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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 fal

by 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
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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
      > I've yet to understand where you got that idea from, or what it has to do with all of your nonsensical followup comments. Which of my comments do you find non-sensical, specifically? > 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.” Let me lay out my logic: - If not for central bankers, artificially printing money and putting it in circulation, there would be no inflation. No printing by central bankers = No dilution of the purchasing power of everyone's money -> therefore no inflation. - In a no inflation environment, any nominal gains are real-gains because there is no inflation to worry about - In a no inflation environment, for a banker to attract deposits from savers, they would have to offer savers a nominal rate of savings in order to attract those deposits - In a no inflation environment, any nominal rate paid on savings is a real return, since there is no inflation - In an FDIC insured savings account savings are insured, therefore not risk - Unfortunately in our current environment where the Fed is printing money at 25-40% increases in M2 y/y, and CPI reaching 6.8% at last reading, and bank savings accounts paying 0.1%, it is hard to appreciate that a bank account could ever pay a real rate on savings, net of inflation. However, in a world without central bank money printers this is exactly what we would enjoy.

by lowkey 5y ago

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
    > I've yet to understand where you got that idea from, or what it has to do with all of your nonsensical followup comments. Which of my comments do you find non-sensical, specifically? > 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.” Let me lay out my logic: - If not for central bankers, artificially printing money and putting it in circulation, there would be no inflation. No printing by central bankers = No dilution of the purchasing power of everyone's money -> therefore no inflation. - In a no inflation environment, any nominal gains are real-gains because there is no inflation to worry about - In a no inflation environment, for a banker to attract deposits from savers, they would have to offer savers a nominal rate of savings in order to attract those deposits - In a no inflation environment, any nominal rate paid on savings is a real return, since there is no inflation - In an FDIC insured savings account savings are insured, therefore not risk - Unfortunately in our current environment where the Fed is printing money at 25-40% increases in M2 y/y, and CPI reaching 6.8% at last reading, and bank savings accounts paying 0.1%, it is hard to appreciate that a bank account could ever pay a real rate on savings, net of inflation. However, in a world without central bank money printers this is exactly what we would enjoy.