Collateral & Debt Switch

Users who manage their position on DeFi Saver have the option of using the Collateral and Debt switch options.

Additionally, there's the option of Position Flip - which flips your collateral asset for the debt asset, and vice-versa.

These tools let you swap out your collateral or debt asset for another in a single transaction.

How Collateral Switch works:

  • Flash loans the original collateral asset

  • Swaps it to the new collateral asset

  • Supplies the new collateral asset

  • Withdraws the original collateral asset

  • Pays back the flash loan

How Debt Switch works:

  • Flash loans the new debt asset

  • Swaps the new debt asset for the original debt asset

  • Pays back the original debt loan from your position

  • Borrows the new debt asset

  • Pays back the flash loan

How Position Flip works:

  • Flash loans the debt asset in the amount of both your collateral and debt amounts

  • Clears debt

  • Supplies remaining flash loaned amount

  • Withdraws original collateral asset

  • Borrows the previous collateral asset in the amount of your previous debt value

  • Swaps the withdrawn and borrowed original collateral amounts to the original debt asset

  • Pays back the flash loan

Once the Collateral/Debt switch is successful, the confirmation pop-up might seem confusing as it will show that the new debt asset was sold for the original debt asset (for Debt Switch) or that the new collateral asset was sold for the old one (for Collateral Switch).

For example, if you're switching debt from DAI to USDC, the confirmation pop-up will show the following:

While this might seem incorrect - since you're moving from DAI to USDC, it's actually correct if we consider how the debt shift works:

  • The new debt asset is flash loaned (USDC)

  • It's sold off for the original debt asset in order to repay the original debt (DAI)

  • The new debt asset is borrowed and used to pay back the flash loan (USDC)

As such, the only swap happening in the transaction is selling the new, flash loaned debt asset for the original debt asset. Reading through how each of the switches works will also help you understand the swaps that show up during these transactions.

Related Articles:

  • Use-case

  • Fees

  • Compatibility

  • Position Flip

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