Bitcoin-collateralized loans coming to Coinbase | Hacker News Reader

Bitcoin-collateralized loans coming to Coinbase

coinbase.com

58 pointsabi81 comments

Seeing bitcoin reinvent the banking system they set themselves to destroy has a very Animal Farm-y feeling to it.

The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which

But that’s coinbase being a bank, not BTC. There are coins that have loans via smart contracts, but they aren’t BTC. What’s happening here is closer to "An exchange is offering banking services" which sounds a lot less weird.

But the real question is why this particular banking service exists? If Bitcoin is the stable currency it was designed to be, then it would be nonsensical for a person already holding it to borrow 30% of its value in USD at 8% APR. The answer of course is that some people are so convinced that BTC will rise in value by more than 8% over the loan duration they're prepared to go into debt to keep large portions of their net worth in it, and some might even fancy buying more BTC with the cash they've borrowed, and maybe borrowing against that too. In this analogy BTC isn't the bank, it's the houses people were taking out the subprime mortgages on (minus the upside of avoiding rental payments)

> If Bitcoin is the stable currency it was designed to be,

My impression is, that this is a pretty contentious statement ;)

but bitcoin wasn't designed to be stable (or unstable). it was designed to match the properties of gold, but digitally. I think it has somewhat succeeded.

Bitcoin was designed to be a Peer-to-Peer Electronic Cash System

1 BTC is still worth 1 BTC. Seems pretty stable to me.

This doesn’t really work as an argument. Obviously the thing to look at is the purchasing power. If the amount of bread, industrial equipment, and land, that you can purchase with a given amount of currency A, varies much more than it does for currency B, then the purchasing power of currency A varies much more over time than that of currency B.

This is obvious.

Loans aren't subject to taxation in the US.

That's Coinbase, not Bitcoin.

Coinbase's business model has been, from day one, to shoehorn the traditional banking business model into the Bitcoin ecosystem, knowing fully well that for the vast majority of people, being exposed to the raw Bitcoin stuff was damn near impossible, both psychologically (being the custodian of your own money) and skill-wise (operating and properly managing a Bitcoin wallet).

This is just another application of the same principle.

> Seeing bitcoin reinvent the banking system they set themselves to destroy

This somehow assumes that bitcoin was somehow ideologically opposed to finance, banking or capitalism. At most it was opposed to government-backed fiat currency.

Reimplementing all banking services on top of blockchain instead of a "trusted" database makes a lot of sense.

Don't know why you're being downvoted. What you're saying is exactly it. Loans are not somehow antithetical to Bitcoin, crypto or Coinbase.

This is an improvement in my opinion. Normally banks only need a small % of the loan in deposits (see fractional-reserve banking), with BTC we see a bank asking you to have more than 3 times the amount of your loan in collateral.

What's the result of this? For the loaner and borrower, less loans and more careful allocation of resources. For society as a whole, a smaller but more robust banking system not dependent on bogus money.

I love how you refer to old traditional money (fractional reserve banking) backed by states with military power as bogus money, in regards to Bitcoin.

In the end everything is backed by our ability to kill each other. Bitcoin as well, because equipment needs to be somewhere and it must be protected. However, it's bogus because more can be created at a whim, as we've seen in the last months.

if this indeed be the result, you will see growth slow, and investment in innovation difficult. The fact that you can create "bogus" money out of thin-air (which, i dont deny is a huge responsibility given to the central banks) means that economic problems have solutions.

Imagine the scenario such as this pandemic, where a gov't (or really, any entity) needed to borrow to weather the storm, but is unable to as nobody wants to lend. The world would be worse off than today.

Shouldn't it be individual's responsibility to save for bad times? This also includes the US government. Stop spending so much and start saving. Now the USD is being debased and the whole world will suffer.

Maybe this change ends up being worse, but given that central banks are a century's long experiment, I say we should give a new system a chance. It looks like more power would be given to the individual and this is a good thing in my opinion.

I don’t think you understand what Coinbase is doing here.

Coinbase is not using fractional bitcoin reserves to lend out to anyone. It’s a collateralized loan similar to a HELOC (the equity in your home is collateral) or a margin loan from a broker (your equities are collateral).

They want 3x the loan amount because BTC is a volatile asset, and mass margin calls on your customers if the price drops precipitously is bad for business.

