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How does the system work under the hood?

Maker is a stablecoin system that allows users to create leveraged ETH positions as part of its internal mechanics.  For more details on how it works, I recommend checking out some of their videos and documentation.  Unfortunately, creating a leveraged position using Maker's tooling is complicated and difficult.  Also, without getting a loan you are limited in how much leverage you can obtain and you can end up spending a lot of money on gas and exchange fees to get a heavily leveraged position.

This is where this product comes in.  Our smart contracts will loan you some ETH so that you can create a CDP that has more ETH in it than you have.  So if you have 1 ETH and want 2x leverage, we'll loan you 1 ETH and open a CDP on your behalf that has 2 ETH in it.  Now we aren't going to just trust you to give the ETH back, and we also don't want to take on your risk, so we then withdraw 1 ETH worth of DAI from the CDP which we then exchange back for ETH on OasisDEX (a decentralized exchange platform).  That ETH then is used to cover the 1 ETH loan we gave you, and the smart contract will charge you any additional outstanding balance.

Once we have our money back, the smart contract then transfers the CDP to you so you now have a CDP with 2 ETH in it and 1 ETH worth of DAI drawn, thus giving you 2x leverage.

All of this happens in a single transaction at fairly low gas cost, and  without having to trust anything other than the smart contracts and web interface, all of which is publicly available for review.

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