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The last resort of the US, UK, etc. governments is to print money if they really want to avoid defaulting on their debt. Can smart contracts print money? Surely

The last resort of the US, UK, etc. governments is to print money if they really want to avoid defaulting on their debt. Can smart contracts print money? Surely there must be some way for the counterparty in the contract to default.

ArtTimeInvestor 5y ago
"Defaulting" in crypto means the collateral goes from the borrower to the lender. The collateral is always more valuable than the borrowed asset. Otherwise, all borrowers would "default" all the time. As there is no other downside to it than to lose your collateral.
- lottin 5y ago
  So, the borrower starts with X BTC. They post X BTC as collateral and borrow X-y BTC (where y > 0). Once the loan is paid off, they get the collateral back. This means they end up with X BTC minus the interest paid on X-y. Why would anyone do that?
  - ArtTimeInvestor 5y ago
    I am not sure if lending makes sense if the collateral is the same asset that is borrowed. A more typical example I can envision: Someone owns land in Decentraland. The land is an NFT on the Ethereum blockchain. To make profits from the land they need to put a hotel on top of it. But they don't have the means to buy/build the hotel. So they lend Decentracoins (some other asset on the Ethereum blockchain) and provide the land as collateral. If all goes well, the borrower buys/builds a hotel with the decentracoins. Makes more decentracoins from visitors. Pays back their debt. If it does not work out, the land goes to the lender.
    - lottin 5y ago
      > I am not sure if lending makes sense if the collateral is the same asset that is borrowed. It doesn't. And if the collateral is a different asset, there is no certainty that the value of the collateral exceeds the value of the principal. So there's a risk involved and that explains the premium over the risk-free rate. It's got nothing to do with the fact that the loan is denominated in some cryptocurrency.
      - ArtTimeInvestor 5y ago
        > It doesn't Proof needed. I can in fact think of counter examples: Say there is a DAO that gives more voting power if you own more ETH. In that situation, it might make sense to borrow 900 in ETH with 1000 ETH collateral. Then you make your vote on the DAO with a power of 1900. And pay back 910 in ETH to the lender. The vote on the DAO might trigger an action that is worth more than the 10 ETH you paid in interest. For example if you run a company and the vote on the DAO was to buy a service from your company.
        dmihal 5y ago
        > it might make sense to borrow 900 in ETH with 1000 ETH collateral. Then you make your vote on the DAO with a power of 1900 No, you would vote on the DAO with a power of 900, because your original 1000 ETH collateral is being held by the lending protocol
        ArtTimeInvestor 5y ago
        Not necessarily. There are mulitple ways it could work. Two examples: The DAO could support the lending protocol. Counting your assets in the lending protocol towards your voting power. The lending protocol could support the DAO. Not allowing you to withdraw you collateral but allowing you to signal something to the DAO.

ArtTimeInvestor 5y ago

"Defaulting" in crypto means the collateral goes from the borrower to the lender. The collateral is always more valuable than the borrowed asset. Otherwise, all borrowers would "default" all the time. As there is no other downside to it than to lose your collateral.

lottin 5y ago
So, the borrower starts with X BTC. They post X BTC as collateral and borrow X-y BTC (where y > 0). Once the loan is paid off, they get the collateral back. This means they end up with X BTC minus the interest paid on X-y. Why would anyone do that?
- ArtTimeInvestor 5y ago
  I am not sure if lending makes sense if the collateral is the same asset that is borrowed. A more typical example I can envision: Someone owns land in Decentraland. The land is an NFT on the Ethereum blockchain. To make profits from the land they need to put a hotel on top of it. But they don't have the means to buy/build the hotel. So they lend Decentracoins (some other asset on the Ethereum blockchain) and provide the land as collateral. If all goes well, the borrower buys/builds a hotel with the decentracoins. Makes more decentracoins from visitors. Pays back their debt. If it does not work out, the land goes to the lender.
  - lottin 5y ago
    > I am not sure if lending makes sense if the collateral is the same asset that is borrowed. It doesn't. And if the collateral is a different asset, there is no certainty that the value of the collateral exceeds the value of the principal. So there's a risk involved and that explains the premium over the risk-free rate. It's got nothing to do with the fact that the loan is denominated in some cryptocurrency.
    - ArtTimeInvestor 5y ago
      > It doesn't Proof needed. I can in fact think of counter examples: Say there is a DAO that gives more voting power if you own more ETH. In that situation, it might make sense to borrow 900 in ETH with 1000 ETH collateral. Then you make your vote on the DAO with a power of 1900. And pay back 910 in ETH to the lender. The vote on the DAO might trigger an action that is worth more than the 10 ETH you paid in interest. For example if you run a company and the vote on the DAO was to buy a service from your company.
      - dmihal 5y ago
        > it might make sense to borrow 900 in ETH with 1000 ETH collateral. Then you make your vote on the DAO with a power of 1900 No, you would vote on the DAO with a power of 900, because your original 1000 ETH collateral is being held by the lending protocol
        ArtTimeInvestor 5y ago
        Not necessarily. There are mulitple ways it could work. Two examples: The DAO could support the lending protocol. Counting your assets in the lending protocol towards your voting power. The lending protocol could support the DAO. Not allowing you to withdraw you collateral but allowing you to signal something to the DAO.