Thanks for the explanation. How do you think crypto loans would work in a world without fiat money?

Bitcoin is not reinventing the banking system.

Bitcoin is being used by a centralized party (Coinbase) to offer banking services. Instead of lending fiat they can lend a digital asset (Bitcoin).

Coinbase is centralized and highly regulated. Their mission is not in line with the original mission for bitcoin to be a global currency. Bitcoin has a volatile value that makes it a poor store of value and/or currency.

I’ll probably get downvoted for this but que sera sera.

Bitcoin is at best a speculative investment akin to trading baseball cards. At worst it’s a decentralized Ponzi scheme.

Downvoted?

@godzillabrennus I agree with you. Bitcoin was meant to decentralize trust and not to centralize it all over again.

Bitcoin supports variety of transactions like "Escrow transactions, bonded contracts, third party arbitration, multi-party signature, etc."[1] Satoshi made Bitcoin Script language so people can make smart contracts and if they want even give loans.

[1]https://bitcointalk.org/index.php?topic=195.msg1611#msg1611

You were probably commenting on the posts of why blockchain is useless until the world starts running on blockchain governments and banks running their systems on it etc. Some people just want anti. Now my comment will be downvoted.

Could you name any projects that are based on a blockchain and which could not have been viable with any other technical solution, such as an SQL-based database like PostgreSQL?

Blockchain-based logging systems. Can't go back and edit anything, edits have to be appended as new records.

There's quite a lot going on in this space because of the obvious benefits, but HN seems very detached from the enterprise world. If you ran a database of land ownership records or patient healt data for a whole country, would you really be at ease with only PostgreSQL?

You asked for an example, here's one: https://news.lockheedmartin.com/2020-02-20-Lockheed-Martin-a...

From what I can read, this press release mentions that they have so far reached an agreement to work together on the project, and they are currently _planning_ on using a KSI blockchain. Too early to say if the project will succeed or not.

> If you ran a database of land ownership records or patient healt data for a whole country, would you really be at ease with only PostgreSQL?

With proper access controls, backup system and proper maintenance, definitely. While the DB engine itself can vary (PostgreSQL, Oracle, whatever Microsoft produces etc.), SQL based database engines are widely used in such scenarios already.

That assumes you are dealing with a trustworthy government / corporation. Look at Lebanon their entire government just resigned overnight, can the people really trust “proper access controls and maintenance” in such chaos? Would it not be better to have essential records be kept track of by the public? Even if you don’t need it now, think of it has a insurance policy.

Ironically with the advent of deepfakes and fake nees something like KodakCoin actually sounds like a good idea (with no view on how to get adoption)

Digital yuan, digital dollar, libra etc. Ask your government and banks.

Silicon Valley very often falls into this:

Step 1: Claim you're disrupting an existing industry (or creating a new industry that didn't previously exist because it was unviable - eg, electric scooters).

Step 2: Claim that this is going to make you far more profitable than that industry has traditionally been. Get Angel Investment.

Step 3: Raise money at a ridiculous valuation due to step 2. Series A.

Step 4: Use that money to undercut competitors in the existing market and gain marketshare whilst taking huge losses. Series B, C.

Step 5: Realise that you've just built another company that's exactly the same as all the existing companies in that industry with no real way of making a profit. IPO.

Step 6: Having thrown so much money at the problem that you've now got enormous market share (and driven the traditional companies out of business because they can't operate at a loss), pivot to using your monopolistic position to drive down costs and inflate prices.

Step 7: Slowly melt-down as investors realise Step 2 was all bullshit and regulators start catching up with step 6.

Which companies seem to follow these steps? Lyft, Uber, Airbnb, WeWork?

Yeah, ride hailing, those scooter companies, Wag, WeWork, a huge amount of smart city projects (although they generally fail to even get to stage 4). Theranos is a great example - literally running into the laws of physics.

Phone-based ride hailing and scooter sharing did not exist before. These services are significantly better than previous alternatives.

Legacy taxi services in particular are extremely shitty and widely hated because of scammers.

Has anyone here tried libretaxi? (An open-source phone-based ride hailing service, where payments are made directly to the driver) It sounds appealing to me, but I haven’t tried it, and I imagine that it could be lacking in the network effect department. Also, I am not sure if it has a reputation system like Uber and Lyft do.

