Hacker News Reader

Comment by charcircuit | Hacker News Reader

Borrowing / lending money to other people without the parties having to trust each other or having to wait for a slow and expensive legal system to work it out.

View on HN

Why is that valuable? And more importantly, how is the upside this brings bigger than the downside it brings compared to previous approaches to borrowing/lending?

Personally it's valuable to me because it makes it quick and easy for me to loan my money out.

Lending requires the ability to seize assets, and the ability to seize assets requires a legal system. There's no way around it. Without this lending can't work, because otherwise the borrower can just walk away with the money.

>There's no way around it

You can have assets on chain that can be used as collateral which can be liquidated if a loan isn't paid back. Additionally lending money is not only done so people can borrow from it. For example decentralized exchanges need a lot of liquidity in order to execute trades without very much slippage. You can provide liquidity to them and they will pay out transaction fees to you in exchange.

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.

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.

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.

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.

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.

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.

like that time when there's a bug and something like 40 thousand dollars just goes to waste because ~~~ it's out of everyone's control ~~~

The issue with control is trust. The answer is to enable more trust, not to reduce the control.

>like that time when there's a bug and something like 40 thousand dollars just goes to waste because

If you are that worried about losing the money you lent you can pay for insurance. Here are some examples.

https://app.nexusmutual.io/cover

https://app.insurace.io/Insurance/BuyCovers

Awesome! Who is doing this? And how does it compare to transferring money using an existing method?

For a few real world examples that may be easier to grok:

- https://goldfinch.finance

- https://www.maple.finance

- https://truefi.io

- https://makerdao.com/en/ (there is a growing "real-world asset"-collateralized pool as well)

- https://centrifuge.io

These all offer rates competitive or superior to traditional methods thanks to being able to access a global pool of capital through a single programming interface that simplifies coordination and risk sharing between counter-parties.

And another early example Valora (on the Celo network) where you can make global transfers of money with a Venmo-like experience for fees <$0.01.

> These all offer rates competitive or superior to traditional methods thanks to being able to access a global pool of capital through a single programming interface that simplifies coordination and risk sharing between counter-parties.

(Genuinely curious about the answer) How would that be different from, or better than centralized platforms like kickstarter?

None of these explain how unsecured lending works. Goldfinch says that "borrowers are required to pledge real-world assets as collateral" and in the event of default the pledged collateral is liquidated. [1] So that's not unsecured lending. Truefi says that they only lend to institutional borrowers who sign an enforceable lending agreement. [2] So that's a traditional lending agreement that is enforced by courts of justice. Maple also says they only lend to institutional and corporate borrowers [3]. In conclusion, none of these are real world examples of "borrowing and lending to other parties without the parties having to trust each other or having to wait for a slow and expensive legal system to work it out".

> These all offer rates competitive or superior to traditional methods

Also what do you mean by competitive rates? Note that if the borrower is getting paid interest at a rate above the market rate, the borrower is getting paid a competitive rate, but the lender is paying an uncompetitive rate.

[1] https://docs.goldfinch.finance/goldfinch/general-faq [2] https://blog.trusttoken.com/introducing-truefi-the-defi-prot... [3] https://maplefinance.gitbook.io/maple/protocol/borrowers

I still don't understand how this could change my life. Most people exchange money through their bank accounts for free with things like the SEPA network.

I browsed through all those web sites and all I see is ways of using the crypto wallets that have to be previously created through various means incompatible with each other. Let's not talk about the "be your own bank" motto which means that you have to secure your own money which is, at least scary for most people, and at most very difficult to do even for people knowledgeable with computers.

Here is something that is revolutionary and actually happened in the past 10 years: *online banks* that have no bricks-and-mortar offices! I created an account in less than 10 minutes, I have a debit card that I can use all over the world, I literally cannot spend more than what I have, and it's still a real bank which means that my account is insured if something bad ever happens. Where is the crypto equivalent?

You can find them by just searching but here is one that has borrowing and lending: https://valasfinance.com/markets

Reply on news.ycombinator.com