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>The fact that you can take out a loan You can take out a loan in crypto that's fully secured against some other crypto. It's turtles all the way down, and has

>The fact that you can take out a loan You can take out a loan in crypto that's fully secured against some other crypto. It's turtles all the way down, and has zero relevance to what most people think about when they talk about taking out a loan.

tylersmith 4y ago
How so? I just recently borrowed USD to buy a car at a lower rate than I could find elsewhere.
- lottin 4y ago
  How does that work? If you take a loan from a "decentralised lender" you can essentially walk away with the money and never pay the loan back. So, "decentralised lending" can't work, as far as I can tell.
  - ricochet11 4y ago
    Nearly all defi loans are overcollateralized. I deposit $100 of eth, borrow $50 of eth, convert to usdc and send to my bank. Six months later if the price of eth has gone up i need to buy more the $50 worth to repay my debt, if the price of eth goes down i can pay back less than $50 of eth. If it goes up by a lot then i can borrow more against my initial deposit, if it goes down by a lot and i dont close my position then the deposit is liquidated to pay off the debt and i have a smaller position. It actually works pretty well, add on to this things like Alchemix which builds loans via yearn vaults and you can borrow money against future interest and have self-repaying loans. If you have initial assets its an easy way to borrow against those assets. e.g. My bank wouldn't give me a loan against my eth as they don\t value the asset, instead I just open a maker vault and borrow against it in dai ($ stablecoin), and then sell that for € and deposit to my bank. problem solved.
    - lottin 4y ago
      > I deposit $100 of eth, borrow $50 of eth I could be missing something, but it seems you're lending $50 worth of eth, rather than borrowing. Your net debt position is <0.
      - AlexandrB 4y ago
        I think the reason crypto investors are excited about this is that it allows them to maintain a position in a crypto coin while still extracting some liquidity - possibly to invest in other coins. So, say you own 5 BTC and don't want to sell it because it's going "to the moon". You stake it as 200% collateral on a DeFi loan and get 2.5 BTC of liquidity you can use to buy some ETH. What's interesting about this is that it allows the demand for coins (and therefore their value) to increase without introducing new (fiat) money into the system. I haven't done the research, but I'd be curious to know what portion of crypto trading is funded by these kinds of DeFi loans as opposed to "new" money.
        landemva 4y ago
        '... it allows them to maintain a position in a crypto coin ...' In some 'we own you and command you to pay tribute to mighty rulers from what you produce' regimes, the loan avoids a sale and the resulting tax event. In my experience, the loan can be converted to fiat money.
        lottin 4y ago
        This process doesn't create new "money" as far as I can tell. Centralised exchanges can indeed inflate the supply of any crypto-currency by lowering the reserve ratio. But I think the way they pump the coins is mostly by issuing unbacked "stablecoins" and using those to buy crypto-currencies.
- Kbelicius 4y ago
  Without 200%-300% collateral? Where?

tylersmith 4y ago

How so? I just recently borrowed USD to buy a car at a lower rate than I could find elsewhere.

lottin 4y ago
How does that work? If you take a loan from a "decentralised lender" you can essentially walk away with the money and never pay the loan back. So, "decentralised lending" can't work, as far as I can tell.
- ricochet11 4y ago
  Nearly all defi loans are overcollateralized. I deposit $100 of eth, borrow $50 of eth, convert to usdc and send to my bank. Six months later if the price of eth has gone up i need to buy more the $50 worth to repay my debt, if the price of eth goes down i can pay back less than $50 of eth. If it goes up by a lot then i can borrow more against my initial deposit, if it goes down by a lot and i dont close my position then the deposit is liquidated to pay off the debt and i have a smaller position. It actually works pretty well, add on to this things like Alchemix which builds loans via yearn vaults and you can borrow money against future interest and have self-repaying loans. If you have initial assets its an easy way to borrow against those assets. e.g. My bank wouldn't give me a loan against my eth as they don\t value the asset, instead I just open a maker vault and borrow against it in dai ($ stablecoin), and then sell that for € and deposit to my bank. problem solved.
  - lottin 4y ago
    > I deposit $100 of eth, borrow $50 of eth I could be missing something, but it seems you're lending $50 worth of eth, rather than borrowing. Your net debt position is <0.
    - AlexandrB 4y ago
      I think the reason crypto investors are excited about this is that it allows them to maintain a position in a crypto coin while still extracting some liquidity - possibly to invest in other coins. So, say you own 5 BTC and don't want to sell it because it's going "to the moon". You stake it as 200% collateral on a DeFi loan and get 2.5 BTC of liquidity you can use to buy some ETH. What's interesting about this is that it allows the demand for coins (and therefore their value) to increase without introducing new (fiat) money into the system. I haven't done the research, but I'd be curious to know what portion of crypto trading is funded by these kinds of DeFi loans as opposed to "new" money.
      - landemva 4y ago
        '... it allows them to maintain a position in a crypto coin ...' In some 'we own you and command you to pay tribute to mighty rulers from what you produce' regimes, the loan avoids a sale and the resulting tax event. In my experience, the loan can be converted to fiat money.
      - lottin 4y ago
        This process doesn't create new "money" as far as I can tell. Centralised exchanges can indeed inflate the supply of any crypto-currency by lowering the reserve ratio. But I think the way they pump the coins is mostly by issuing unbacked "stablecoins" and using those to buy crypto-currencies.
Kbelicius 4y ago
Without 200%-300% collateral? Where?