Comment by lowkey | Hacker News Reader

Comment by lowkey | Hacker News Reader

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> I’m always a bit surprised when people seem to imply that there’s a fundamental human right to perfectly stable stores of value

If it were not for central bankers printing money into existence, a person could work their life, save a portion for retirement in a bank account or other fixed income product, while enjoying a positive return on their investment, without taking on market risk of loss of funds.

I don’t think I am being entitled to believe that this option should exist for those who wish to take advantage of it. Forcing everyone into the stock or real estate markets just to stay ahead of inflation is a crime against the people.

> A saver who wants to put money away to spend in the future must, unfortunately, make some sort of bet.

This is only true because of the fradulent fractional reserve fiat money system we have been subjected to which allows the central bankers to steal from the populace to enrich their banker friends. If it were not for money printing, the saver would not have to risk their savings just to preserve purchasing power.

“If it were not for central bankers printing money into existence, a person could work their life, save a portion for retirement in a bank account or other fixed income product, while enjoying a positive return on their investment, without taking on market risk of loss of funds.”

Hmm. How would that work?

Yes, it's very mysterious. If everybody put their money in the bank they would all be guaranteed a positive return on their investment, but there is no inflation and the money supply is fixed. So where does the money come from?

It’s simple really. In finance this is called ‘the time value of money.’ Essentially, in order for me to be incentivized to use a savings vehicle, there must be a real incentive. This incentive is what motivates the saver to save. If not for the incentive, why would they lend their money out?

I mean it already works like that in cryptocurrency today. Look at the rates paid on stablecoins. For example look at UST a US dollar stablecoin. It currently pays 19.4% APY on savings. There are risks but for 2% on Nexus Mutual you can be insured against a failure of the dollar peg or a failure in the smart contract. The net yield on a USD pegged stablecoin with insurance is 17.4% - handily beating inflation risk-free.

If the central bankers couldn’t print money you could beat inflation with any bank account.

Where do you think the zero-risk interest comes from?

Similar to other stablecoins, over-collateralized lending against the value of staked crypto assets.

See here for details on UST (Anchor protocol) https://www.anchorprotocol.com/docs/anchor-v1.1.pdf

OK. And what if the borrower defaults?

Per https://docs.anchorprotocol.com/protocol/money-market#borrow..., it seems like there'd be zero risk as long as the LTV is >= 1.0, but that sort of defeats the point of loans. ;)

There is no magic to make these loans riskless.

These are OVER-collateralized loans.

Like any other collateral backed loan, if the value of the collateral falls to a point where there may be a risk of the collateral value being less than the loan amount, then the borrower must either put up more collateral or their existing collateral is liquidated to pay off the loan, leaving no outstanding balance.

It’s not really much different from a mortgage or another asset-backed loan, except that the borrower must send the collateral to an account controlled by the lender and the lender can instantly liquidate the collateral if the LTV falls below a threshold.

If you think about it, crypto such as Bitcoin or Ethereum are really the most perfect form of capital for a lender to accept as collateral for a loan. Unlike a home mortgage or a car loan the lendor takes full custody of collateral valued greater than the loan. The crypto assets are volatile but they are marked to market in real-time 24/7. At any time if the value of the collateral falls below som safe threshold, the borrower is notified that their collateral is at risk of liquidation and given the opportunity to add collateral. If the LTV ratio isn’t corrected and the market reduces the value of the collateral further, then the lender can instantly liquidate the collateral and unwind the loan.

I’ll happily lend you $1 if you deposit $2 in collateral first. :)

However, I suspect the market for such loans is rather small.

one of the common moves is borrowing ETH using an illiquid otherwise-unsaleable shitcoin as collateral. Oh no, you defaulted, and you've lost your shitcoins for half their alleged face value in highly liquid ETH! Oh well.

It’s more like I will lend you $1 if you post >$1 in collateral. In crypto, this is often in the form of a speculative token that is growing at potentially 200+% per year. The borrower is posting their collateral as security for the loan but they continue to own the collateral and enjoy the upside of price appreciation as long as the loan is in good standing.

As the sister comment pointed out, it is currently a $50 Billion industry and it didn’t exist a couple years ago. In fact, DeFi is probably the fastest growing industry in the history of fast growing industries. You would be wise to have a curious mind in this field instead of being closed to the possibilities.

I'm aware of this. But again, your original claim was “If it were not for central bankers printing money into existence, a person could work their life, save a portion for retirement in a bank account or other fixed income product, while enjoying a positive return on their investment, without taking on market risk of loss of funds.”

I've yet to understand where you got that idea from, or what it has to do with all of your nonsensical followup comments.

> I've yet to understand where you got that idea from, or what it has to do with all of your nonsensical followup comments.

Which of my comments do you find non-sensical, specifically?

> original claim was “If it were not for central bankers printing money into existence, a person could work their life, save a portion for retirement in a bank account or other fixed income product, while enjoying a positive return on their investment, without taking on market risk of loss of funds.”

Let me lay out my logic:

- If not for central bankers, artificially printing money and putting it in circulation, there would be no inflation. No printing by central bankers = No dilution of the purchasing power of everyone's money -> therefore no inflation.

- In a no inflation environment, any nominal gains are real-gains because there is no inflation to worry about

- In a no inflation environment, for a banker to attract deposits from savers, they would have to offer savers a nominal rate of savings in order to attract those deposits

- In a no inflation environment, any nominal rate paid on savings is a real return, since there is no inflation

- In an FDIC insured savings account savings are insured, therefore not risk

- Unfortunately in our current environment where the Fed is printing money at 25-40% increases in M2 y/y, and CPI reaching 6.8% at last reading, and bank savings accounts paying 0.1%, it is hard to appreciate that a bank account could ever pay a real rate on savings, net of inflation. However, in a world without central bank money printers this is exactly what we would enjoy.

> it seems like there'd be zero risk as long as the LTV is >= 1.0, but that sort of defeats the point of loans. ;)

Help me see what I am missing, what is the point of loans that is defeated by requiring an LTV >= 1.0?

To my knowledge all collateral backed lending is based on the principal that the collateral value must always be greater than the value of the loan in order to remain solvent. Since crypto is a volatile asset, you would expect lenders to require higher relative LTV than vs real-estate, which for the most part they do.

Of course, even collateralized loans to buy real estate are not, despite what you said earlier, risk-free--see 2008 (and google the term "CDO", in case you've never heard of it) for a rather dramatic example of this.

More to the earlier point, though, this is really not how most lending works, so the idea that this somehow means that "absent central bankers, we'd all make 2% APY risk-free on bank deposits" is just silly. The global equity market is $50T, the global corporate bond market something like $100T. Total cash-equivalents (M2) in the US is $21T.

Even if "pledging shitcoins as collateral for speculating on coinbase" were zero-risk--which of course it isn't--the market for such loans is, unfortunately, too small for all of us to retire risk-free.

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