5 ms·

But all contracts have some element of counterparty risk. Contractual guarantees are just contractual, nobody can give absolute guarantees of anything.

kybernetikos 5y ago
Lots of defi has no counterparty risk. Much of it is over collateralised and managed by smart contacts. There is of course software risk in the smart contract (although I think people underestimate that in conventional finance too).
- quickthrower2 5y ago
  The security of the Ethereum network is the counterparty
  - Dylan16807 5y ago
    The network itself? That seems pretty safe to me. Even if other nodes get hacked, you can run your own.
- arisAlexis 5y ago
  What you are saying is totally debunked by the sheer number of Defi hacks,rug pulls and exoloits the previous year resulting in billions of lost money. That defi has no counterparty risk is probably one of thr all time wrong sentences on HN.
  - kybernetikos 5y ago
    > That defi has no counterparty risk is probably one of thr all time wrong sentences on HN Which is why I didn't say it. One of the nice features of smart contract platforms is that any two people can quickly set up a transaction where they swap a basket of assets for another basket of assets atomically and without counterparty risk. To get similar guarantees in tradfi requires either an underwriter (that we assume can't go bust) or escrow (with a party we both completely trust). Smart contract systems are of course infinitely flexible, and some of the most useful kinds of systems you might want to build are not overcollateralized, but those that are can liquidate automatically with no counterparty risk. Your comment seems to treat 'defi' as just one thing. It's not. There're a huge range of products offered, with risk ranging from lower than lots of traditional products to crazy high.
    - ac29 5y ago
      > they swap a basket of assets for another basket of assets atomically and without counterparty risk. Of course there is counterparty risk - the contract writer could be adversarial. People dont always audit smart contracts (or may not realistically be able to, especially if the contract writer is attempting to obfuscate a subtle bug they can use for their own advantage). Thats the point of the above comment. If the traditional world, courts would interpret such a contract as not valid. In the DeFi world, code is law - at least until law enforcement and regulatory agencies catch up to it.
      - kybernetikos 5y ago
        > the contract writer could be adversarial Fair enough, if you consider that to be counterparty risk. I prefer to think of that as an entirely separate kind of risk ('software risk'). This is partly because these contracts can be written by entirely separate parties having nothing to do with the counterparty (and sometimes provided as public infrastructure, since they don't cost the writer anything beyond the initial deployment cost). I suppose to some extent it depends whether you consider the smart contract itself as a virtual counterparty that could default either through malicious coding or through bugs that allow hackers to steal assets. I also don't see any problem with combining smart contracts and real legal contracts. If someone scams you in the DeFi world, they're scamming you in the real world too. I know that at least the UK Supreme Court has ruled that digital assets are property at common law.
- NicoJuicy 5y ago
  > Lots of defi has no counterparty risk Euh... https://rekt.news/ https://rekt.news/
  - kybernetikos 5y ago
    Those stories look like they're mainly the software risk I was referring to in my comment.
    - NicoJuicy 5y ago
      What's defi without the software?
- qeternity 5y ago
  > Lots of defi has no counterparty risk. Much of it is over collateralised and managed by smart contacts. There is no such thing as overcollateralization. Higher levels of collateral are required against higher levels of risk. If one party is required to post "excess" collateral, that's because the risk is greater than whatever you think it is. The very fact that certain DeFi projects dealing in things like stablecoins require obscene collateral is proof that there is tremendous risk...and the high levels of collateral are an attempt to mitigate some of that.
dragonwriter 5y ago
> But all contracts have some element of counterparty risk. Contractual guarantees are just contractual, nobody can give absolute guarantees of anything. Yes...and? Are you trying to explain why, when other Howey-test factors are present, a fixed-return guarantee does not alter the determination that an offer is a security, or argue against it? Because it seems like you are trying to do the latter while actually doing the former.

kybernetikos 5y ago

Lots of defi has no counterparty risk. Much of it is over collateralised and managed by smart contacts. There is of course software risk in the smart contract (although I think people underestimate that in conventional finance too).

quickthrower2 5y ago
The security of the Ethereum network is the counterparty
- Dylan16807 5y ago
  The network itself? That seems pretty safe to me. Even if other nodes get hacked, you can run your own.
arisAlexis 5y ago
What you are saying is totally debunked by the sheer number of Defi hacks,rug pulls and exoloits the previous year resulting in billions of lost money. That defi has no counterparty risk is probably one of thr all time wrong sentences on HN.
- kybernetikos 5y ago
  > That defi has no counterparty risk is probably one of thr all time wrong sentences on HN Which is why I didn't say it. One of the nice features of smart contract platforms is that any two people can quickly set up a transaction where they swap a basket of assets for another basket of assets atomically and without counterparty risk. To get similar guarantees in tradfi requires either an underwriter (that we assume can't go bust) or escrow (with a party we both completely trust). Smart contract systems are of course infinitely flexible, and some of the most useful kinds of systems you might want to build are not overcollateralized, but those that are can liquidate automatically with no counterparty risk. Your comment seems to treat 'defi' as just one thing. It's not. There're a huge range of products offered, with risk ranging from lower than lots of traditional products to crazy high.
  - ac29 5y ago
    > they swap a basket of assets for another basket of assets atomically and without counterparty risk. Of course there is counterparty risk - the contract writer could be adversarial. People dont always audit smart contracts (or may not realistically be able to, especially if the contract writer is attempting to obfuscate a subtle bug they can use for their own advantage). Thats the point of the above comment. If the traditional world, courts would interpret such a contract as not valid. In the DeFi world, code is law - at least until law enforcement and regulatory agencies catch up to it.
    - kybernetikos 5y ago
      > the contract writer could be adversarial Fair enough, if you consider that to be counterparty risk. I prefer to think of that as an entirely separate kind of risk ('software risk'). This is partly because these contracts can be written by entirely separate parties having nothing to do with the counterparty (and sometimes provided as public infrastructure, since they don't cost the writer anything beyond the initial deployment cost). I suppose to some extent it depends whether you consider the smart contract itself as a virtual counterparty that could default either through malicious coding or through bugs that allow hackers to steal assets. I also don't see any problem with combining smart contracts and real legal contracts. If someone scams you in the DeFi world, they're scamming you in the real world too. I know that at least the UK Supreme Court has ruled that digital assets are property at common law.
NicoJuicy 5y ago
> Lots of defi has no counterparty risk Euh... https://rekt.news/ https://rekt.news/
- kybernetikos 5y ago
  Those stories look like they're mainly the software risk I was referring to in my comment.
  - NicoJuicy 5y ago
    What's defi without the software?
qeternity 5y ago
> Lots of defi has no counterparty risk. Much of it is over collateralised and managed by smart contacts. There is no such thing as overcollateralization. Higher levels of collateral are required against higher levels of risk. If one party is required to post "excess" collateral, that's because the risk is greater than whatever you think it is. The very fact that certain DeFi projects dealing in things like stablecoins require obscene collateral is proof that there is tremendous risk...and the high levels of collateral are an attempt to mitigate some of that.

dragonwriter 5y ago

> But all contracts have some element of counterparty risk. Contractual guarantees are just contractual, nobody can give absolute guarantees of anything. Yes...and? Are you trying to explain why, when other Howey-test factors are present, a fixed-return guarantee does not alter the determination that an offer is a security, or argue against it? Because it seems like you are trying to do the latter while actually doing the former.