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I know someone who got a 7 figure loan backed by cryptocurrency collateral in a matter of minutes using makerdao. The best part? They didn't even had to provide

I know someone who got a 7 figure loan backed by cryptocurrency collateral in a matter of minutes using makerdao. The best part? They didn't even had to provide their name. This is the future folks, I highly recommend that you actually try some of these projects before writing them off.

ethanbond 6y ago
You do realize it’s law and not technical incapability that prevents financial institutions from lending like this, right?
- rawtxapp 6y ago
  I mean I don't care why they can't, right? These financial systems are so old, corrupt and broken, you have to pretty much start from scratch in my opinion.
- 177tcca 6y ago
  It is technical incapability of some financial institutions to set this up inside of their regulated position. Other freely operating entities across the globe are not in the same position.
  - tootie 6y ago
    It's an interesting thought. Any online brokerage, lender or retail banker could probably set up an anonymous verification of asset ownership without going through background checks or credit agencies. You just need 2-party consent and verification, not a whole blockchain. The trick is not proving you own a thing, it's that you need to prove you haven't used it as collateral for anyone else or don't hold outstanding debts somewhere else. Blockchain will be completely useless for solving that. A universal identity (ie SSN) is the only option.
- ike77 6y ago
  I don't think law would prevent a fully collateralized loan on the basis of borrower/lender risks. AML seems a non issue too, as the loan only moves the question. KYC remains one big problem but there are many startups providing those services and they are slowly gaining acceptance in courts. Don't be impressed if a few years (and maybe even months) from now you start to see classical banks trading mortgages onchain.
  - boh 6y ago
    The banking system doesn't work like a tech company. They're highly dependent on a credit eco-system. If the debt they sell is backed by highly volatile collateral, their own debts will become unsustainably expensive with the additional risk factors. Yes I know the future of crypto is sunshine and rainbows but the price swings of the past three months makes this a highly volatile asset class (regardless if the price is moving up). Even security backed debt negatively effects risk factors, but at least securities have accompanying rights to offset losses--crypto has absolutely zero safety nets.
  - gamblor956 6y ago
    I don't think law would prevent a fully collateralized loan on the basis of borrower/lender risks. It doesn't. AML seems a non issue too, as the loan only moves the question. No, anti-money-laundering laws are at the heart of why the financial system can't do this. KYC laws apply at the customer level, so you only need to handle KYC once per customer. AML laws apply at the transaction level, so you need to apply them to each loan. Cryptocurrency solves absolutely none of the existing legal reasons that banks can't issue large loans in minutes or seconds to existing (or new, well collateralized) clients.
    - lynx234 6y ago
      > Cryptocurrency solves absolutely none of the existing legal reasons that banks can't issue large loans in minutes or seconds to existing (or new, well collateralized) clients. Yes, this is definitely correct in that crypto does nothing to solve the legal requirements of the banks and does not help the banks. But it's worth mentioning that this sort of fully collateralized and anonymous borrowing does not (and would not) happen through banks, but through platforms like AAVE and Compound. It's a financial tool separate from banks. And these tools cannot be shutdown, as long as ethereum exists, these tools exist.
- lynx234 6y ago
  You do realize that's a characteristic which gives decentralized finance an advantage over traditional financial institutions, right?
whimsicalism 6y ago
The value of that loan is less than the value of the collateral they put in though, that's how vaults work. You're never going to get an amazing loan deal from a trustless system.
- rawtxapp 6y ago
  But you can access liquidity without selling your asset which is exactly what they want.
  - whimsicalism 6y ago
    ie. So they can have cash while continuing to be speculatively exposed to eth. I think that ethereum might have great applications, but a loan backed by more collateral than it is worth doesn't seem like one of them, unless Dao starts allowing for the use of collateral that is less liquid than eth. The issue is that contracts don't have any way of "calling in" to the legal API, so you can't put up your house as collateral.
    - rawtxapp 6y ago
      They also avoid capital gains tax which would be pretty significant. They can use the money to hedge their bets against crypto by buying traditional markets if they wanted. For house mortgages, there are companies that are "tokenizing" houses on the blockchain, so putting it up collateral would be as simple as depositing that token. That said, I think this is far from becoming reality anytime soon, just because there's lots of legal issues, etc. Nonetheless, the future is pretty exciting!
      - rank0 6y ago
        I believe that technically, any conversion between crypto assets is still a taxable event. If you want to follow the (silly) rules, you have to pay taxes on your gains once you purchase something using your borrowed stablecoin.
sabas123 6y ago
How is being able to do this good? There are reasons why this shit has been regulated.
- rawtxapp 6y ago
  It gives freedom to people, how is that bad? The whole point is that it's a permissionless, borderless technology that anyone can participate in. There's really nothing holding innovation back. Flash loans are an example of that innovation, where if you see an arbitrage opportunity in the market, you can profit from it even if you don't own huge capital, so it levels the playing field for all these financial actors.
