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> It all seems very zero sum. No value is getting created. I think you might be underestimating the amount of resources that the traditional system uses to man

> It all seems very zero sum. No value is getting created. I think you might be underestimating the amount of resources that the traditional system uses to manage borrowing, lending, insurance, establishing ownership, transferring large sums, settling disputes, etc. The adoption of cryptocurrency and smart contracts would replace a lot of the financial industry with tiny smart bits of code. That is the value being created. Considering that traditional finance has a long history of predatory practices, anything that decreases their influence is a good thing to me.

ALittleLight 5y ago
It's possible I'm missing something, because the reality of cryptocurrency as I understand it seems bizarre. To my knowledge all of the borrowing/lending/ownership stuff is about making speculative bets. i.e. It is of the form "You can lend some crypto and get some return so other people can borrow some crypto and take some positions short or long on the rising/declining prices of different currencies or currency pairs. This kind of thing isn't really valuable lending or borrowing in my view. It's just part of the musical chairs gambling game that is the larger cryptocurrency ecosystem. It's also not possible (that I know of) for cryptocurrency to supplant our current lending/borrowing system. If I want to borrow 100k to refit the kitchen in my restaurant, can I do that with cryptocurrency? I haven't seen the defi solutions for business loans in other words, just the defi solutions for "I want to 100x the risk/reward when I buy bitcoin calls expiring next week."
- arbol 5y ago
  This kind of lending is probably the precursor to normal business loans. It's proving the concept on a global scale.
  - ALittleLight 5y ago
    I don't think it's proving the concept. The hard parts about lending are figuring out what is a good risk, what the rates should be, handling repossession, negotiating terms, dealing with laws, all that stuff. Cryptocurrency lending isn't doing any of the hard part of lending and it also doesn't seem to have any advantage over the existing system for doing the hard stuff. Meaning: in the cryptocurrency future, how will it be easier for a restaurant to use their business as collateral to take cash to do upgrades?
    - anon9001 5y ago
      > what is a good risk, what the rates should be, handling repossession, negotiating terms, dealing with laws, all that stuff These are the problems being worked on in defi right now and why people are so excited about it. > in the cryptocurrency future, how will it be easier for a restaurant to use their business as collateral to take cash to do upgrades? In the idealized future, the restaurant would have their complete transaction history available on-chain for lending contracts to use. Then, instead of a banker making a decision if the restaurant deserves the loan, an algorithm can make that determination and instantly grant the loan. Such a contract might use data points like amount of restaurant supplies purchased, number of customers, average sale price, demographics of the location, all of which would be on-chain and available to a contract. This is good because it removes bias and discrimination that currently exists in the traditional system, increases the speed at which your restaurant owner can access their capital, and decreases the overall cost of doing the transaction because humans don't need to be involved.
      - ALittleLight 5y ago
        If the goal is to automate loans then why do we need cryptocurrency? Couldn't we automate loans using business data in the current world of centralized finance? The benefit you're suggesting, that all the restaurant's transactions would be on the blockchain and so lenders could automatically evaluate the risk, is at odds with my understanding that bitcoin has high transaction costs and slow speeds and it is therefore unlikely that all of a restaurant's patrons would ever be paying with on-chain transactions. Maybe they could pay with something like a Coinbase credit card, and Coinbase could make transaction histories available to lenders - but I have to imagine something like that exists in current finance with our current credit card companies.
