Collateral and Debt Swaps

A collateral swap is an operation that transforms a debt position by changing its collateral. Users can have recourse to it when they deem the new collateral has bigger upside potential, can earn a higher yield or is more liquid than the current one.

Debt Swap (or Currency Swap) is an operation that transforms a debt position by changing its borrowed asset. It’s the mirror operation of Collateral Swap but for the debt asset.


A user has an open debt position on Compound v2, with WBTC as collateral and USDC as a borrowed asset. They estimate that ETH has a higher potential for a price increase in the coming months and they want to do a collateral swap. Additionally, they want to switch to Aave V3 because the interest rate on USDC is lower there. If they do it by their own, they need to find a flashloan provider and build up the transaction or use tools like Instadapp or DefiSaver. What if after they do the collateral swap, it happens that Compound III proposes lower interest on USDC?

Instead, if they had this position at Fuji, they could achieve the same result in a single run. Even it would be possible to command this from any chain, not necessarily from Mainnet where the position lives. Furthermore, the user doesn’t need to worry anymore about interest rate optimization; it’s automatic (see the previous point).

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