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Bitcoin as the gateway to Ethereum and the possibilities opened up by smart contacts such as the currently embryonic DeFi market. Paradigm shift isn't too stro

Bitcoin as the gateway to Ethereum and the possibilities opened up by smart contacts such as the currently embryonic DeFi market. Paradigm shift isn't too strong a terminology.

Cthulhu_ 6y ago
While ETH is cool technology, I haven't seen it impact my personal life in any way yet. That might just be my sheltered life though.
- bhupy 6y ago
  I've only just begun to wrap my head around all of this, and I tried playing with some of the DeFi lending platforms built on top of Ethereum. It has its kinks, but I think on the net it's a remarkably cool thing. I was able to lend $50 (overcollateralized) at 12% APY without any central institution. The only real wrinkle has been the insane transaction fees: it cost me about $80 to execute the "smart contract" for the $50 12% APY loan. That said, this is a flat cost, and I can very much see the value in paying $80 in transaction costs to be able to lend $50,000 or $500,000 at 12% APY. It also very much feels like "mainframe" days of computing where everything was expensive and impractical, but it was just the beginning. For the time being, I continue to keep my money safely parked in index funds, but one can get a first hand look at the potential for Eth/DeFi by testing small(ish) transactions out.
  - cwkoss 6y ago
    Is the loan secured to anything? What is the incentive for the borrower to repay this loan?
    - bhupy 6y ago
      Yeah it's "overcollateralized". The borrower has to put 150% of the principal into escrow (this is enforced by the smart contract). If the borrower decides to flake, the lender gets to take the collateral.
      - opportune 6y ago
        Just curious, from the perspective of the borrower, what is the purpose of an overcollateralized loan? If their collateral is just as liquid as their loan, why even take the loan at all?
        bhupy 6y ago
        Super good question, I was perplexed by this myself. Basically what this financial instrument allows the borrower to do is maintain exposure to appreciating crypto assets while still leveraging its value for day to day spending. For example, suppose you owned $1500 worth of BTC. Suppose you’re also bullish on BTC and expect it to appreciate, say 2x in a year. If you liquidated the $1500 to buy a MacBook or something, you’d lose out on that appreciation. Instead, I can lend you $1000 in cash, and you can put your $1500 as collateral (150%). A year later, you pay me back $1120, and then take back your BTC collateral; except by then it may have doubled in value to $3000 (let’s say). In fact, as long as BTC appreciates by at least 12%, the loan pays for itself. As the lender, I am essentially enabling HODLers by providing them liquidity (in the form of stablecoins). Of course downside for the lender is that the buyer could bail AND the collateral could plunge in value.
        graeme 6y ago
        What use case does that have other than crypto currency speculation though? Most loans serve some sort of function in the economy.
        bhupy 6y ago
        Right now, no other use case. Though I think your question bakes into it a premise which is itself debatable: that speculation doesn't serve some function in the real economy. Today, most rich people are able to collateralize their ownership in valuable assets to defer capital gains tax (guaranteed long term capital gain) and enjoy asset appreciation while still engaging in consumption and even levered investments in the real economy. Most billionaires live their lives like this: they take loans collateralized on their corporate ownership, and eventually pay them back while still enjoying value appreciation. These DeFi platforms essentially unlock the same for everybody else: if you have your entire savings in a deflationary asset like Gold (or perhaps even the S&P500), you might want to be able to collateralize that for daily spending while still enjoying its appreciation for the future. Cryptocurrencies (especially Bitcoin) are more or less equivalent to digital gold. And with the advent of pegged coins, you can now represent really anything as a cryptocurrency, even equities and derivatives. You could extrapolate this further and imagine a world where even equities and derivatives can be purchased as a tokenized coin on some blockchain; and you'd then be able to take collateralized loans for spending off of your index-fund-backed savings account. You'd eventually pay them back while still enjoying value appreciation. Asset speculation arguably serves a second order function to the real economy. Today, cryptocurrency is only one asset with very limited scope, but one might argue that it's just a start.
- BLKNSLVR 6y ago
  Even if you said Bitcoin hasn't affected your personal life you'd be in a vast majority, and Bitcoin has got a few years on Ethereum. It really is nascent; embryonic. Personally, I think it's future-defining technology that's being created, but it's a decade at least from reaching common acceptance and use. Cultural change is long and slow, it's one of those things that doesn't change until the status quo generations die off and are replaced, and there's a good couple of generations that don't even know of / care about / understand bitcoin nevermind smart contracts and decentralised finance. I don't understand the absolute fundamentals, but I understand the implications. Long term change, generationally slow migration.
graeme 6y ago
What are some use cases? Someone downthread mentioned loaning money where 150% of the money is put in escrow as collateral. This didn’t make any sense to me. But some of the smartest people I follow are hyped about Defi. So....what can you do with it? Or could you do if adopted.
- Geee 6y ago
  There aren't any use cases afaik. Ethereum is a casino and DeFi is just a new exciting game in the casino.