  - Nemi 6y ago
    This seems akin to looking at someone's code and saying "This is crap! We should throw it out and rewrite it from scratch" without understanding how and why it got the way it did. See Chesterton's Fence: https://fs.blog/2020/03/chestertons-fence/ https://fs.blog/2020/03/chestertons-fence/
  - eek04_ 6y ago
    > It gives freedom to people, how is that bad? That's just a slogan. The devil is in the details. To use an extreme example: Murder laws removes my freedom to kill random people; how is that good?
    - hnick 6y ago
      That impinges on someone else's freedom. I'd go with something like selling 2 kidneys or contracts that result in indentured servitude.
      - eek04_ 6y ago
        Everything we do impinges on someone else's freedom. Being legally allowed to walk in the street? Impinges on someone else's freedom to block me from walking in the street. It is always a tradeoff. In the case of the particular tech discussed, it's a tradeoff between being able to somewhat control crime (e.g, making payment for human trafficking harder, making it possible to reverse theft) and financial privacy. It's freedom from having things stolen and freedom from being regulated.
martin_a 6y ago
> The best part? They didn't even had to provide their name. The mafia probably doesn't need your name for a loan, too. They'll find you anyway. But maybe I'm all alone in finding this somewhat shady.
- rawtxapp 6y ago
  > The mafia probably doesn't need your name for a loan, too. What? They'll know your name, address and your whole family history usually. It's just a smart contract execution on the global computer that is Ethereum, how is that shady?
  - SpicyLemonZest 6y ago
    There's a big cultural gap here, because your description sounds obviously shady to me. If my car financing agreement said "the terms of the loan are whatever happens when you run this program we wrote", I would never in a million years have signed it.
    - rawtxapp 6y ago
      The code is immutable and open source, so you can inspect exactly what it does.
      - SpicyLemonZest 6y ago
        I can inspect the code I write professionally too, but I still end up shipping bugs from time to time. So I'm not really convinced that the ability to read the code will let me reliably determine what it does. Have you heard of the DAO hack?
jagger27 6y ago
Rich person gets easy loan and other news at 11.
- gher-shyu3i 6y ago
  That's what happens when you have an economy based on (interest bearing) loans.
lottin 6y ago
What happens in the event of default?
- rawtxapp 6y ago
  It's over-collaterized, so if you fall below the 150% minimum collateral ratio, maker smart contract could liquidate the asset to cover the loan and then return the remaining 50%-liquidation fees back to you. As long as you're conservative in your borrowing (as in you borrow up to 25%-50% of your holding), your chances of getting liquidated are pretty slim.
rank0 6y ago
I really am struggling to see the practical value here. You have to provide collateral worth more than your borrowed amount. The rates are HORRIBLE for borrowers. Straight up predatory. The anonymity part is cool, but if I want to borrow to get a mortgage how exactly does this help me? I do not have $500,000 in crypto laying around and a traditional lender will give me a 2% interest rate instead of 15%
- rawtxapp 6y ago
  So the stability fee you pay is 4.50%. You're still holding on to your assets appreciation, so if Bitcoin continues to appreciate at 300% per year, the 4.50% is a drop in the bucket and you didn't have to pay a capital gains tax. Eventually, some companies are working on tokenizing homes, so once that happens, you could potentially deposit that as collateral just as easily, but that's still far out.
  - karpierz 6y ago
    Do you not pay the loan back in Bitcoin? How would you exercise the 300% gain while also paying the loan back?
    - rawtxapp 6y ago
      So if Bitcoin grows 300%, that means your collateral is now worth 300% more. You can either withdraw a portion of it back to your normal wallet or you can just borrow more against the same collateral. So it's like a credit line that's always appreciating in value. If one day, you need the whole collateral for whatever reason, then you'd pay the loan to unlock it fully and withdraw it.
      - MrMan 6y ago
        Antigravity for finance. The ages long problem of how to integrate debt and money into society is solved.
    - deleted 6y ago
      [deleted]
valarauko 6y ago
Interesting. I think I know somebody who might be interested in something similar: ie, put X BTC as collateral for a loan, and pay it back after a year to get X BTC. Any pointers for where I could learn how this could work?
- rawtxapp 6y ago
  Or you could just treat that collateral as a credit line that's always growing, if it grows faster than your spending, just withdraw a portion of your collateral. Just look at Youtube videos on makerdao, there's some good ones out there and try it for yourself once you feel comfortable with small amounts. Once you actually try it, you're going to be like "this is the future", every single one of my friends that tried came to the same conclusion.
  - MrMan 6y ago
    Do you have any sense about what happens in the limit, like what if literally every person is sitting on a bunch of Bitcoin they earned at their job, which now pays in Bitcoin. Everything is denominated in Bitcoin, which is always going up in price. Everyone borrows some lame legacy asset X and collateralixes with Bitcoin. Do weird things happen? for example of Bitcoin is ubiquitous then the price of Bitcoin essentially gets factored out of the equation, so this magical leverage goes away. There are other effects but this idea that this is the future (or rather that this is a superior future ) seems a bit naive to me. Gravity will catch up to you no matter what.
laughingbovine 6y ago
Cryptocurrency's lack of regulation is not a feature.

