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DeFi can't do much financing at all since smart contracts can only replicate a small subset of financial products which aren't very useful to begin with. Even

• sanderjd 5y ago
  > smart contracts can only replicate a small subset of financial products Why?
  • lottin 5y ago
    One of the reasons is that many financial contracts have provisions to seize assets under certain circumstances. This is not possible with DeFi because DeFi is built around "unconfiscatable" digital assets.
    • sanderjd 5y ago
      I believe it is possible to write in provisions for some actor or set of actors to seize assets in a smart contract. This doesn't seem common either because of immaturity or just culture, but I don't think it is impossible.
      • lottin 5y ago
        No, that's not it. An actor must be able to seize assets from another actor, under certain circumstances. That can't be done with smart contracts because of the security model of blockchains.
        • sanderjd 5y ago
          It can if it is written into the contract. I suspect pretty much all contracts will have provisions for this in the future.
          • nieve 5y ago
            There's still the issue of what kinds of trigger circumstances you can commit to code.
          • lottin 5y ago
            No, a smart contract cannot seize assets from another wallet. A key feature of distributed ledgers is that only the person who has the private key to a wallet can move assets from that wallet. If you don't understand this there's no point continuing this conversation.
            • sanderjd 5y ago
              I think you are thinking too narrowly. It is true that a simple transfer from one wallet to another can't be reversed through technical means (though I'm interested in seeing how the law on this develops, for instance whether the legal system will compel wallet owners to pay back assets under threat of real-world non-crypto consequences if they don't), but you certainly can set up an escrow system where the keys to the escrow account are held by a "court" which can come to consensus on one participant retrieving funds from another participant under some set of rules and circumstances. This is more complex and fraught to get right than just direct wallet transfers, which I'm sure is why it isn't common (or maybe doesn't exist at all, I'm not sure), but it's also not impossible.
              • lottin 5y ago
                Sure, but that's not a smart contract, it's a "court system" (except much worse, because it's unaccountable), whereas the whole purpose of smart contracts was to replace courts. The other problem is the assets still need be deposited somewhere in advance, which defeats the purpose of a whole lot of financial operations including most types of loans.
                • sanderjd 5y ago
                  I'm talking about implementing a "court" inside a smart contract. That is, the "court" is just one or more entities that control the private keys necessary to govern the funds locked in the contract. I'm not sure I understand your last sentence, escrow is a common mechanism in traditional finance, which seems to work for financial operations including loans. But you may well be right on this point, I just don't really understand what you mean.