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The tax thing is mostly to avoid the taxable event that arises when you sell crypto (if you’re up, which most people will be right now) + keeping exposure to th

The tax thing is mostly to avoid the taxable event that arises when you sell crypto (if you’re up, which most people will be right now) + keeping exposure to the crypto in question. The way it works (~roughly) is that instead of selling the crypto, you deposit it into a smart contract that then issues you a loan in eg stable coins (DAI, USDT), with your crypto locked as collateral.

javert 6y ago
> deposit it into a smart contract that then issues you a loan in eg stable coins (DAI, USDT), with your crypto locked as collateral. Makes sense in theory, but are people actually doing this? Can you point us to more info about it?
- rawtxapp 6y ago
  You're looking for www.daistats.com, 3B$+ worth of collateral locked and debt issued. And because the blockchain is public, you can actually inspect every vault, every action they took, how much debt they have, etc. This is one such example of an 8-figure credit line using 4.5k worth of Bitcoin: https://defiexplore.com/cdp/9167 https://defiexplore.com/cdp/9167. In case it wasn't clear, DAI is a stablecoin, 1DAI=1$.
  - jonnydubowsky 6y ago
    That looks to me like it was 4500 BTC not $4500... (or in this case, WBTC which are approx the same price as BTC). Or am I reading this wrong?
    - rawtxapp 6y ago
      Yep, that's why I said "4.5k worth of Bitcoin", I meant 4500BTC.
      - kkielhofner 6y ago
        HN being famously pedantic 4500BTC is 4500BTC or "4.5k Bitcoin". "4.5k worth of Bitcoin" implies whatever that would be "worth" in your local currently at some snapshot point in time.
- arcadeparade 6y ago
  over $5 billion in deposits: https://aave.com/ https://aave.com/
- casi 6y ago
  Plenty of people doing it, defi exploded in use last summer mainly driven by collateralized debt positions in combination with lending tokens. Lock up ethereum -> borrow dai against it -> lend dai out and earn interest on it, withdraw whenever you want. There are more complex yield farming strategies to get the best rates on your assets, leveraging them through debt positions and lending. There are pools to automate this like yearn. There are now sites like alchemix where you can lock up your collateral into a lending pool, borrow against it, and the yield on the locked collateral pays off the borrowed debt position. Self-repaying loans! Multiple times over the past year I have locked eth, taken $s to pay rent/buy stuff. Then come back later paid back the owed $ and get my eth back. https://defipulse.com https://defipulse.com tracks the value locked in different protocols, it was less about $0.5 billion this time last year, now over $40 billion. https://compound.finance/ https://compound.finance/ https://oasis.app https://oasis.app https://yearn.finance https://yearn.finance https://aave.com https://aave.com
  - samvher 6y ago
    When I read about DeFi I imagined it to be something very different from this. This does not sound sustainable at all. It does sound like a confirmation that this is growing very rapidly.
    - dingus9 6y ago
      A system where borrowers post $250k collateral to borrow $100k, in theory, sounds more sustainable than traditional lending models where a handful of large borrowers defaulting can start a domino effect until a central bank steps in and punishes taxpayers to bail out lenders that took on too much risk. It's interesting to watch the progression of DeFi projects as they're being developed. Being an early adopter in experimental financial technologies has its own set of risks, but at least these risks don't affect non-participants.
stblack 6y ago
Bitcoin is often referred-to as pristine collateral. It's highly liquid, and its presence can be verified easily on the public blockchain without resorting to experts, such as auditors. I don't think "depositing into a smart contract" is any more necessary than someone moving out of their house when that's used as collateral. Conceivably one could simply pledge a set of UTXOs as collateral, and the moment any of them move, which is easily monitored, THAT potentially triggers action on the loan.
- ceejayoz 6y ago
  > It's highly liquid, and its presence can be verified easily on the public blockchain without resorting to experts, such as auditors. This is a simplistic idea of what auditors do. Auditors do more than verify "they have $50M in their bank account". They're also there to verify more complicated things like "they haven't promised that $50M to someone else already". This was a major issue with Tether, for example. https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal https://ag.ny.gov/press-release/2021/attorney-general-james-... > In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’ > On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
- thebean11 6y ago
  > Conceivably one could simply pledge a set of UTXOs as collateral, and the moment any of them move, which is easily monitored, THAT potentially triggers action on the loan. That seems like a shoddier implementation of what the smart contract would do

javert 6y ago

> deposit it into a smart contract that then issues you a loan in eg stable coins (DAI, USDT), with your crypto locked as collateral. Makes sense in theory, but are people actually doing this? Can you point us to more info about it?