ethanbond 6y ago

You do realize it’s law and not technical incapability that prevents financial institutions from lending like this, right?

rawtxapp 6y ago
I mean I don't care why they can't, right? These financial systems are so old, corrupt and broken, you have to pretty much start from scratch in my opinion.
177tcca 6y ago
It is technical incapability of some financial institutions to set this up inside of their regulated position. Other freely operating entities across the globe are not in the same position.
- tootie 6y ago
  It's an interesting thought. Any online brokerage, lender or retail banker could probably set up an anonymous verification of asset ownership without going through background checks or credit agencies. You just need 2-party consent and verification, not a whole blockchain. The trick is not proving you own a thing, it's that you need to prove you haven't used it as collateral for anyone else or don't hold outstanding debts somewhere else. Blockchain will be completely useless for solving that. A universal identity (ie SSN) is the only option.
ike77 6y ago
I don't think law would prevent a fully collateralized loan on the basis of borrower/lender risks. AML seems a non issue too, as the loan only moves the question. KYC remains one big problem but there are many startups providing those services and they are slowly gaining acceptance in courts. Don't be impressed if a few years (and maybe even months) from now you start to see classical banks trading mortgages onchain.
- boh 6y ago
  The banking system doesn't work like a tech company. They're highly dependent on a credit eco-system. If the debt they sell is backed by highly volatile collateral, their own debts will become unsustainably expensive with the additional risk factors. Yes I know the future of crypto is sunshine and rainbows but the price swings of the past three months makes this a highly volatile asset class (regardless if the price is moving up). Even security backed debt negatively effects risk factors, but at least securities have accompanying rights to offset losses--crypto has absolutely zero safety nets.
- gamblor956 6y ago
  I don't think law would prevent a fully collateralized loan on the basis of borrower/lender risks. It doesn't. AML seems a non issue too, as the loan only moves the question. No, anti-money-laundering laws are at the heart of why the financial system can't do this. KYC laws apply at the customer level, so you only need to handle KYC once per customer. AML laws apply at the transaction level, so you need to apply them to each loan. Cryptocurrency solves absolutely none of the existing legal reasons that banks can't issue large loans in minutes or seconds to existing (or new, well collateralized) clients.
  - lynx234 6y ago
    > Cryptocurrency solves absolutely none of the existing legal reasons that banks can't issue large loans in minutes or seconds to existing (or new, well collateralized) clients. Yes, this is definitely correct in that crypto does nothing to solve the legal requirements of the banks and does not help the banks. But it's worth mentioning that this sort of fully collateralized and anonymous borrowing does not (and would not) happen through banks, but through platforms like AAVE and Compound. It's a financial tool separate from banks. And these tools cannot be shutdown, as long as ethereum exists, these tools exist.
lynx234 6y ago
You do realize that's a characteristic which gives decentralized finance an advantage over traditional financial institutions, right?

