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If you have to pledge enough collateral to cover the entirety of the principal, your net investment position is either zero or positive. In other words, you're

by lottin 4y ago

If you have to pledge enough collateral to cover the entirety of the principal, your net investment position is either zero or positive. In other words, you're not borrowing anything.

charcircuit 4y ago
You are right in that it doesn't make much sense if your collateral is made up of stable coins, but if you had something like bitcoin you may not always want to just trade it for stable coins, do whatever, and then trade back for bitcoin as the price can change. It may be better to just deposit your bitcoin onto one of these platforms (yes you start getting paid for lending bitcoin to them for as long as you keep your bitcoins there). Then you have the ability to borrow a certain amount of some other coin without having to liquidate your bitcoin. If doing so was useless, pawnshops wouldn't exist in real life. There is value in not having to sell something and later try to rebuy it.
- lottin 4y ago
  I never said that it was useless. I said that this isn't borrowing and lending. Borrowing and lending is the primary and most important function of finance. It allows economic agents to trade future consumption for present consumption. Yet it is fundamentally impossible using blockchain technology.
  - deleted 4y ago
    [deleted]
ohy 4y ago
There is still use for that if the asset you deposit is: a) expected to appreciate in value b) yield-bearing itself and you don't want to sell it.
- lottin 4y ago
  I didn't say that it has no use. I was pointing out that blockchains do not allow "borrowing / lending money to other people without the parties having to trust each other or having to wait for a slow and expensive legal", contrary to what the OP claimed.
  - ohy 4y ago
    I didn't claim you said it, either, just wanted to mention why it can still make sense. However, the process of depositing something as collateral (irrelevant of the value) and borrowing on it can be described as just that, borrowing.

by lottin 4y ago

If you have to pledge enough collateral to cover the entirety of the principal, your net investment position is either zero or positive. In other words, you're not borrowing anything.

charcircuit 4y ago

You are right in that it doesn't make much sense if your collateral is made up of stable coins, but if you had something like bitcoin you may not always want to just trade it for stable coins, do whatever, and then trade back for bitcoin as the price can change. It may be better to just deposit your bitcoin onto one of these platforms (yes you start getting paid for lending bitcoin to them for as long as you keep your bitcoins there). Then you have the ability to borrow a certain amount of some other coin without having to liquidate your bitcoin. If doing so was useless, pawnshops wouldn't exist in real life. There is value in not having to sell something and later try to rebuy it.

lottin 4y ago
I never said that it was useless. I said that this isn't borrowing and lending. Borrowing and lending is the primary and most important function of finance. It allows economic agents to trade future consumption for present consumption. Yet it is fundamentally impossible using blockchain technology.
- deleted 4y ago
  [deleted]

ohy 4y ago

There is still use for that if the asset you deposit is: a) expected to appreciate in value b) yield-bearing itself and you don't want to sell it.

lottin 4y ago
I didn't say that it has no use. I was pointing out that blockchains do not allow "borrowing / lending money to other people without the parties having to trust each other or having to wait for a slow and expensive legal", contrary to what the OP claimed.
- ohy 4y ago
  I didn't claim you said it, either, just wanted to mention why it can still make sense. However, the process of depositing something as collateral (irrelevant of the value) and borrowing on it can be described as just that, borrowing.