rawtxapp 6y ago
You're looking for www.daistats.com, 3B$+ worth of collateral locked and debt issued. And because the blockchain is public, you can actually inspect every vault, every action they took, how much debt they have, etc. This is one such example of an 8-figure credit line using 4.5k worth of Bitcoin: https://defiexplore.com/cdp/9167 https://defiexplore.com/cdp/9167. In case it wasn't clear, DAI is a stablecoin, 1DAI=1$.
- jonnydubowsky 6y ago
  That looks to me like it was 4500 BTC not $4500... (or in this case, WBTC which are approx the same price as BTC). Or am I reading this wrong?
  - rawtxapp 6y ago
    Yep, that's why I said "4.5k worth of Bitcoin", I meant 4500BTC.
    - kkielhofner 6y ago
      HN being famously pedantic 4500BTC is 4500BTC or "4.5k Bitcoin". "4.5k worth of Bitcoin" implies whatever that would be "worth" in your local currently at some snapshot point in time.
arcadeparade 6y ago
over $5 billion in deposits: https://aave.com/ https://aave.com/
casi 6y ago
Plenty of people doing it, defi exploded in use last summer mainly driven by collateralized debt positions in combination with lending tokens. Lock up ethereum -> borrow dai against it -> lend dai out and earn interest on it, withdraw whenever you want. There are more complex yield farming strategies to get the best rates on your assets, leveraging them through debt positions and lending. There are pools to automate this like yearn. There are now sites like alchemix where you can lock up your collateral into a lending pool, borrow against it, and the yield on the locked collateral pays off the borrowed debt position. Self-repaying loans! Multiple times over the past year I have locked eth, taken $s to pay rent/buy stuff. Then come back later paid back the owed $ and get my eth back. https://defipulse.com https://defipulse.com tracks the value locked in different protocols, it was less about $0.5 billion this time last year, now over $40 billion. https://compound.finance/ https://compound.finance/ https://oasis.app https://oasis.app https://yearn.finance https://yearn.finance https://aave.com https://aave.com
- samvher 6y ago
  When I read about DeFi I imagined it to be something very different from this. This does not sound sustainable at all. It does sound like a confirmation that this is growing very rapidly.
  - dingus9 6y ago
    A system where borrowers post $250k collateral to borrow $100k, in theory, sounds more sustainable than traditional lending models where a handful of large borrowers defaulting can start a domino effect until a central bank steps in and punishes taxpayers to bail out lenders that took on too much risk. It's interesting to watch the progression of DeFi projects as they're being developed. Being an early adopter in experimental financial technologies has its own set of risks, but at least these risks don't affect non-participants.

stblack 6y ago

Bitcoin is often referred-to as pristine collateral. It's highly liquid, and its presence can be verified easily on the public blockchain without resorting to experts, such as auditors. I don't think "depositing into a smart contract" is any more necessary than someone moving out of their house when that's used as collateral. Conceivably one could simply pledge a set of UTXOs as collateral, and the moment any of them move, which is easily monitored, THAT potentially triggers action on the loan.

ceejayoz 6y ago
> It's highly liquid, and its presence can be verified easily on the public blockchain without resorting to experts, such as auditors. This is a simplistic idea of what auditors do. Auditors do more than verify "they have $50M in their bank account". They're also there to verify more complicated things like "they haven't promised that $50M to someone else already". This was a major issue with Tether, for example. https://ag.ny.gov/press-release/2021/attorney-general-james-ends-virtual-currency-trading-platform-bitfinexs-illegal https://ag.ny.gov/press-release/2021/attorney-general-james-... > In the face of persistent questions about whether the company actually held sufficient funds, Tether published a self-proclaimed ‘verification’ of its cash reserves, in 2017, that it characterized as “a good faith effort on our behalf to provide an interim analysis of our cash position.” In reality, however, the cash ostensibly backing tethers had only been placed in Tether’s account as of the very morning of the company’s ‘verification.’ > On November 1, 2018, Tether publicized another self-proclaimed ‘verification’ of its cash reserve; this time at Deltec Bank & Trust Ltd. of the Bahamas. The announcement linked to a letter dated November 1, 2018, which stated that tethers were fully backed by cash, at one dollar for every one tether. However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
thebean11 6y ago
> Conceivably one could simply pledge a set of UTXOs as collateral, and the moment any of them move, which is easily monitored, THAT potentially triggers action on the loan. That seems like a shoddier implementation of what the smart contract would do