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Serious question. What is the business case for trustless financial products? If there's money involved 90% of people are going to need to trust something in th

Serious question. What is the business case for trustless financial products? If there's money involved 90% of people are going to need to trust something in the process, whether that's the counter party or the middleman.

anjc 6y ago
Do you always need to trust something in the process, for every product? You have a secure trustless mechanism for consensus, and can assess counterparty risk for a given product by auditing the smart contract (e.g. for Compound, borrowers have to deposit collateral). A simple business case might be interest earned by lending. Could you use traditional banking for this? Can any lay person lend? Is traditional banking accessible to anybody in the entire world with just an Ethereum wallet? This is just the beginning of defi and deposits have gone from ~0 to $30B in a year. Not much, in the grand scheme, but there's clearly demand for the products. No doubt this market will be regulated in due course, but I think this bell can't be un-rung.
- anon98356 6y ago
  All of those business cases already exist in a reasonably accessible form. >A simple business case might be interest earned by lending. Could you use traditional banking for this? That is the basic business model of most retail banks. You lend the bank your money and they lend it out in bulk. In modern situations your "interest" is the relative security and ease of use you get from the bank storing your money instead of under your mattress. For a more explicit example: A term deposit is you lending your money to the bank and earning interest. Banking in the developing world is definitely a problem, personally I'm not sure using a pretty volatile currency like ethereum is as compelling as using the likes of M-Pesa.
  - anjc 6y ago
    > That is the basic business model of most retail banks. Right > All of those business cases already exist in a reasonably accessible form. Disagree. I live in a wealthy EU country and payments from my bank account have been frozen many times for several days because, e.g., I sent a modest amount via Western Union. I essentially had to say "sorry, wont happen again" to get access to my own money. I am unable to get certain credit from my bank because of my employment contract (i.e. rolling yearly contract) even though I have a good income and savings. And what's the interest rate on deposits in the developed countries, 0-1%? Negative interest rates are being applied to certain deposit accounts in my country. I see DeFi lending as a different business case just by way of its global nature and overall accessibility. Another commenter mentions that its just used to buy crypto, i.e., it's a house of cards. That some people currently use it for leverage is irrelevant. Middlemen have been completely removed from lending and exchange via DeFi and it can't be undone now. Even with strict KYC/AML and regulation at crypto off-ramps it can't be undone. > Banking in the developing world is definitely a problem, personally I'm not sure using a pretty volatile currency like ethereum You can lend/borrow stablecoins (USDc), even if you're in the developing world.
    - anon98356 6y ago
      > I am unable to get certain credit from my bank because of my employment contract (i.e. rolling yearly contract) even though I have a good income and savings. That's purely a risk appetite decision by the bank. If you looked around you would probably find the type of credit your after. You just might not like the interest rate. In terms of frozen accounts/money, I don't really see a fully developed DeFi helping much with this. Your transactions would have triggered KYC/AML warnings in the bank who are then obliged to freeze your account (and not actually tell you why). If a DeFi were to be big enough they would fall under similar legislation or quickly become an avenue for money laundering or terrorism finance. >Middlemen have been completely removed from lending and exchange via DeFi and it can't be undone now. Even with strict KYC/AML and regulation at crypto off-ramps it can't be undone. I get the concept, I don't really get the business model. Are we talking P2P lending? If so how many people are comfortable with doing the risk analysis required for lending in this scenario? From my perspective that is what the middlemen are for. I could loan money to someone who needs it (locally at least) right now. But I don't have the time or the skill set to gauge 1) How likely they are to just cut and run with my money. 2) How long it is likely for them to pay it back. 3) How realistic it is that what they need the money for will produce the required income to pay me back in full. I have to use these factors to then calculate an interest rate on the money I lend but also make sure said interest rate isn't so punitive they don't want the loan. Or I could provide my money to someone else (the bank in this case) and they can do all of that analysis and deal with collection/enforcement, legal contracts. As to making it a global function, that just ramps up the profile even more. I now need to research what, if any, rights I have to recover my potential losses in another country. > You can lend/borrow stablecoins (USDc), even if you're in the developing world. Sure, but what advantages does this have over the existing solutions in the developing world e.g. M-Pesa.
earthtolazlo 6y ago
The business case is that people will buy their tokens/invest on their platform which will increase in value which will cause more people to buy in etc. If you look closely enough just about every successful blockchain project is a ponzi scheme on some level.
- anjc 6y ago
  Defi works regardless of the price of the underlying asset
  - earthtolazlo 6y ago
    As far as I can tell, any defi project that isn’t an outright scam is just providing credit to people to speculate on cryptocurrencies. I’d be curious to see any counter examples. Otherwise it’s just turtles all the way down.
    - anjc 6y ago
      > providing credit to people to speculate on cryptocurrencies ... turtles People do use it for leverage but who cares. It doesn't undermine the contracts, and certainly doesn't make the concept worthless. You can securely lend/borrow stablecoins globally with zero middlemen. What you do with the credit/interest is your own business.

