4 ms·

No, those are personal debts (in one case secured). There’s been on and off again interest for as long as I can remember about creating personal equity interest

No, those are personal debts (in one case secured). There’s been on and off again interest for as long as I can remember about creating personal equity interests (i.e. the payout depends on how much the person earns). Now with blockchain(tm).

danans 6y ago
I agree that there is a difference in the collateral involved, but the collateral mostly functions as a risk adjuster (which is why mortgage rates are on average lower than personal loan rates: if a borrower defaults, the house can be sold to recover part of the principal). At the end of the day, a mortgage is a contract that allows the borrower to purchase a home in exchange for a share of their future income, paid as interest on the loan. Personal loans also already exist today. The primary difference in the scheme in the article is that it is blockchain-based, instead of bank-based, and the trust establishment mechanism between borrower and lender is based on personal marketing, not credit agencies. Perhaps a bigger factor is that if the currency in which such a loan is offered is deflationary in the BTC style, it is a disadvantage to the borrower who will see the cost of their loan escalate over time, so this should be accounted for by lowering the interest rate.
- bradleyjg 6y ago
  The difference isn’t the collateral, a personal loan like a credit card is unsecured. It’s how you calculate the payment. In a loan it doesn’t matter how much money I make, I owe what I owe. In the proposed equity arrangement I owe a percentage of my income. If I don’t make anything, I don’t owe anything. If I’m the next Musk, I owe billions.
  - danans 6y ago
    > a personal loan like a credit card is unsecured. That's just another way of saying 0 collateral. > In the proposed equity arrangement I owe a percentage of my income. If I don’t make anything, I don’t owe anything I agree the calculation is different, but I doubt there is a lender that isn't going to demand the return of their principal at the least. Depending on the enforceability of such a contract (questionable and depends on the legal teeth they have in the respective jurisdictions) and the likelihood of default, it would significantly alter the risk profile.
    - bradleyjg 6y ago
      It seems like you don’t understand the difference between debt and equity.
      - danans 6y ago
        I do understand the difference, but in modern societies, you can't purchase (or sell) equity in a human being - that's called indentured servitude - and despite our society having many exploitative employment arrangements, we don't allow total or partial sale of oneself. If you want to take an "investment" of this sort, it would have to taken by an LLC or similar entity, which is by definition isolated from personal liability and vice versa.
    - ghaff 6y ago
      >I agree the calculation is different, but I doubt there is a lender that isn't going to demand the return of their principal at the least. You win some, you lose some. Presumably the person/organization making the loan has calculated that the upside pays for the students who end up paying nothing. To the sibling comment about debt and equity, they're not necessarily as different as some assume. In this case, if I called it debt with a payback schedule based on ability to pay up to some cap, does that make it into something fundamentally different just because it's unusual?
      - bradleyjg 6y ago
        There are hybrids all over the place. Preferred stock is a classic example. But there’s still a basic framework before you get into the messy middle. Taxonomies are a useful technology, calling everything a loan obscures more than it clarifies.
        ghaff 6y ago
        Also convertibles. And I don't disagree even though I had a long ago finance professor who hammered on the point that a lot of financial instruments weren't necessarily that distinct from each other just because they have different names. But, yes, we can generalize about the distinct characteristics of normal debt and normal equity.
  - ghaff 6y ago
    >I owe what I owe Which may depend on an external factor if say it's a variable rate loan pegged to the prime. At some level, this is just using a different formula to determine the payment.
- deleted 6y ago
  [deleted]

danans 6y ago

I agree that there is a difference in the collateral involved, but the collateral mostly functions as a risk adjuster (which is why mortgage rates are on average lower than personal loan rates: if a borrower defaults, the house can be sold to recover part of the principal). At the end of the day, a mortgage is a contract that allows the borrower to purchase a home in exchange for a share of their future income, paid as interest on the loan. Personal loans also already exist today. The primary difference in the scheme in the article is that it is blockchain-based, instead of bank-based, and the trust establishment mechanism between borrower and lender is based on personal marketing, not credit agencies. Perhaps a bigger factor is that if the currency in which such a loan is offered is deflationary in the BTC style, it is a disadvantage to the borrower who will see the cost of their loan escalate over time, so this should be accounted for by lowering the interest rate.

bradleyjg 6y ago
The difference isn’t the collateral, a personal loan like a credit card is unsecured. It’s how you calculate the payment. In a loan it doesn’t matter how much money I make, I owe what I owe. In the proposed equity arrangement I owe a percentage of my income. If I don’t make anything, I don’t owe anything. If I’m the next Musk, I owe billions.
- danans 6y ago
  > a personal loan like a credit card is unsecured. That's just another way of saying 0 collateral. > In the proposed equity arrangement I owe a percentage of my income. If I don’t make anything, I don’t owe anything I agree the calculation is different, but I doubt there is a lender that isn't going to demand the return of their principal at the least. Depending on the enforceability of such a contract (questionable and depends on the legal teeth they have in the respective jurisdictions) and the likelihood of default, it would significantly alter the risk profile.
  - bradleyjg 6y ago
    It seems like you don’t understand the difference between debt and equity.
    - danans 6y ago
      I do understand the difference, but in modern societies, you can't purchase (or sell) equity in a human being - that's called indentured servitude - and despite our society having many exploitative employment arrangements, we don't allow total or partial sale of oneself. If you want to take an "investment" of this sort, it would have to taken by an LLC or similar entity, which is by definition isolated from personal liability and vice versa.
  - ghaff 6y ago
    >I agree the calculation is different, but I doubt there is a lender that isn't going to demand the return of their principal at the least. You win some, you lose some. Presumably the person/organization making the loan has calculated that the upside pays for the students who end up paying nothing. To the sibling comment about debt and equity, they're not necessarily as different as some assume. In this case, if I called it debt with a payback schedule based on ability to pay up to some cap, does that make it into something fundamentally different just because it's unusual?
    - bradleyjg 6y ago
      There are hybrids all over the place. Preferred stock is a classic example. But there’s still a basic framework before you get into the messy middle. Taxonomies are a useful technology, calling everything a loan obscures more than it clarifies.
      - ghaff 6y ago
        Also convertibles. And I don't disagree even though I had a long ago finance professor who hammered on the point that a lot of financial instruments weren't necessarily that distinct from each other just because they have different names. But, yes, we can generalize about the distinct characteristics of normal debt and normal equity.
- ghaff 6y ago
  >I owe what I owe Which may depend on an external factor if say it's a variable rate loan pegged to the prime. At some level, this is just using a different formula to determine the payment.
deleted 6y ago
[deleted]