3 ms·

Where do you think the zero-risk interest comes from?

by md_ 5y ago

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]
    - md_ 5y ago
      I’ll happily lend you $1 if you deposit $2 in collateral first. :) However, I suspect the market for such loans is rather small.
      - rnduser1234 5y ago
        Defipulse.com click on lending... says the market is currently the $47 billion
      - davidgerard 5y ago
        one of the common moves is borrowing ETH using an illiquid otherwise-unsaleable shitcoin as collateral. Oh no, you defaulted, and you've lost your shitcoins for half their alleged face value in highly liquid ETH! Oh well.
      - lowkey 5y ago
        It’s more like I will lend you $1 if you post >$1 in collateral. In crypto, this is often in the form of a speculative token that is growing at potentially 200+% per year. The borrower is posting their collateral as security for the loan but they continue to own the collateral and enjoy the upside of price appreciation as long as the loan is in good standing. As the sister comment pointed out, it is currently a $50 Billion industry and it didn’t exist a couple years ago. In fact, DeFi is probably the fastest growing industry in the history of fast growing industries. You would be wise to have a curious mind in this field instead of being closed to the possibilities.
        md_ 5y ago
        I'm aware of this. But again, your original claim was “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.” I've yet to understand where you got that idea from, or what it has to do with all of your nonsensical followup comments.
  - lowkey 5y ago
    > 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. ;) Help me see what I am missing, what is the point of loans that is defeated by requiring an LTV >= 1.0? To my knowledge all collateral backed lending is based on the principal that the collateral value must always be greater than the value of the loan in order to remain solvent. Since crypto is a volatile asset, you would expect lenders to require higher relative LTV than vs real-estate, which for the most part they do.
    - md_ 5y ago
      Of course, even collateralized loans to buy real estate are not, despite what you said earlier, risk-free--see 2008 (and google the term "CDO", in case you've never heard of it) for a rather dramatic example of this. More to the earlier point, though, this is really not how most lending works, so the idea that this somehow means that "absent central bankers, we'd all make 2% APY risk-free on bank deposits" is just silly. The global equity market is $50T, the global corporate bond market something like $100T. Total cash-equivalents (M2) in the US is $21T. Even if "pledging shitcoins as collateral for speculating on coinbase" were zero-risk--which of course it isn't--the market for such loans is, unfortunately, too small for all of us to retire risk-free.
      - lowkey 5y ago
        > Of course, even collateralized loans to buy real estate are not, despite what you said earlier, risk-free--see 2008 (and google the term "CDO", in case you've never heard of it) for a rather dramatic A CDO is a synthetic debt derivative - not really the same thing as a loan. As for real estate vs cryptocurrency as collateral for a loan, two key differences that make lending essentially risk-free to the lender, not the borrower: 1. With crypto-lending the lender takes possession of the collateral at the time of loan issuance so they can liquidate if needed at any time 2. Crypto is traded in liquid markets 24/7 and the value of holdings can be marked to market in real-time or liquidated instantly to pay off a loan. Neither of these options are available in real-estate lending. > More to the earlier point, though, this is really not how most lending works I’ll bite, other than asset-backed lending, how else does most lending work?

Where do you think the zero-risk interest comes from?

by md_ 5y ago

Where do you think the zero-risk interest comes from?

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]
  - md_ 5y ago
    I’ll happily lend you $1 if you deposit $2 in collateral first. :) However, I suspect the market for such loans is rather small.
    - rnduser1234 5y ago
      Defipulse.com click on lending... says the market is currently the $47 billion
    - davidgerard 5y ago
      one of the common moves is borrowing ETH using an illiquid otherwise-unsaleable shitcoin as collateral. Oh no, you defaulted, and you've lost your shitcoins for half their alleged face value in highly liquid ETH! Oh well.
    - lowkey 5y ago
      It’s more like I will lend you $1 if you post >$1 in collateral. In crypto, this is often in the form of a speculative token that is growing at potentially 200+% per year. The borrower is posting their collateral as security for the loan but they continue to own the collateral and enjoy the upside of price appreciation as long as the loan is in good standing. As the sister comment pointed out, it is currently a $50 Billion industry and it didn’t exist a couple years ago. In fact, DeFi is probably the fastest growing industry in the history of fast growing industries. You would be wise to have a curious mind in this field instead of being closed to the possibilities.
      - md_ 5y ago
        I'm aware of this. But again, your original claim was “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.” I've yet to understand where you got that idea from, or what it has to do with all of your nonsensical followup comments.
- lowkey 5y ago
  > 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. ;) Help me see what I am missing, what is the point of loans that is defeated by requiring an LTV >= 1.0? To my knowledge all collateral backed lending is based on the principal that the collateral value must always be greater than the value of the loan in order to remain solvent. Since crypto is a volatile asset, you would expect lenders to require higher relative LTV than vs real-estate, which for the most part they do.
  - md_ 5y ago
    Of course, even collateralized loans to buy real estate are not, despite what you said earlier, risk-free--see 2008 (and google the term "CDO", in case you've never heard of it) for a rather dramatic example of this. More to the earlier point, though, this is really not how most lending works, so the idea that this somehow means that "absent central bankers, we'd all make 2% APY risk-free on bank deposits" is just silly. The global equity market is $50T, the global corporate bond market something like $100T. Total cash-equivalents (M2) in the US is $21T. Even if "pledging shitcoins as collateral for speculating on coinbase" were zero-risk--which of course it isn't--the market for such loans is, unfortunately, too small for all of us to retire risk-free.
    - lowkey 5y ago
      > Of course, even collateralized loans to buy real estate are not, despite what you said earlier, risk-free--see 2008 (and google the term "CDO", in case you've never heard of it) for a rather dramatic A CDO is a synthetic debt derivative - not really the same thing as a loan. As for real estate vs cryptocurrency as collateral for a loan, two key differences that make lending essentially risk-free to the lender, not the borrower: 1. With crypto-lending the lender takes possession of the collateral at the time of loan issuance so they can liquidate if needed at any time 2. Crypto is traded in liquid markets 24/7 and the value of holdings can be marked to market in real-time or liquidated instantly to pay off a loan. Neither of these options are available in real-estate lending. > More to the earlier point, though, this is really not how most lending works I’ll bite, other than asset-backed lending, how else does most lending work?