whimsicalism 6y ago

The value of that loan is less than the value of the collateral they put in though, that's how vaults work. You're never going to get an amazing loan deal from a trustless system.

rawtxapp 6y ago
But you can access liquidity without selling your asset which is exactly what they want.
- whimsicalism 6y ago
  ie. So they can have cash while continuing to be speculatively exposed to eth. I think that ethereum might have great applications, but a loan backed by more collateral than it is worth doesn't seem like one of them, unless Dao starts allowing for the use of collateral that is less liquid than eth. The issue is that contracts don't have any way of "calling in" to the legal API, so you can't put up your house as collateral.
  - rawtxapp 6y ago
    They also avoid capital gains tax which would be pretty significant. They can use the money to hedge their bets against crypto by buying traditional markets if they wanted. For house mortgages, there are companies that are "tokenizing" houses on the blockchain, so putting it up collateral would be as simple as depositing that token. That said, I think this is far from becoming reality anytime soon, just because there's lots of legal issues, etc. Nonetheless, the future is pretty exciting!
    - rank0 6y ago
      I believe that technically, any conversion between crypto assets is still a taxable event. If you want to follow the (silly) rules, you have to pay taxes on your gains once you purchase something using your borrowed stablecoin.

sabas123 6y ago

How is being able to do this good? There are reasons why this shit has been regulated.

rawtxapp 6y ago
It gives freedom to people, how is that bad? The whole point is that it's a permissionless, borderless technology that anyone can participate in. There's really nothing holding innovation back. Flash loans are an example of that innovation, where if you see an arbitrage opportunity in the market, you can profit from it even if you don't own huge capital, so it levels the playing field for all these financial actors.
- Nemi 6y ago
  This seems akin to looking at someone's code and saying "This is crap! We should throw it out and rewrite it from scratch" without understanding how and why it got the way it did. See Chesterton's Fence: https://fs.blog/2020/03/chestertons-fence/ https://fs.blog/2020/03/chestertons-fence/
- eek04_ 6y ago
  > It gives freedom to people, how is that bad? That's just a slogan. The devil is in the details. To use an extreme example: Murder laws removes my freedom to kill random people; how is that good?
  - hnick 6y ago
    That impinges on someone else's freedom. I'd go with something like selling 2 kidneys or contracts that result in indentured servitude.
    - eek04_ 6y ago
      Everything we do impinges on someone else's freedom. Being legally allowed to walk in the street? Impinges on someone else's freedom to block me from walking in the street. It is always a tradeoff. In the case of the particular tech discussed, it's a tradeoff between being able to somewhat control crime (e.g, making payment for human trafficking harder, making it possible to reverse theft) and financial privacy. It's freedom from having things stolen and freedom from being regulated.

martin_a 6y ago

> The best part? They didn't even had to provide their name. The mafia probably doesn't need your name for a loan, too. They'll find you anyway. But maybe I'm all alone in finding this somewhat shady.

