6 ms·
In the current implementation / use cases we're focused on, your collateral, which is held in a smart contract, would become eligible for seizure by the lender.
by nahollander 8y ago
In the current implementation / use cases we're focused on, your collateral, which is held in a smart contract, would become eligible for seizure by the lender.
- TekMol 8y agoHow can this make sense? If the collateral is X, then the borrowed amount (Y) has to be less then X. Why lend anything in the first place, when that means you can only spend Y while otherwise you could have spent X which is more?
- nahollander 8y agoThis happens quite regularly in the world of margin trading. Imagine the following: 1. I own ETH, and want to hold my ETH position so I can enjoy price increases, but I need liquidity to live my day to day life and, well, it's hard to pay for things with ETH. 2. Instead of selling ETH and exiting my position, I put ETH up for collateral and borrow a stable-coin (like DAI) against it. That way, I maintain my price exposure to ETH, but have liquid cash to use for my day-to-day needs.
- matte_black 8y agoAnd if you don’t use coins for day to day living expenses?
- cortesoft 8y agoYou could cash out the borrowed coins for cash.
- TekMol 8y agoOh! So this is not about lending buying power. But about lending in the context of betting on currencies. A lends 10 Xcoins to B. B puts 11 Ycoins into escrow. A will either get back 11 Xcoins or 11 Ycoins. If Xcoins rise in price relative to Ycoins, B is happy and A is sad. If Xcoins fall in price relative to Ycoins, B is sad and A is happy.
- songeater 8y agoSay I own 1 bitcoin at $10k/BTC. I want to go buy a mining rig for $5k. I could sell 0.5BTC and buy the rig. BUT, I believe that BTC is going to $20k, and I don't want to sell. So I go to person X and say lend me $5k against what is currently $10k of BTC. He has 2x collateral coverage... so he makes the loan. if BTC falls to $7500, he may have the option to sell and recover his loan. I get my money so I can create more "money" out of thin air (or rather electricity and metal). When BTC goes to $20k I am rich. RICH.
- matte_black 8y agoWhat happens if after immediately getting his $5k BTC I buy a sweet rig for $15K BTC and the price of bitcoin drops to $4k? I guess I can’t spend the collateral in the first place?
- anilshanbhag 8y agoThis can happen on the stock market too. When bitcoin drops to around $5k, you get margin called and bitcoin will get sold on the open market.
- onecooldev24 8y agoThis can easily be done on CME futures market, we don't need dharma for this. Futures can be used in multiple ways to swap inherent volatility with a fixed stream of return.
- deleted 8y ago[deleted]
- matte_black 8y agoAnd what is the collateral here? My house? A car? Money? If my collateral is another liquid asset it doesn’t make sense to borrow, and if it isn’t how exactly does the lender go about seizing it? I want this explanation to reach a satisfactory conclusion.
- cortesoft 8y agoOther cryptocurrency, I am guessing.
- nahollander 8y agoThe collateral can be any other asset that is represented by a cryptographic token. Right now, few crypto-assets map to real world assets in some capacity, but we're willing to make a bet that this will change faster than most expect. Already, though, there are many interesting assets in the world of crypto that are particularly well suited to being put up for collateral -- namely, the emerging class of crypto-collectibles such as CryptoKitties.
- Adamantcheese 8y agoIf the borrower is the one setting the collateral, what's to prevent me from putting up something that's rapidly depreciating like my collection of e-Beanie Babies and effectively stealing the loan?
- ghthor 8y agoI'm sure the lender could make the right decision there if they had enough knowledge and were able to view what the collateral is.
- swiss_beatz 8y agoSo the "collateral" is basically crypto-collectibles here?
- nradov 8y agoWhy would there ever be a cryptographic token representing my house or car? It just doesn't make any sense. The map is not the territory.