌊
How to deposit osETH & borrow GRAI from Gravita
📺 Go to the Gravita dapp: you will want to land on the osETH Vessel section — see https://app.gravitaprotocol.com/vessels/oseth
🔢 Select collateral and borrow amounts: insert the desired amount of osETH to supply as collateral, and the amount of GRAI to borrow.
🧐 Review the numbers: make sure you are happy with the selected LTV, minting fee, liquidation price, and other parameters. Note that the Liq. Reserve amount (200 GRAI) will be refunded upon returning the loan.
✅ Confirm the transactions: press on Open Vessel and approve osETH spending, then confirm the osETH deposit and GRAI borrow — in total, 3 transactions.
Once completed, you should have supplied osETH and borrowed GRAI on Gravita. Congratulations!
When you’re done, repay the loan and fully withdraw osETH by pressing Max on both GRAI and osETH in the Repay section. Press Close Vessel and confirm the transactions to receive osETH in your wallet.
PS. We recommend not exceeding 55% LTV if you were not familiar with lending protocols before. See the risk section for explanation.
What is Gravita?
Gravita is an LST-centric borrowing protocol that allows users to obtain loans in GRAI, the protocol’s stablecoin, against their staked ETH collateral. It is a friendly fork of Liquity, also a borrowing protocol that has been active on mainnet since 2021 and accepts only ETH as collateral.
Gravita’s main premise is to allow staked ETH holders access to credit using the security they provide to Ethereum as collateral. GRAI loans are made at a 0% interest rate, making access to such credit very attractive. The protocol makes money by charging an upfront 2% fee on loans instead, which can be refunded, subject to terms (discussed below).
The protocol has been live since May 2023, and has accumulated over $40M of LST collateral to date. It uses an audited Liquity codebase as the core architecture, with additional features audited by Debaub, Omniscia, and Hats Audits.
What can I do with GRAI?
You can do a lot actually but broadly there are two paths:
- Swap GRAI for another asset to deploy it in DeFi or off-ramp into fiat.
GRAI is a stablecoin that has ample liquidity in DeFi, which allows users to swap it for other assets, like USDC, USDT, ETH, or even osETH if they wish to. Once the swap is complete, users can pursue any strategy they want, from liquidity mining, to lending, to simply using this crypto to pay for purchases in the physical world via Gnosis Pay, Monerium, or EURS.
You will find simple and effective ways to earn >4% yield on WETH, DAI, or USDC on Morpho Blue, Spark Protocol (incubated by Maker DAO), Aave, EigenLayer, and, of course, StakeWise.
2. Participate in GRAI- and Gravita-related strategies.
Gravita runs liquidity mining programs on the Ethereum Mainnet and on multiple L2s, allowing users to provide liquidity for GRAI in exchange for incentives and Gravita Ascend program points that lead to an airdrop. There is also a Stability Pool where users can deposit GRAI that will be used for liquidating bad borrowers in exchange for liquidation bonuses.
You can check all the ways to earn with GRAI here: https://app.gravitaprotocol.com/earn
What are the terms for borrowing GRAI?
💲 Interest rate: 0% (regardless of the term)
💰 Minting fee: 2% of the borrowed amount, paid up-front
⚖️ Loan-to-value (LTV) cap: 80% of collateral value
🏛️ Liquidation reserve: 200 GRAI applied to the loan, refunded upon its return.
In other words, you can borrow up to 80% of your osETH value at a 0% interest rate by paying 2% of the borrowed amount upfront. This makes borrowing GRAI one of the cheapest ways to access USD funding, no matter where you are based — thanks to DeFi.
You can return GRAI to Gravita at any time and immediately claim back your osETH, including the staking rewards you accumulated throughout the term.
Note also that by returning the borrowed amount of GRAI within 6 months of minting it, Gravita will refund you a part of the minting fee. The refund will be pro-rated based on the time elapsed since borrowing i.e. the closer to the 6-month mark, the smaller the refund.
Example of borrowing GRAI
- Deposit 10 osETH worth $23,000 into Gravita. This is your collateral that continues earning staking rewards.
- You can borrow up to 80% of your collateral in GRAI, i.e. a maximum of 18,400 GRAI
- Borrow 5,000 GRAI worth ~$5,000, which will result in the addition of the minting fee equal to 2% of your loan (100 GRAI), so your debt is 5,100 GRAI total.
- Your Loan-To-Value (LTV) ratio at the moment of borrowing GRAI is 5,100 / 23,000 = 22.17%.
Risks of borrowing GRAI
Not managing your LTV properly
Note that LTV of your borrow is calculated based on the market price of osETH. This means that if the osETH price declines, your LTV will increase (bad), and if osETH appreciates, your LTV will fall (good).
The danger zone is when your LTV reaches 80% — in this case your GRAI position will be liquidated, and your osETH collateral will be penalized according to this mechanism: https://docs.gravitaprotocol.com/gravita-docs/how-does-gravita-work/redemptions-and-liquidations
See example below:
Day 1:
Borrow 5,100 GRAI (5,000 GRAI debt + 100 GRAI minting fee) against 4 osETH worth $9,200 (i.e. 1 osETH = $2,300). Your LTV is 5,000 / 9,200 = 54.35%
Day 180: if 1 osETH = $1,600 (i.e. -30%), then your LTV is 5,000 / 6,400 = 78.13%, meaning you are very close to liquidation.
Hence, we recommend not exceeding 55% LTV when borrowing GRAI, to err on the safe side amid market price fluctuations for osETH. This LTV level allows you to experience up to a 30% decline in the price of osETH without being liquidated.
However, if you do see a rapid osETH price decrease (most often associated with the decline in ETH price), we recommend increasing your collateral or returning a part of your debt ASAP. Obviously, this is not financial advice, and you should do your own research.
Note that GRAI price fluctuations against USD do not impact the LTV calculations.
2. Not accounting for GRAI price movements
When swapping borrowed GRAI for another asset, pay attention to GRAI’s price relative to USD. Here’s why.
As a stablecoin, GRAI has both liquidation and redemption mechanisms that force it to stay pegged to the US Dollar. However, it may experience bouts of a small (<2%) discount to USD, owing to being a young asset and its liquidity being fragmented across mainnet and L2s.
Hence, when selling GRAI at a discount, be vary of the possibility that by the time you want to return your GRAI debt, it could have returned to peg with USD, and therefore buying it back will be slightly more expensive.
See example below:
Day 1:
Borrow 5,000 GRAI and sell for 4,900 USDC worth $4,900, because 1 GRAI = 0.98 USDC (~$0.98)
Day 365: if 1 GRAI = 1 USDC (~$1.00) following a re-peg, buying back 5,000 GRAI will cost 5,000 USDC worth $5,000, i.e. a loss of 2% or $100.
The best way to ensure that you are appropriately covered in these circumstances is to only swap borrowed GRAI for another asset if you are happy with a 2% minting fee and the potential 2% loss on GRAI re-pricing. This may be because you are happy with borrowing GRAI at an effective 4% interest rate, or because your expected return on borrowed funds exceeds 4% per annum. Obviously, this is not financial advice, and you should do your own research.
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