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Lots of defi protocols are looking to provide what they perceive as solutions to lack of leverage including decentralized identity, undercollateralized lending,

Lots of defi protocols are looking to provide what they perceive as solutions to lack of leverage including decentralized identity, undercollateralized lending, and uncollateralized stablecoin issuance. Credit boom and bust cycles are a natural feature of unregulated markets, and realistically any defi tech that wants to compete needs to embrace these while maintaining an ability to smoothly wind down during credit crunches.

SkyMarshal 4y ago
> while maintaining an ability to smoothly wind down during credit crunches. Any idea how that would work? In a credit crunch, once the money is gone, it's gone.
- simple-thoughts 4y ago
  Most of the ideas protocols are trying will not in fact work in opinion. I wouldn’t be surprised to see the next cycle see an explosion in defi credit with a narrative like “we solved the problems of Celsius and genesis, and defi protocols are now proven to be safe in bear since only defi collapsed in 2022”. Followed by exuberance and a crash of products like Frax or even Rai if it’s bad enough (rai is over collateralized but due to slowness in onchain liquidations it’s possible for collateral to crash faster than it can be liquidated. This happened to Dai a few years ago but now it’s mostly backed by USDC). Frax uses a market making mechanism that is supposed to identify the maximum seigniorage they can use to pump FXS without breaking peg. The ratio fluctuates over time. This is a partially uncollateralized coin. For the other cases, you can Google it or ask in bsc or eth telegram/discord defi chats to find them. I prefer not mentioning them as they are generally going to fail and the longer we can sit in this bear market the better for devs. Bulls suck all the talent into scams.
  - SkyMarshal 4y ago
    Thanks, I’m drawing a blank though, what’s “bsc” (telegram/discord)?

SkyMarshal 4y ago

> while maintaining an ability to smoothly wind down during credit crunches. Any idea how that would work? In a credit crunch, once the money is gone, it's gone.

simple-thoughts 4y ago
Most of the ideas protocols are trying will not in fact work in opinion. I wouldn’t be surprised to see the next cycle see an explosion in defi credit with a narrative like “we solved the problems of Celsius and genesis, and defi protocols are now proven to be safe in bear since only defi collapsed in 2022”. Followed by exuberance and a crash of products like Frax or even Rai if it’s bad enough (rai is over collateralized but due to slowness in onchain liquidations it’s possible for collateral to crash faster than it can be liquidated. This happened to Dai a few years ago but now it’s mostly backed by USDC). Frax uses a market making mechanism that is supposed to identify the maximum seigniorage they can use to pump FXS without breaking peg. The ratio fluctuates over time. This is a partially uncollateralized coin. For the other cases, you can Google it or ask in bsc or eth telegram/discord defi chats to find them. I prefer not mentioning them as they are generally going to fail and the longer we can sit in this bear market the better for devs. Bulls suck all the talent into scams.
- SkyMarshal 4y ago
  Thanks, I’m drawing a blank though, what’s “bsc” (telegram/discord)?