Become Your Own Bank With Arkadiko

I love Bitcoin and believe that it will change the world for the better, but I also think that Bitcoin needs a partner to fully unlock all of the value and potential use cases for Bitcoin without disturbing the base layer.

Stacks is uniquely situated to accomplish this task and is one of the main reasons I am so bullish on this protocol. On-chain Bitcoin does what it was designed to do really, really well. It securely transmits value peer to peer with no intermediaries. It’s transparent and auditable, both things that are not present in our current monetary system.

This makes Bitcoin the ideal asset to replace USD treasury bonds as the world’s reserve currency. When you mention reserve currency, people’s eyes tend to glaze over, and their minds wander. No one knows a reserve currency unless they are deeply entuned to the financial markets and politics.

A reserve currency is a currency that is acquired in large amounts by central banks around the world to facilitate international trade. This role has traditionally been filled by gold or silver, but over the last 70 years has been replaced by the US dollar.

If you have ever traveled outside the United States and used the dollar to buy something in a foreign country, you have witnessed the dollar as a reserve currency in action.

Central banks also use treasury bills issued by the United States government as a hard asset in their portfolio, giving the dollar an outsized importance in the global economy. That being said, Bitcoin will take over this role, gradually, then suddenly, as the financial system begins to buckle under the pressure of immense debt accumulation.

When this happens, on-chain Bitcoin’s price will increase dramatically, and more importantly, fees will rise just as fast. If you were around during the ordinals mania earlier this year, fees went through the roof. Fees reached as high as $30 per transaction, which is quite expensive if you want to spend BTC to buy a cup of coffee or something.

This is the way Bitcoin was designed. The fee market is supposed to replace the block subsidy at some point. Ordinals just illustrated what the future will look like with increased activity on the Bitcoin blockchain.

Layers must be built on Bitcoin to realize the future Satoshi Nakamoto envisioned. Now let’s dive into the dApps that will make this all possible.

What Is Arkadiko?

Arkadiko bills itself as a non-custodial liquidity protocol that allows users to collateralize their Stacks token and mint a stablecoin called USDA. In my opinion, Arkadiko will enable you to become your own bank. There is no more need to go hat in hand to the bank asking for a loan when you can borrow from yourself. The answer will always be yes.

This is revolutionary; for the first time in modern history, we don’t need banks or financial intermediaries to dictate our economic future. This innovation is powerful, and I don’t think people quite comprehend how radical a change this is, but they will. Banks should be scared because their future is on the line.

How Do You Use Arkadiko?

To interact with the protocol, you will need a Stacks wallet. The two wallets that I use regularly are Hiro Wallet and Xverse. Both wallets are super solid and easy to use. You can’t go wrong with either one.

Once your wallet is downloaded to your desktop or mobile phone, head over to Arkadiko. Finance.

You will see in the top right corner of the screen “Connect Wallet.” Hit connect, and you will be directed to select your account/wallet.

After connecting your wallet, you should see your address in the right-hand corner. It should look like this. If it does, then you are good to go!

What Happens Next?

After you are logged in, you can swap, pool, borrow, and stake. The feature that I want to focus on is borrowing. This allows you to unlock the full value of the stacks protocol.

When you click borrow, you will be brought to a screen that looks like this.

It will give you the option to borrow against three different asset classes. These assets are Stacks, xBTC, and atALEX, a token created by ALEXGO. At the time of this writing, ATALEX has -10,261 in liquidity, so you can’t use that.

You can still borrow against your stacks holding and xBTC, which is wrapped Bitcoin on stacks. We’ll focus on the stacks token to keep it simple. When you click borrow, you will be brought to a screen that gives you two different borrowing thresholds to avoid liquidation.

Let me walk you through what each category means in plain English:

Liquidation Ratio: This is your debt-to-collateral ratio. If this number falls below 130% or 140%, your loan will be liquidated, the loan will be paid back, and you will lose part of your collateral. It is best practice to stay well above this number to avoid liquidation. 250% or higher ratio would be ideal to prevent any problems. Stacks is still volatile, and the value could fall when you least expect it. Manage your risk wisely.

Stability Fee: This is basically your interest rate. This interest rate will accumulate over the life of your loan in the USDA stablecoin.

Liquidation Penalty: You will pay this penalty when your vault gets liquidated.

Current Debt: This lets you know how much debt has been taken out.

Maximum Debt: The total amount of debt that is permitted to be created in total.

The beauty of this is that it is transparent and easy to understand. Suppose you have ever been to the bank to buy a car or buy a how do you know how complicated it is? They hit you with all this legal and financial mumbo jumbo that is sometimes hard to comprehend.

With Arkadiko, they make borrowing easy to understand for the common man. Once you pick the level of debt-to-collateralization ratio, you are comfortable with, hit borrow, and you will be brought to a screen that looks like this.

This is where you deposit your Stack and mint the USDA stablecoin from your collateral. Once the transaction has been settled, your borrow screen will look like this:

Once you have your USDA minted, you can head back on over to the swap screen and exchange USDA for Stacks, xBTC, or their governance token DIKO.

Using USDA to increase your STX stack is pretty powerful if you are reasonable with your debt.

As I touched on in my last article, you can stack your STX while it’s in the vault and earns yield in the form of STX and USDA, which you can turn around and use to pay down your loan. The loan can help you pay itself off over time. This is a BFD! Where else can you find a loan that pays for itself?

Regardless I hope this walkthrough was informational and helped you learn a little more about the Arkadiko protocol. I think it’s pretty cool and worth your time exploring. If you have questions, don’t hesitate to reach out to me!

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