4 ms·

Your correct to say the debt would need to be legally recognised, before it could be sold on to a legally registered debt collector. Aave for example has a UK E

by gh55 6y ago

Your correct to say the debt would need to be legally recognised, before it could be sold on to a legally registered debt collector. Aave for example has a UK Electronic Money Institution license, you might need some legal entity to take part in what I describe until laws catch up with innovation. Self driving cars, uber, Airbnb, face similar issues with regulation needing to adjust, that doesn't invalidate the innovation.

UncleMeat 6y ago
I think the comparison to airbnb is revealing. Airbnb allowed individuals to rent their home to other individuals. But this is done through a centralized service. Scams and abuse exist, but the centralized service offers some nice benefits like reviews and bans for abusive participants. The innovative part was the new model of what you could rent, not the how of how you rent it. In comparison, the defi loan innovation is "how" rather than "what". As a borrower I still get some cash and pay interest on it. Same as with a bank. As a lender I still deposit some cash and obtain interest on it. Same as with a bank. And a centralized service provides some nice guarantees about checking that my money isn't going to criminal organizations or that I have some guarantee that I can withdraw my money when needed and risk is amortized. Like with airbnb, I'd expect a centralized model to be more appealing to many people than a decentralized model. And we already have a centralized model. They are called banks. Airbnb succeeded because it created a product that didn't exist before. I only think that the defi loan system is interesting if it enables a ton of people to obtain a different thing than the thing they can already get from a bank. This matters for people with bad credit and people without access to banking institutions... but how many people are super excited to personally lend to those people?
- gh55 6y ago
  I suppose, with software eating the world, I want to believe we will collectively own and operate that software, rather than a particular company, that it will be open source, and if those who own it charge too much someone will fork it and outcompete them.
  - UncleMeat 6y ago
    That might be nice, but it isn't a feature. Vanishingly few people consider "the product is collectively owned and open source" to be a feature that they are willing to prioritize over other things. As such, it is hard to support any very large endeavor just off this thing. There is a reason why Blender shows up over and over and over and over again on "lists of awesome FLOSS apps" and that is because it has damn good features. Decentralization is not itself a business strategy outside of niche cases.
    - gh55 6y ago
      I think you're conflating two things. Collectively owned, as in how large companies are owned by their shareholders. Decentralized, as in instead of a company, its a piece of software, that we are collectively funding the development of and profiting from. As more business can be done with software, with less people, I see this as a way for us to own that software, and contribute to it. If some group of owners charge too much, it can be forked, similar to how a business can be undercut by a competitor if they charge too much.
- gh55 6y ago
  At the moment DeFi loans are fully collateralized, with the loan to value ratio affecting the interest rate you pay. If your collateral drops in value you have to recollateralize the loan, or are liquidated.
  - UncleMeat 6y ago
    I don't understand. Why would I need a loan for $X if I already have $X to put up as collateral?
    - rspeele 6y ago
      I have been trying to understand this too. Best I can figure, it's basically a short sell on USD. The key element is that the loan is not denominated in BTC, but a stablecoin pegged to fiat. DAI is one of these pegged 1:1 to USD. Say you are holding Bitcoin and think it's going to the moon. You tie up your Bitcoin as collateral and take out a loan of roughly 75% of its value, in DAI. Then you spend that DAI to buy more Bitcoins. Now you are exposed to Bitcoin's price movements on two ends: the BTC you bought with your loan, and the BTC you put up as collateral. If Bitcoin's DAI price goes up by more than the interest rate on the loan, you can sell and have more than enough to repay the loan. The extra is pure profit and plus your collateral grew in value in the meantime too, so you're a winner on both fronts. On the other hand, if Bitcoin's price goes down by too much and you can't repay the loan, your collateral could be liquidated and become property of the lender. You lose everything. Color me surprised that the amazing decentralized finance, the future of banking, etc. is... yet another way to speculate on "number go up".
      - UncleMeat 6y ago
        If what you are saying is true then this is literally the housing crisis with variable rate loans and a collapsing market putting everybody underwater. If the value of the item used as collateral sinks then you go from fine to broke in an instant.
        gh55 6y ago

