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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.
    - gamblor956 6y ago
      Banks don't need to issue fully collateralized loans. That is not a thing people need to do in the real world, because banks will gladly issue partially collateralized loans. As for anonymous loans, those exist solely to service criminal customers, so that is not an advantage of cryptocurrency.
lynx234 6y ago
You do realize that's a characteristic which gives decentralized finance an advantage over traditional financial institutions, 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.
  - gamblor956 6y ago
    Banks don't need to issue fully collateralized loans. That is not a thing people need to do in the real world, because banks will gladly issue partially collateralized loans. As for anonymous loans, those exist solely to service criminal customers, so that is not an advantage of cryptocurrency.

lynx234 6y ago

You do realize that's a characteristic which gives decentralized finance an advantage over traditional financial institutions, right?