Bitcoin as the gateway to Ethereum and the possibilities opened up by smart contacts such as the currently embryonic DeFi market. Paradigm shift isn't too strong a terminology.

Cthulhu_ 6y ago

While ETH is cool technology, I haven't seen it impact my personal life in any way yet. That might just be my sheltered life though.

bhupy 6y ago
I've only just begun to wrap my head around all of this, and I tried playing with some of the DeFi lending platforms built on top of Ethereum. It has its kinks, but I think on the net it's a remarkably cool thing. I was able to lend $50 (overcollateralized) at 12% APY without any central institution. The only real wrinkle has been the insane transaction fees: it cost me about $80 to execute the "smart contract" for the $50 12% APY loan. That said, this is a flat cost, and I can very much see the value in paying $80 in transaction costs to be able to lend $50,000 or $500,000 at 12% APY. It also very much feels like "mainframe" days of computing where everything was expensive and impractical, but it was just the beginning. For the time being, I continue to keep my money safely parked in index funds, but one can get a first hand look at the potential for Eth/DeFi by testing small(ish) transactions out.
- cwkoss 6y ago
  Is the loan secured to anything? What is the incentive for the borrower to repay this loan?
  - bhupy 6y ago
    Yeah it's "overcollateralized". The borrower has to put 150% of the principal into escrow (this is enforced by the smart contract). If the borrower decides to flake, the lender gets to take the collateral.
    - opportune 6y ago
      Just curious, from the perspective of the borrower, what is the purpose of an overcollateralized loan? If their collateral is just as liquid as their loan, why even take the loan at all?
      - bhupy 6y ago
        Super good question, I was perplexed by this myself. Basically what this financial instrument allows the borrower to do is maintain exposure to appreciating crypto assets while still leveraging its value for day to day spending. For example, suppose you owned $1500 worth of BTC. Suppose you’re also bullish on BTC and expect it to appreciate, say 2x in a year. If you liquidated the $1500 to buy a MacBook or something, you’d lose out on that appreciation. Instead, I can lend you $1000 in cash, and you can put your $1500 as collateral (150%). A year later, you pay me back $1120, and then take back your BTC collateral; except by then it may have doubled in value to $3000 (let’s say). In fact, as long as BTC appreciates by at least 12%, the loan pays for itself. As the lender, I am essentially enabling HODLers by providing them liquidity (in the form of stablecoins). Of course downside for the lender is that the buyer could bail AND the collateral could plunge in value.
        graeme 6y ago
        What use case does that have other than crypto currency speculation though? Most loans serve some sort of function in the economy.
        bhupy 6y ago
        Right now, no other use case. Though I think your question bakes into it a premise which is itself debatable: that speculation doesn't serve some function in the real economy. Today, most rich people are able to collateralize their ownership in valuable assets to defer capital gains tax (guaranteed long term capital gain) and enjoy asset appreciation while still engaging in consumption and even levered investments in the real economy. Most billionaires live their lives like this: they take loans collateralized on their corporate ownership, and eventually pay them back while still enjoying value appreciation. These DeFi platforms essentially unlock the same for everybody else: if you have your entire savings in a deflationary asset like Gold (or perhaps even the S&P500), you might want to be able to collateralize that for daily spending while still enjoying its appreciation for the future. Cryptocurrencies (especially Bitcoin) are more or less equivalent to digital gold. And with the advent of pegged coins, you can now represent really anything as a cryptocurrency, even equities and derivatives. You could extrapolate this further and imagine a world where even equities and derivatives can be purchased as a tokenized coin on some blockchain; and you'd then be able to take collateralized loans for spending off of your index-fund-backed savings account. You'd eventually pay them back while still enjoying value appreciation. Asset speculation arguably serves a second order function to the real economy. Today, cryptocurrency is only one asset with very limited scope, but one might argue that it's just a start.
BLKNSLVR 6y ago
Even if you said Bitcoin hasn't affected your personal life you'd be in a vast majority, and Bitcoin has got a few years on Ethereum. It really is nascent; embryonic. Personally, I think it's future-defining technology that's being created, but it's a decade at least from reaching common acceptance and use. Cultural change is long and slow, it's one of those things that doesn't change until the status quo generations die off and are replaced, and there's a good couple of generations that don't even know of / care about / understand bitcoin nevermind smart contracts and decentralised finance. I don't understand the absolute fundamentals, but I understand the implications. Long term change, generationally slow migration.

graeme 6y ago

What are some use cases? Someone downthread mentioned loaning money where 150% of the money is put in escrow as collateral. This didn’t make any sense to me. But some of the smartest people I follow are hyped about Defi. So....what can you do with it? Or could you do if adopted.

Geee 6y ago
There aren't any use cases afaik. Ethereum is a casino and DeFi is just a new exciting game in the casino.