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To be clear, you mean that I can borrow $75 by giving $100 first, then pay back the $75 with interest and get back my $100? Why don't I use my $100 directly in
by hiq 6y ago
To be clear, you mean that I can borrow $75 by giving $100 first, then pay back the $75 with interest and get back my $100?
Why don't I use my $100 directly instead?
There are a few cases outside the blockchain where you get loans although you already have the cash (e.g. for tax reasons), but I don't understand how it makes financial sense in this case, if everything happens on the blockchain with no other incentive.
Maybe another direct question would be: as a lender, for which risk are you getting paid some interest?
- nootropicat 6y ago>Why don't I use my $100 directly instead? Because it's not $100 in dollars, but $100 worth of eth or something else. Borrowed dollars can be used to buy something else, hoping the price of that something rises. >as a lender, for which risk are you getting paid some interest? It's theoretically possible for prices to fall fast enough so that the liquidated value of the collateral isn't enough to pay the debt. I don't think rewards are risk adjusted at all. More like same people that could provide dollars are likely to speculate on cryptocurrencies themselves, or take part in more risky and active yield generating schemes.
- hiq 6y agoOk I guess I was missing the basics on overcollateralization, https://www.investopedia.com/terms/o/overcollateralization.asp https://www.investopedia.com/terms/o/overcollateralization.a... answers my question, it was actually not blockchain-specific.