Edit: Suddenly unsure whether my comment here is sufficiently on-topic/relevant to fit with the community norms here. My apologies if it is not.

Crap name as well. It's a shame that open source projects can't market their ideas to save their lives.

You think it is worse based on what quality than the names uber or lyft? Uber has to be by every known metric one of the worst names for anything ever.

By what specific metrics is Uber a bad name? Uber is a short, catchy, two-syllable name. Libretaxi is a mouthful. The only good thing about it is that it's descriptive. It doesn't really stick in your mind like Uber does, or their branding.

Disclaimer: I think marketing is a parasitic industry that gets way too much money for the value they provide. But marketing is important because it works.

I'm not saying being able to hail a ride on an App isn't a good thing, I'm saying it's not a competitive advantage and it doesn't seem to significantly increase the profitability of the service. There was a time when you could have argued that Uber could raise the occupancy rates of the cabs - that doesn't seem to have worked out though, through a combination of smart algorithms and scale, that doesn't seem to have materialized.

The scooters, again, I'm not sure are actually economically viable, and are also very clearly a regulatory issue - being banned by multiple cities and essentially working on a model of littering an entire city with cheap scooters.

Coinbase is not bitcoin.

ETH-collateralized loans are permissionlessly accessible on the Ethereum blockchain. Right now it's a 0% APR.

https://oasis.app/borrow

You can also get a Bitcoin-collateralized loan using the same service. A Bitcoin loan on the Ethereum blockchain. But, it's less secure because the WBTC "Wrapped Bitcoin" token on Ethereum relies on a network of custodians who redeem these tokens for actual BTC.

Why would anyone loan out money at 0% APR? That only makes sense if you value the ETH far more than the money. There is no way to profit from borrowers who pay the loan back. The only way you could possibly turn a profit is by speculating that ETH is rising in price and getting ETH as collateral when a borrower defaults but if that's your strategy why not buy ETH directly?

DAI, the stablecoin produced when you loan out money is in very high demand, so Makerdao is trying to encourage more people to create it.

There's a lot of demand for DAI because several protocols that use it are giving away tokens for using their platforms (governance tokens that have a tradable value).

Aside from the brand name of Coinbase, this seems worse than similar offering from Nexo (nexo.io):

- Coinbase APR is 8%, Nexo is 5.9%

- Coinbase max loan is $20k, Nexo is $2 million

I can see the appeal of borrowing against your bitcoin or other cryptocurrency, but I'm not sure if there's much value in borrowing $20k. If you're in a position to hold $60k bitcoin on Coinbase, do you really have a need for a 1 year bridge loan of $20k? At a rate only slightly better than a credit card?

> If you're in a position to hold $60k bitcoin on Coinbase, do you really have a need for a 1 year bridge loan of $20k? At a rate only slightly better than a credit card?

If the $60k of bitcoin on Coinbase was bought with a loan from Nexo because you have $100k of bitcoin on Nexo, then yes lol.

Wrap that bitcoin in RenVM to use it on the Ethereum blockchain, maybe some renBTC liquidity pool is earning you more, or sell it on Mooniswap for something else that is earning more. YAM/yCRV staking anyone?

I need to tap your brain. I am trying to do something in this area. Can we chat privately?

put your email up in your profile for a few days

Done

in your about section, I should say.

Yes

Poor YAM

Your suggestion is to take this high interest loan to take a long position in a high risk high yield speculative investment in other cryto... wut? This is like telling people to buy cryto with their credit card....

it wasn't a suggestion or telling anyone to do anything, were you making a point? would you prefer a little disclaimer at the bottom to feel more comfortable?

not all of us need that. make your own decisions.

others want to know whats possible.

Yeah my point was to be a disclaimer on your comment for what a stupid idea it is.

A lot of people know how to manage their risk on leveraged products, and bitcoin this decade has regulated financial products to make that practical

Interest payments are deductible in many circumstances, borrowing against holdings do not cause taxes from selling the holdings, and in some circumstances capital losses can be converted to net operating losses deductible against income paid in both prior and future years, practically ensuring you get your money back if properly planned. (Carrybacks were removed in the 2017 tax reform law but restored in the CARES Act.)

But I understand, calculated risks are only for people good at math.