        spiderfarmer 5y ago
        Right now it’s not very easy to loan money from an entity that doesn’t have a domestic presence. Defi could make some financial products more accessible to countries that don’t have that infrastructure yet.
- phyalow 5y ago
  >>I haven't seen the defi solutions for business loans in other words It's possible, but only in a round about manner at the moment. To get a regular business loan typically you need to have collateral security, normally that is some combination of property, plant, equipment or financial instruments like shares. Crypto loans (see AAVE) can only presently be secured by crypto collateral. That's not necessarily a bad thing - it keeps things simple and offchain (ie tangible) collateral can be financialised easily enough with existing tradfi tools. In a round about way if you wanted to get a business loan via crypto at a better rate than your bank, you would borrow from your bank in $ (lets say 2%), swap $'s into something like USDC, deposit it at 7% on chain and then borrow something like Ethereum against it at 3%, you now have positive carry on your loan (4%) and a pile of Ethereum (if you so want). If you want to deal exclusively in offchain assets as collateral for onchain loans, nobody yet has bridged that gap, its a huge opportunity for sure. UBS I note is experimenting in the space. https://www.finews.asia/finance/34488-ubs-tokenization-blockchain-dlt-investment-bank-crypto-asia-apac https://www.finews.asia/finance/34488-ubs-tokenization-block...
- dcolkitt 5y ago
  > If I want to borrow 100k to refit the kitchen in my restaurant, can I do that with cryptocurrency If you have a large crypto portfolio (which many do) to use as collateral, you absolutely can do this.
maxbond 5y ago
> Considering that traditional finance has a long history of predatory practices, anything that decreases their influence is a good thing to me. Why should we trade onymous and regulated predators for anonymous and unregulated predators? If State Street said, everyone who invested in DIA is a sucker, and we're taking their money, they would be prosecuted. These scammer's claim that they will not face consequences is plausible. Ethereum has been described as a "dark forest" where, if you make the slightest mistake, your money becomes "miner extractable value" and is no longer yours. When I buy stock, my order goes to HFTs who wring every ten-thousandth of a penny out of it they can - ten-thousandths of a penny that are rightfully mine - but my order gets filled. Market structure is destiny, and Ethereum's market structure enshrines frontrunning. Let's say we start a bank where people can apply for mortgages, and a decentralized network of investors bid on those mortgages. Those investors take on-chain data and feed it through machine learning and whatnot to determine the creditworthiness of the borrowers. I believe such a system would create decentralized, anonymous, unregulated redlining. The ML algorithms would observe that certain neighborhoods have lower incomes, or that other MLs are bidding higher interest rates for certain borrowers. I think the biggest misconception cryptocurrency advocates have is that things like trust and equity are problems with technical solutions. They aren't; they are social problems that demand social solutions. That means creating regulations to codify and proliferate (what we desire to be) cultural norms. That means centralization, so that there are people who can be held to account. ETA: And perhaps the second biggest misconception is that "Finance 2.0" is not just a recapitulation of "Finance 1.0", sans the hard-won restraints on it's abuses and excesses. If you don't believe that these abuses are effectively managed - that should only give you more pause.

