> If they pay back the loan they can get the shares back. If they fail to pay back the loan the shares are confiscated, no matter the value the shares are now a

> If they pay back the loan they can get the shares back. If they fail to pay back the loan the shares are confiscated, no matter the value the shares are now at. You need to make a slight tweak to this statement. Currently, the smart contract enforces a "collateral ratio" of at least 150%. This means that if the underlying collateral appreciates, you can skim off and take whatever appreciation even before repaying. The only invariant that the contract enforces is that the value of the collateral has to be equal to 150% of the remaining principal. And yes, if they fail to pay back the loan, the shares are confiscated; but the borrower isn't left with "nothing"; rather they're left with 2/3 of their original collateral in cash + any appreciation from the original collateral (minus the principal, of course). For a lot of people, this is a manageable worst-case scenario. > That sounds enormously risky for most people. So basically: It's enormously risky for people that are in grinding poverty. This should obviously not be used as a pay-day loan of sorts. But for people that are in the middle or upper-middle class, this has the potential to be a solid financial instrument that can be used as one of many tools we have at our disposal in financial markets. > What’s the advantage over traditional finance? You can already get an asset backed loan at a bank for which you pay interest. Have you tried to do this? It requires a lot of time, process, and paperwork. The interest rates vary depending on the risk rules of the bank, and banks often charge a percentage of principal just for this service, sort of like what happens when you refinance a home loan. With DeFi, I was literally able to lend and borrow at the click of a button, and that transaction was processed by a network of robots where the transaction fee was flat/fixed. There's a lot of room for improvement to bring down that transaction fee, but it's too early to throw our hands up in concede that we are forever doomed to $80 transaction fees to process these kinds of contracts. Now, does this mean that everyone should move off of traditional finance? Absolutely not, traditional finance can still work out to be better for some people. But the key phrase there is "some people". With DeFi, you now have more options on the market, and that strikes me as a good thing.