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“If it were not for central bankers printing money into existence, a person could work their life, save a portion for retirement in a bank account or other fixe

by md_ 5y ago

“If it were not for central bankers printing money into existence, a person could work their life, save a portion for retirement in a bank account or other fixed income product, while enjoying a positive return on their investment, without taking on market risk of loss of funds.” Hmm. How would that work?

Thiez 5y ago
Yes, it's very mysterious. If everybody put their money in the bank they would all be guaranteed a positive return on their investment, but there is no inflation and the money supply is fixed. So where does the money come from?
- lowkey 5y ago
  It’s simple really. In finance this is called ‘the time value of money.’ Essentially, in order for me to be incentivized to use a savings vehicle, there must be a real incentive. This incentive is what motivates the saver to save. If not for the incentive, why would they lend their money out?
lowkey 5y ago
I mean it already works like that in cryptocurrency today. Look at the rates paid on stablecoins. For example look at UST a US dollar stablecoin. It currently pays 19.4% APY on savings. There are risks but for 2% on Nexus Mutual you can be insured against a failure of the dollar peg or a failure in the smart contract. The net yield on a USD pegged stablecoin with insurance is 17.4% - handily beating inflation risk-free. If the central bankers couldn’t print money you could beat inflation with any bank account.
- md_ 5y ago
  Where do you think the zero-risk interest comes from?
  - lowkey 5y ago
    Similar to other stablecoins, over-collateralized lending against the value of staked crypto assets. See here for details on UST (Anchor protocol) https://www.anchorprotocol.com/docs/anchor-v1.1.pdf https://www.anchorprotocol.com/docs/anchor-v1.1.pdf
    - md_ 5y ago
      OK. And what if the borrower defaults? Per https://docs.anchorprotocol.com/protocol/money-market#borrowing-terra-stablecoins https://docs.anchorprotocol.com/protocol/money-market#borrow..., it seems like there'd be zero risk as long as the LTV is >= 1.0, but that sort of defeats the point of loans. ;)
      - lowkey 5y ago
        There is no magic to make these loans riskless. These are OVER-collateralized loans. Like any other collateral backed loan, if the value of the collateral falls to a point where there may be a risk of the collateral value being less than the loan amount, then the borrower must either put up more collateral or their existing collateral is liquidated to pay off the loan, leaving no outstanding balance. It’s not really much different from a mortgage or another asset-backed loan, except that the borrower must send the collateral to an account controlled by the lender and the lender can instantly liquidate the collateral if the LTV falls below a threshold. If you think about it, crypto such as Bitcoin or Ethereum are really the most perfect form of capital for a lender to accept as collateral for a loan. Unlike a home mortgage or a car loan the lendor takes full custody of collateral valued greater than the loan. The crypto assets are volatile but they are marked to market in real-time 24/7. At any time if the value of the collateral falls below som safe threshold, the borrower is notified that their collateral is at risk of liquidation and given the opportunity to add collateral. If the LTV ratio isn’t corrected and the market reduces the value of the collateral further, then the lender can instantly liquidate the collateral and unwind the loan.
        deleted 5y ago
        [deleted]

by md_ 5y ago

Thiez 5y ago

Yes, it's very mysterious. If everybody put their money in the bank they would all be guaranteed a positive return on their investment, but there is no inflation and the money supply is fixed. So where does the money come from?

lowkey 5y ago
It’s simple really. In finance this is called ‘the time value of money.’ Essentially, in order for me to be incentivized to use a savings vehicle, there must be a real incentive. This incentive is what motivates the saver to save. If not for the incentive, why would they lend their money out?

lowkey 5y ago

I mean it already works like that in cryptocurrency today. Look at the rates paid on stablecoins. For example look at UST a US dollar stablecoin. It currently pays 19.4% APY on savings. There are risks but for 2% on Nexus Mutual you can be insured against a failure of the dollar peg or a failure in the smart contract. The net yield on a USD pegged stablecoin with insurance is 17.4% - handily beating inflation risk-free. If the central bankers couldn’t print money you could beat inflation with any bank account.

md_ 5y ago
Where do you think the zero-risk interest comes from?
- lowkey 5y ago
  Similar to other stablecoins, over-collateralized lending against the value of staked crypto assets. See here for details on UST (Anchor protocol) https://www.anchorprotocol.com/docs/anchor-v1.1.pdf https://www.anchorprotocol.com/docs/anchor-v1.1.pdf
  - md_ 5y ago
    OK. And what if the borrower defaults? Per https://docs.anchorprotocol.com/protocol/money-market#borrowing-terra-stablecoins https://docs.anchorprotocol.com/protocol/money-market#borrow..., it seems like there'd be zero risk as long as the LTV is >= 1.0, but that sort of defeats the point of loans. ;)
    - lowkey 5y ago
      There is no magic to make these loans riskless. These are OVER-collateralized loans. Like any other collateral backed loan, if the value of the collateral falls to a point where there may be a risk of the collateral value being less than the loan amount, then the borrower must either put up more collateral or their existing collateral is liquidated to pay off the loan, leaving no outstanding balance. It’s not really much different from a mortgage or another asset-backed loan, except that the borrower must send the collateral to an account controlled by the lender and the lender can instantly liquidate the collateral if the LTV falls below a threshold. If you think about it, crypto such as Bitcoin or Ethereum are really the most perfect form of capital for a lender to accept as collateral for a loan. Unlike a home mortgage or a car loan the lendor takes full custody of collateral valued greater than the loan. The crypto assets are volatile but they are marked to market in real-time 24/7. At any time if the value of the collateral falls below som safe threshold, the borrower is notified that their collateral is at risk of liquidation and given the opportunity to add collateral. If the LTV ratio isn’t corrected and the market reduces the value of the collateral further, then the lender can instantly liquidate the collateral and unwind the loan.
      - deleted 5y ago
        [deleted]