ALittleLight 5y ago

It's possible I'm missing something, because the reality of cryptocurrency as I understand it seems bizarre. To my knowledge all of the borrowing/lending/ownership stuff is about making speculative bets. i.e. It is of the form "You can lend some crypto and get some return so other people can borrow some crypto and take some positions short or long on the rising/declining prices of different currencies or currency pairs. This kind of thing isn't really valuable lending or borrowing in my view. It's just part of the musical chairs gambling game that is the larger cryptocurrency ecosystem. It's also not possible (that I know of) for cryptocurrency to supplant our current lending/borrowing system. If I want to borrow 100k to refit the kitchen in my restaurant, can I do that with cryptocurrency? I haven't seen the defi solutions for business loans in other words, just the defi solutions for "I want to 100x the risk/reward when I buy bitcoin calls expiring next week."

arbol 5y ago
This kind of lending is probably the precursor to normal business loans. It's proving the concept on a global scale.
- ALittleLight 5y ago
  I don't think it's proving the concept. The hard parts about lending are figuring out what is a good risk, what the rates should be, handling repossession, negotiating terms, dealing with laws, all that stuff. Cryptocurrency lending isn't doing any of the hard part of lending and it also doesn't seem to have any advantage over the existing system for doing the hard stuff. Meaning: in the cryptocurrency future, how will it be easier for a restaurant to use their business as collateral to take cash to do upgrades?
  - anon9001 5y ago
    > what is a good risk, what the rates should be, handling repossession, negotiating terms, dealing with laws, all that stuff These are the problems being worked on in defi right now and why people are so excited about it. > in the cryptocurrency future, how will it be easier for a restaurant to use their business as collateral to take cash to do upgrades? In the idealized future, the restaurant would have their complete transaction history available on-chain for lending contracts to use. Then, instead of a banker making a decision if the restaurant deserves the loan, an algorithm can make that determination and instantly grant the loan. Such a contract might use data points like amount of restaurant supplies purchased, number of customers, average sale price, demographics of the location, all of which would be on-chain and available to a contract. This is good because it removes bias and discrimination that currently exists in the traditional system, increases the speed at which your restaurant owner can access their capital, and decreases the overall cost of doing the transaction because humans don't need to be involved.
    - ALittleLight 5y ago
      If the goal is to automate loans then why do we need cryptocurrency? Couldn't we automate loans using business data in the current world of centralized finance? The benefit you're suggesting, that all the restaurant's transactions would be on the blockchain and so lenders could automatically evaluate the risk, is at odds with my understanding that bitcoin has high transaction costs and slow speeds and it is therefore unlikely that all of a restaurant's patrons would ever be paying with on-chain transactions. Maybe they could pay with something like a Coinbase credit card, and Coinbase could make transaction histories available to lenders - but I have to imagine something like that exists in current finance with our current credit card companies.
      - spiderfarmer 5y ago
        Right now it’s not very easy to loan money from an entity that doesn’t have a domestic presence. Defi could make some financial products more accessible to countries that don’t have that infrastructure yet.
phyalow 5y ago
>>I haven't seen the defi solutions for business loans in other words It's possible, but only in a round about manner at the moment. To get a regular business loan typically you need to have collateral security, normally that is some combination of property, plant, equipment or financial instruments like shares. Crypto loans (see AAVE) can only presently be secured by crypto collateral. That's not necessarily a bad thing - it keeps things simple and offchain (ie tangible) collateral can be financialised easily enough with existing tradfi tools. In a round about way if you wanted to get a business loan via crypto at a better rate than your bank, you would borrow from your bank in $ (lets say 2%), swap $'s into something like USDC, deposit it at 7% on chain and then borrow something like Ethereum against it at 3%, you now have positive carry on your loan (4%) and a pile of Ethereum (if you so want). If you want to deal exclusively in offchain assets as collateral for onchain loans, nobody yet has bridged that gap, its a huge opportunity for sure. UBS I note is experimenting in the space. https://www.finews.asia/finance/34488-ubs-tokenization-blockchain-dlt-investment-bank-crypto-asia-apac https://www.finews.asia/finance/34488-ubs-tokenization-block...
dcolkitt 5y ago
> If I want to borrow 100k to refit the kitchen in my restaurant, can I do that with cryptocurrency If you have a large crypto portfolio (which many do) to use as collateral, you absolutely can do this.

maxbond 5y ago

> Considering that traditional finance has a long history of predatory practices, anything that decreases their influence is a good thing to me. Why should we trade onymous and regulated predators for anonymous and unregulated predators? If State Street said, everyone who invested in DIA is a sucker, and we're taking their money, they would be prosecuted. These scammer's claim that they will not face consequences is plausible. Ethereum has been described as a "dark forest" where, if you make the slightest mistake, your money becomes "miner extractable value" and is no longer yours. When I buy stock, my order goes to HFTs who wring every ten-thousandth of a penny out of it they can - ten-thousandths of a penny that are rightfully mine - but my order gets filled. Market structure is destiny, and Ethereum's market structure enshrines frontrunning. Let's say we start a bank where people can apply for mortgages, and a decentralized network of investors bid on those mortgages. Those investors take on-chain data and feed it through machine learning and whatnot to determine the creditworthiness of the borrowers. I believe such a system would create decentralized, anonymous, unregulated redlining. The ML algorithms would observe that certain neighborhoods have lower incomes, or that other MLs are bidding higher interest rates for certain borrowers. I think the biggest misconception cryptocurrency advocates have is that things like trust and equity are problems with technical solutions. They aren't; they are social problems that demand social solutions. That means creating regulations to codify and proliferate (what we desire to be) cultural norms. That means centralization, so that there are people who can be held to account. ETA: And perhaps the second biggest misconception is that "Finance 2.0" is not just a recapitulation of "Finance 1.0", sans the hard-won restraints on it's abuses and excesses. If you don't believe that these abuses are effectively managed - that should only give you more pause.