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What's an example of something you'd want to "do" with your crypto asset while using it as collateral? Obviously you can't spend it, give it away, use it as col

What's an example of something you'd want to "do" with your crypto asset while using it as collateral? Obviously you can't spend it, give it away, use it as collateral for another loan etc as that would conflict with the first loan. But you can do other stuff. For example you could covert ETH to one of the many tokens that represent staked ETH (rocketpool rETH for example) and use that as collateral. Now you are have collateral and staking revenue with the same funds.

lottin 5y ago
Well, that's the point, 1) you need 100% collateral, 2) the collateral needs to be in the form of digital tokens and 3) it needs to be kept in custody by a third party (the "smart contract"). Yes, you can still do useful things despite these limitations, but at the same time be aware that 99% of the borrowing/lending activity that goes on in the real world is not possible with this technology.
- Ekaros 5y ago
  This really sounds most like gambling. And not a financial instruments that is very supportive for economy. Like let's say company loaning money to purchase equipment.
  - lottin 5y ago
    Yes, these loans can't be used to fund investment or consumption in the real economy. The only use-case of crypto-loans, as far as I know, is making leveraged bets on the prices of crypto-currencies.
    - thebean11 5y ago
      Why not? One can easily borrow USDC or another stablecoin with crypto collateral, withdraw to USD and use it for non-crypto investments..
      - lottin 5y ago
        Because if I already have $10,000 to put as collateral, to get a $10,000 loan to buy a $10,000 car, it means I didn't have a need for borrowing funds to begin with. I can go straight to buying the car without borrowing money. Whereas if I need to borrow the funds, I won't be able to get the loan because I don't have the 100% collateral required.
        thebean11 5y ago
        Using the BTC as collateral lets you stay long BTC and get the car. You also avoid paying capital gains since you aren’t selling. The positions are fundamentally different. If you take the loan you are long BTC and short dollars. If you sell BTC for the car you have zero of both.
        lottin 5y ago
        Yes, we had already established that. The point is that requiring 100% collateral does not allow the borrower to trade future consumption for present consumption, which is the whole point of borrowing as far as consumer and businesses are concerned. This is why DeFi loans are unsuitable when it comes to funding consumption or productive investment.
        cinquemb 5y ago
        Uncollateralized lending in DeFi is very nascent (right now primarily targets crypto businesses, and are typically ran by centralized companies who have launched a protocol on chain). TrueFi, Maple Finance, and Goldfinch are the biggest and primarily have permissionless lenders and kyc'd borrowers. Some of those borrowers may make consumer loans (Goldfinch is like this). Permissionless uncollateralized borrowing has yet to take off (even though contracts for this already exist and are live), but I suspect it will once decentralized stablecoin on chain supply gets decoupled from current centralized stablecoin supply (decentralized credit based stablecoins built on top of incentivized permissions management of on <-> off chain flows [via over collaterlized decentralized stablecoins and centralized stablecoins alike] and on/off chain risk [via derivatives]). Decentralized derivatives protocols will be key to permissionless uncollateralized lending growth imo, but we are not there yet (I think we need to continue to see global markets break down more in OTC/CCP IRD's and tradfi counterparties continue to lose trust with one another in derivative transactions for this to grow faster in DeFi). I can see that in the next 10-20 years, 20% of the eurodollar system with be contained within (multichain) permissionless DeFi protocols as HNW individuals and tradfi institutions outside of the US abandon CCPs and typical OTC derivatives txs. I won't have to argue with folks at ihsmarkit like I do now for making EOD CDX data public (like it was before they were acquired by shit & pee global), when I can pull it from on chain contracts in real time.

lottin 5y ago

Well, that's the point, 1) you need 100% collateral, 2) the collateral needs to be in the form of digital tokens and 3) it needs to be kept in custody by a third party (the "smart contract"). Yes, you can still do useful things despite these limitations, but at the same time be aware that 99% of the borrowing/lending activity that goes on in the real world is not possible with this technology.

Ekaros 5y ago
This really sounds most like gambling. And not a financial instruments that is very supportive for economy. Like let's say company loaning money to purchase equipment.
- lottin 5y ago
  Yes, these loans can't be used to fund investment or consumption in the real economy. The only use-case of crypto-loans, as far as I know, is making leveraged bets on the prices of crypto-currencies.
  - thebean11 5y ago
    Why not? One can easily borrow USDC or another stablecoin with crypto collateral, withdraw to USD and use it for non-crypto investments..
    - lottin 5y ago
      Because if I already have $10,000 to put as collateral, to get a $10,000 loan to buy a $10,000 car, it means I didn't have a need for borrowing funds to begin with. I can go straight to buying the car without borrowing money. Whereas if I need to borrow the funds, I won't be able to get the loan because I don't have the 100% collateral required.
      - thebean11 5y ago
        Using the BTC as collateral lets you stay long BTC and get the car. You also avoid paying capital gains since you aren’t selling. The positions are fundamentally different. If you take the loan you are long BTC and short dollars. If you sell BTC for the car you have zero of both.
        lottin 5y ago
        Yes, we had already established that. The point is that requiring 100% collateral does not allow the borrower to trade future consumption for present consumption, which is the whole point of borrowing as far as consumer and businesses are concerned. This is why DeFi loans are unsuitable when it comes to funding consumption or productive investment.
        cinquemb 5y ago
        Uncollateralized lending in DeFi is very nascent (right now primarily targets crypto businesses, and are typically ran by centralized companies who have launched a protocol on chain). TrueFi, Maple Finance, and Goldfinch are the biggest and primarily have permissionless lenders and kyc'd borrowers. Some of those borrowers may make consumer loans (Goldfinch is like this). Permissionless uncollateralized borrowing has yet to take off (even though contracts for this already exist and are live), but I suspect it will once decentralized stablecoin on chain supply gets decoupled from current centralized stablecoin supply (decentralized credit based stablecoins built on top of incentivized permissions management of on <-> off chain flows [via over collaterlized decentralized stablecoins and centralized stablecoins alike] and on/off chain risk [via derivatives]). Decentralized derivatives protocols will be key to permissionless uncollateralized lending growth imo, but we are not there yet (I think we need to continue to see global markets break down more in OTC/CCP IRD's and tradfi counterparties continue to lose trust with one another in derivative transactions for this to grow faster in DeFi). I can see that in the next 10-20 years, 20% of the eurodollar system with be contained within (multichain) permissionless DeFi protocols as HNW individuals and tradfi institutions outside of the US abandon CCPs and typical OTC derivatives txs. I won't have to argue with folks at ihsmarkit like I do now for making EOD CDX data public (like it was before they were acquired by shit & pee global), when I can pull it from on chain contracts in real time.