rawtxapp 6y ago
> The mafia probably doesn't need your name for a loan, too. What? They'll know your name, address and your whole family history usually. It's just a smart contract execution on the global computer that is Ethereum, how is that shady?
- SpicyLemonZest 6y ago
  There's a big cultural gap here, because your description sounds obviously shady to me. If my car financing agreement said "the terms of the loan are whatever happens when you run this program we wrote", I would never in a million years have signed it.
  - rawtxapp 6y ago
    The code is immutable and open source, so you can inspect exactly what it does.
    - SpicyLemonZest 6y ago
      I can inspect the code I write professionally too, but I still end up shipping bugs from time to time. So I'm not really convinced that the ability to read the code will let me reliably determine what it does. Have you heard of the DAO hack?

jagger27 6y ago

Rich person gets easy loan and other news at 11.

gher-shyu3i 6y ago
That's what happens when you have an economy based on (interest bearing) loans.

lottin 6y ago

What happens in the event of default?

rawtxapp 6y ago
It's over-collaterized, so if you fall below the 150% minimum collateral ratio, maker smart contract could liquidate the asset to cover the loan and then return the remaining 50%-liquidation fees back to you. As long as you're conservative in your borrowing (as in you borrow up to 25%-50% of your holding), your chances of getting liquidated are pretty slim.

rank0 6y ago

I really am struggling to see the practical value here. You have to provide collateral worth more than your borrowed amount. The rates are HORRIBLE for borrowers. Straight up predatory. The anonymity part is cool, but if I want to borrow to get a mortgage how exactly does this help me? I do not have $500,000 in crypto laying around and a traditional lender will give me a 2% interest rate instead of 15%

rawtxapp 6y ago
So the stability fee you pay is 4.50%. You're still holding on to your assets appreciation, so if Bitcoin continues to appreciate at 300% per year, the 4.50% is a drop in the bucket and you didn't have to pay a capital gains tax. Eventually, some companies are working on tokenizing homes, so once that happens, you could potentially deposit that as collateral just as easily, but that's still far out.
- karpierz 6y ago
  Do you not pay the loan back in Bitcoin? How would you exercise the 300% gain while also paying the loan back?
  - rawtxapp 6y ago
    So if Bitcoin grows 300%, that means your collateral is now worth 300% more. You can either withdraw a portion of it back to your normal wallet or you can just borrow more against the same collateral. So it's like a credit line that's always appreciating in value. If one day, you need the whole collateral for whatever reason, then you'd pay the loan to unlock it fully and withdraw it.
    - MrMan 6y ago
      Antigravity for finance. The ages long problem of how to integrate debt and money into society is solved.
  - deleted 6y ago
    [deleted]

valarauko 6y ago

Interesting. I think I know somebody who might be interested in something similar: ie, put X BTC as collateral for a loan, and pay it back after a year to get X BTC. Any pointers for where I could learn how this could work?

rawtxapp 6y ago
Or you could just treat that collateral as a credit line that's always growing, if it grows faster than your spending, just withdraw a portion of your collateral. Just look at Youtube videos on makerdao, there's some good ones out there and try it for yourself once you feel comfortable with small amounts. Once you actually try it, you're going to be like "this is the future", every single one of my friends that tried came to the same conclusion.
- MrMan 6y ago
  Do you have any sense about what happens in the limit, like what if literally every person is sitting on a bunch of Bitcoin they earned at their job, which now pays in Bitcoin. Everything is denominated in Bitcoin, which is always going up in price. Everyone borrows some lame legacy asset X and collateralixes with Bitcoin. Do weird things happen? for example of Bitcoin is ubiquitous then the price of Bitcoin essentially gets factored out of the equation, so this magical leverage goes away. There are other effects but this idea that this is the future (or rather that this is a superior future ) seems a bit naive to me. Gravity will catch up to you no matter what.

laughingbovine 6y ago

Cryptocurrency's lack of regulation is not a feature.