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This kind of lending is probably the precursor to normal business loans. It's proving the concept on a global scale.

by arbol 5y ago

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.
      - Daishiman 5y ago
        There is no way countries will allow these sort of cute workarounds to local regulations in finance.
    - arbol 5y ago
      Obviously bitcoin wouldn't be used for this kind of operation. Again, we're at proof of concept stage. The reason Blockchain would be preferred over traditional finance for proving transactions is because traditional finance would have difficultly integrating disparate systems and potential for histories to be manipulated. If everything is on-chain and verifiable then it makes this process a lot easier.
  - cinntaile 5y ago
    > This is good because it removes bias and discrimination that currently exists in the traditional system Just because code makes the decisions doesn't mean that there is no bias and discrimination built into the code. This will eventually create bigger problems down the road due to the massive scale this can be deployed at when compared to a banker having to make the final call.

This kind of lending is probably the precursor to normal business loans. It's proving the concept on a global scale.

by arbol 5y ago

This kind of lending is probably the precursor to normal business loans. It's proving the concept on a global scale.

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.
    - Daishiman 5y ago
      There is no way countries will allow these sort of cute workarounds to local regulations in finance.
  - arbol 5y ago
    Obviously bitcoin wouldn't be used for this kind of operation. Again, we're at proof of concept stage. The reason Blockchain would be preferred over traditional finance for proving transactions is because traditional finance would have difficultly integrating disparate systems and potential for histories to be manipulated. If everything is on-chain and verifiable then it makes this process a lot easier.
- cinntaile 5y ago
  > This is good because it removes bias and discrimination that currently exists in the traditional system Just because code makes the decisions doesn't mean that there is no bias and discrimination built into the code. This will eventually create bigger problems down the road due to the massive scale this can be deployed at when compared to a banker having to make the final call.