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> Digital chips for borrowers: they issue Layer 2 chips to borrowers, in exchange for a loan agreement in which the customer promises to return a larger amount
by cortesoft 4y ago
> Digital chips for borrowers: they issue Layer 2 chips to borrowers, in exchange for a loan agreement in which the customer promises to return a larger amount of Layer 1 money to them in future than what the chips promise to them now (in a sense, the bank ‘buys’ a higher-value long-term promise by issuing lower-value short-term promises, but exposes itself to risk in the process).
This is not true. I pay layer 2 chips to pay off my mortgage. I am not sending cash to the bank, they transfer layer 2 chips from my bank account every month.
Not only that, but the central bank never touches layer 1 money either. They also just transfer layer 2 money into banks.
- globalreset 4y agoWhen you pay off your mortgage with L2 chips, your bank settles in lower layer with other banks, so they do actually get L1 chips. Not actually with "cash" but with chips tracked by Fed account for banks. (It's really chips all the way down). Similarly when you are sending your L2 chips thank bank created for when they granted you your morgage - from your bank to other places, they will want to settle L1 chips as well. The bank will use the value of of your debt to settle it (either sell the loan to someone, including FED or use as a collateral or whatever).