Wow can't believe no one's thought of that before. How can you lose?!?!?! You do you Mr. 200IQ

You can lose thats the point of socializing the losses and privatizing the gains

Make your own choices

Daily reminder that leveraged investment strategies can and will blow up in your face...

daily reminder that non-accredited investors should be able to blow up in private equity too, because they can already blow up in worse ways so it doesn't make sense to shut them out of everything that has a chance of being professionally run

I wonder how they're hedging the risk of Tether/Bitfinex losing their case(s) against the NYAG and others and the likely resultant drop in value of BTC.

Even if they do lose, it will not have a material effect on the price of btc (apart from a potential short-term wick)

That's an interesting view, what makes you say that? Tether's market cap is about $10b now and it's daily transaction volume regularly exceeds that of BTC.

It would seem likely that if that volume left the market it would have a significant impact on the cost of other coins, especially if they are not 1:1 backed.

Tether is just a vehicle for transferring offshore USD between third parties. It does not underpin the value of bitcoin, it is more of a parallel system to bitcoin for transferring USD.

you're assuming that Tether is not just printing Tether's out of nothing of course :)

As they have never had an audit and have already admitted to not being 1:1 backed, that's not necessarily an assumption that'll play out well.

Even if they are (having spoken to the cfo and ceo personally, i dont hink they are), this affects tether holders, not btc holders.

err it's been publicly admitted by Tether in documentation submitted to the NY courts hearing their case against the NYAG that they're not 1:1 backed.

From https://bitcoinmagazine.com/articles/holders-are-not-at-risk...

"Hoegner admits that Tether is operating under a roughly 74 percent reserve"

Thats two different things. They are backed by loans to bitfinex, like your money in the bank is backed by mortgages etc. I am not defending this, I think it is a major fuck up (one of many by bitfinex), but again, I do not think they are insolvent and that they will not be able to cover tether liabilities.

Wouldn't this cause a run for BTC as people try to escape their laundered TUSD?

Probably the same way an exchange offering leverage would, they just liquidate your holdings in the event prices drop too low, immediately call your loan right after, and then return whatever remainder there is to you.

Exactly, this is the same thing as a margin loan from a broker, who will also liquidate your position to cover the loan if you’re margin called.

Ethereum decentralized finance is not “copying” the current financial institutions. If you think that, then you are misinformed.

This is a very interesting development, especially given Coinbase's reach and visibility.

The unfortunate effect might be that people who have been so far stubbornly HODLing their BTC themselves (self-custody) will be tempted to surrender their coins to the exchange in exchange of immediate liquidity thereby increasing the concentration of actual custody of BTC by the exchanges ... the very thing Bitcoin was designed to avoid.

The temptation here is (at least on paper): you get to "keep" your Bitcoin while enjoying the benefit of them at the same time (betting. of course, that BTC will keep going up over time).

Here's to hoping hodlers will resist the temptation.

Sounds like a terrible idea given how much bitcoin's value can fluctuate. And they may call the loan. This is if you are really bullish on bitcoin.

They loan up to 30% of the BTC value. So as long as it does not crash more than 70%, everything's fine [1].

[1] Which happened every time after the peak of a big bitcoin run-up ;-)

And then there will be margin calls and forced sales, which in case of a crash will accentuate the drop considerably...

In the scenario where the market is crashing faster than they can keep up with, do you think they'll put their own sell orders ahead of those of other customers? Could they get in trouble for that?

I suspect they've done the math of how much collateral is needed to absorb the assumed future volatility

Cryptocurrency was invented to remove middlemen and counterparty risk. Centralized finance (lending/borrowing) is the opposite of what Bitcoin was invented for. Decentralized finance extends Bitcoins vision beyond the small subset of finance that is currency. One such open source project is uniswap. Disclaimer, I founded a cryptocurrency.

A lot of people are missing the fact that loans are not taxed in the US.

Lending money with interest has been a known evil for thousands of years now, Judaism, Christianity, and Islam all prohibit it. Yet, we do not learn from the past.

Coinbase is supported by Goldman Sachs and JP Morgan[1][2] no wonder they told them to start giving loans and turned them into a bank. Satoshi wouldn't like this; you can make smart contracts directly on the blockchain and give loans if you want.

[1]https://web.archive.org/web/20130109041534/https://blog.coin...

[2]https://www.wsj.com/articles/jpmorgan-extends-banking-servic...

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