anjc 6y ago

Do you always need to trust something in the process, for every product? You have a secure trustless mechanism for consensus, and can assess counterparty risk for a given product by auditing the smart contract (e.g. for Compound, borrowers have to deposit collateral). A simple business case might be interest earned by lending. Could you use traditional banking for this? Can any lay person lend? Is traditional banking accessible to anybody in the entire world with just an Ethereum wallet? This is just the beginning of defi and deposits have gone from ~0 to $30B in a year. Not much, in the grand scheme, but there's clearly demand for the products. No doubt this market will be regulated in due course, but I think this bell can't be un-rung.

anon98356 6y ago
All of those business cases already exist in a reasonably accessible form. >A simple business case might be interest earned by lending. Could you use traditional banking for this? That is the basic business model of most retail banks. You lend the bank your money and they lend it out in bulk. In modern situations your "interest" is the relative security and ease of use you get from the bank storing your money instead of under your mattress. For a more explicit example: A term deposit is you lending your money to the bank and earning interest. Banking in the developing world is definitely a problem, personally I'm not sure using a pretty volatile currency like ethereum is as compelling as using the likes of M-Pesa.
- anjc 6y ago
  > That is the basic business model of most retail banks. Right > All of those business cases already exist in a reasonably accessible form. Disagree. I live in a wealthy EU country and payments from my bank account have been frozen many times for several days because, e.g., I sent a modest amount via Western Union. I essentially had to say "sorry, wont happen again" to get access to my own money. I am unable to get certain credit from my bank because of my employment contract (i.e. rolling yearly contract) even though I have a good income and savings. And what's the interest rate on deposits in the developed countries, 0-1%? Negative interest rates are being applied to certain deposit accounts in my country. I see DeFi lending as a different business case just by way of its global nature and overall accessibility. Another commenter mentions that its just used to buy crypto, i.e., it's a house of cards. That some people currently use it for leverage is irrelevant. Middlemen have been completely removed from lending and exchange via DeFi and it can't be undone now. Even with strict KYC/AML and regulation at crypto off-ramps it can't be undone. > Banking in the developing world is definitely a problem, personally I'm not sure using a pretty volatile currency like ethereum You can lend/borrow stablecoins (USDc), even if you're in the developing world.
  - anon98356 6y ago
    > I am unable to get certain credit from my bank because of my employment contract (i.e. rolling yearly contract) even though I have a good income and savings. That's purely a risk appetite decision by the bank. If you looked around you would probably find the type of credit your after. You just might not like the interest rate. In terms of frozen accounts/money, I don't really see a fully developed DeFi helping much with this. Your transactions would have triggered KYC/AML warnings in the bank who are then obliged to freeze your account (and not actually tell you why). If a DeFi were to be big enough they would fall under similar legislation or quickly become an avenue for money laundering or terrorism finance. >Middlemen have been completely removed from lending and exchange via DeFi and it can't be undone now. Even with strict KYC/AML and regulation at crypto off-ramps it can't be undone. I get the concept, I don't really get the business model. Are we talking P2P lending? If so how many people are comfortable with doing the risk analysis required for lending in this scenario? From my perspective that is what the middlemen are for. I could loan money to someone who needs it (locally at least) right now. But I don't have the time or the skill set to gauge 1) How likely they are to just cut and run with my money. 2) How long it is likely for them to pay it back. 3) How realistic it is that what they need the money for will produce the required income to pay me back in full. I have to use these factors to then calculate an interest rate on the money I lend but also make sure said interest rate isn't so punitive they don't want the loan. Or I could provide my money to someone else (the bank in this case) and they can do all of that analysis and deal with collection/enforcement, legal contracts. As to making it a global function, that just ramps up the profile even more. I now need to research what, if any, rights I have to recover my potential losses in another country. > You can lend/borrow stablecoins (USDc), even if you're in the developing world. Sure, but what advantages does this have over the existing solutions in the developing world e.g. M-Pesa.

earthtolazlo 6y ago

The business case is that people will buy their tokens/invest on their platform which will increase in value which will cause more people to buy in etc. If you look closely enough just about every successful blockchain project is a ponzi scheme on some level.

anjc 6y ago
Defi works regardless of the price of the underlying asset
- earthtolazlo 6y ago
  As far as I can tell, any defi project that isn’t an outright scam is just providing credit to people to speculate on cryptocurrencies. I’d be curious to see any counter examples. Otherwise it’s just turtles all the way down.
  - anjc 6y ago
    > providing credit to people to speculate on cryptocurrencies ... turtles People do use it for leverage but who cares. It doesn't undermine the contracts, and certainly doesn't make the concept worthless. You can securely lend/borrow stablecoins globally with zero middlemen. What you do with the credit/interest is your own business.