by gh55 6y ago

UncleMeat 6y ago

I think the comparison to airbnb is revealing. Airbnb allowed individuals to rent their home to other individuals. But this is done through a centralized service. Scams and abuse exist, but the centralized service offers some nice benefits like reviews and bans for abusive participants. The innovative part was the new model of what you could rent, not the how of how you rent it. In comparison, the defi loan innovation is "how" rather than "what". As a borrower I still get some cash and pay interest on it. Same as with a bank. As a lender I still deposit some cash and obtain interest on it. Same as with a bank. And a centralized service provides some nice guarantees about checking that my money isn't going to criminal organizations or that I have some guarantee that I can withdraw my money when needed and risk is amortized. Like with airbnb, I'd expect a centralized model to be more appealing to many people than a decentralized model. And we already have a centralized model. They are called banks. Airbnb succeeded because it created a product that didn't exist before. I only think that the defi loan system is interesting if it enables a ton of people to obtain a different thing than the thing they can already get from a bank. This matters for people with bad credit and people without access to banking institutions... but how many people are super excited to personally lend to those people?

gh55 6y ago
I suppose, with software eating the world, I want to believe we will collectively own and operate that software, rather than a particular company, that it will be open source, and if those who own it charge too much someone will fork it and outcompete them.
- UncleMeat 6y ago
  That might be nice, but it isn't a feature. Vanishingly few people consider "the product is collectively owned and open source" to be a feature that they are willing to prioritize over other things. As such, it is hard to support any very large endeavor just off this thing. There is a reason why Blender shows up over and over and over and over again on "lists of awesome FLOSS apps" and that is because it has damn good features. Decentralization is not itself a business strategy outside of niche cases.
  - gh55 6y ago
    I think you're conflating two things. Collectively owned, as in how large companies are owned by their shareholders. Decentralized, as in instead of a company, its a piece of software, that we are collectively funding the development of and profiting from. As more business can be done with software, with less people, I see this as a way for us to own that software, and contribute to it. If some group of owners charge too much, it can be forked, similar to how a business can be undercut by a competitor if they charge too much.
gh55 6y ago
At the moment DeFi loans are fully collateralized, with the loan to value ratio affecting the interest rate you pay. If your collateral drops in value you have to recollateralize the loan, or are liquidated.
- UncleMeat 6y ago
  I don't understand. Why would I need a loan for $X if I already have $X to put up as collateral?
  - rspeele 6y ago
    I have been trying to understand this too. Best I can figure, it's basically a short sell on USD. The key element is that the loan is not denominated in BTC, but a stablecoin pegged to fiat. DAI is one of these pegged 1:1 to USD. Say you are holding Bitcoin and think it's going to the moon. You tie up your Bitcoin as collateral and take out a loan of roughly 75% of its value, in DAI. Then you spend that DAI to buy more Bitcoins. Now you are exposed to Bitcoin's price movements on two ends: the BTC you bought with your loan, and the BTC you put up as collateral. If Bitcoin's DAI price goes up by more than the interest rate on the loan, you can sell and have more than enough to repay the loan. The extra is pure profit and plus your collateral grew in value in the meantime too, so you're a winner on both fronts. On the other hand, if Bitcoin's price goes down by too much and you can't repay the loan, your collateral could be liquidated and become property of the lender. You lose everything. Color me surprised that the amazing decentralized finance, the future of banking, etc. is... yet another way to speculate on "number go up".
    - UncleMeat 6y ago
      If what you are saying is true then this is literally the housing crisis with variable rate loans and a collapsing market putting everybody underwater. If the value of the item used as collateral sinks then you go from fine to broke in an instant.
      - gh55 6y ago