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Comment by jjordan | Hacker News Reader

Arguably the most popular use case is that smart contracts are used to create decentralized exchange services. See: Uniswap.

They are also used extensively in the crypto sub-genre called DeFi, or decentralized finance. One of the most popular implementations is called Aave, which allows one to take loans out (i.e. give the contract Ether as collateral, receive an amount of USD stablecoin in return) on a given set of assets.

Of course every NFT you ever heard of is essentially its own smart contract (specifically one that implements the ERC-721 standard of functions and public variables), though I'm not sure that qualifies as a 'good' use case. ;)

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This answer right here is, in my opinion, one of the most interesting use cases that is available today.

Provide collateral and take out a loan against that collateral. It allows people to act as their own bank. No longer do you have to go to a bank, ask for permission and then get approved for a loan. Now, you can do that yourself, instantly, without any trouble at all. Amazing really.

What are those loans used for today? Well, mostly it is about interest rate arbitrage and providing liquidity. As a super basic example, you can borrow funds at 2% and then lend them out again at 3% and make 1%. It is essentially risk free (assuming the contract doesn't have bugs/exploits).

The larger picture will be to enable people to be their own Kiva's. Crypto often is pushed to 'bank the unbanked', but it is more than just holding money. It is enabling people to borrow against their existing holdings, effectively allowing anyone, globally, to put their savings to work for them, without having to rely on a centralized banking system to do so. This might not be interesting for USA people, but it is especially valuable in countries that don't have a stable banking system.

Who is providing the finance and under what terms? How does rhat actually differ from banks or one of the many microfinance services predating crypto?

Now, the real kicker, what is the effective cost when _all_ fees are included, because someone has to pay for it and when combining the interest of non-traditional lenders and such fees I highly doubt it'll be cheaper.

These are collateralized loans that are automated with "smart" contracts. Programmable money.

Who? Anyone who wants to provide liquidity. Is this different from existing solutions? Yes and no, the difference is that there is no human intervention here... you don't have to ask for permission. You're also dealing with a global pool of funds using open source technology, instead of just a single bank or service.

The only additional "fees" above the interest rate are the cost of a transaction on the block chain. There are certainly a lot fewer hands in the pot and overhead.

Learn more at one of the largest and oldest sites: https://aave.com

Who proves the collateral exists and is unfettered by existing contracts, specifically those provided through other platforms/existing mechanisms?

You see there is still a whole bunch of steps left out.

It is baked into the contracts and the way that the networks and protocols work. The general idea isn't super complicated though.

You have tokens, they sit in a wallet that you control. Let's say you own 10 ETH. Then that is in your wallet. Those ETH are mathematically provable to be in your wallet.

In the case of AAVE, you send your tokens to their contract, they give you back a receipt token which represents how much they owe you. Once your tokens are in their contract, you are free to borrow against the value that is locked up. If you get liquidated due to not maintaining your loan ratio, AAVE just keeps your tokens and your receipt tokens are then invalid.

There aren't any steps left out. It is really on you to read the documentation and bring some understanding around how all this works. I'll point you here: https://docs.aave.com/hub/

I googled and found another good article for you: https://www.leewayhertz.com/how-defi-lending-works/

Just ignored my questions to give the standard allusions rants....

"proves the collateral exists" means who validates the asset doesn't have a standard run of the mill contract/lien/etc?

Just answer that, and _actually_ answer it (the site sure doesn't in any reasonable nor concise manner) and we'll go from there.

> standard allusions rants

Oh, I see, you just want a hostile battle and don't want to do any sort of actual conversation around knowledge you refuse to learn on your own.

> "proves the collateral exists" means who validates the asset doesn't have a standard run of the mill contract/lien/etc?

I don't understand this line at all.

Making a vague reference to something isn't an answer, nor is a random link and a "look here", especially when the link doesn't provide the answer.

And the fact you don't understand that line is the proof you don't know enough about traditional contracts to be able to compare them to smart contracts.

Seriously.... you've just done more to prove to me that you crypto folks are generally just ignorant of real world issues.

> you've just done more to prove to me that you crypto folks are generally just ignorant of real world issues.

I didn't know I was supposed to "prove" anything to you or handhold you on reading even the basics of the available documentation. All I have to say is your loss for not making the effort on your own and being so negative and combative. Good luck sir.

Just more deflections and allusions.

https://www.lawinsider.com/dictionary/encumbrance

Educate yourself.

You chastise me above for "the site sure doesn't in any reasonable nor concise manner" and then you do something even more silly. Oh the hypocrisy. At least I don't say something rude like "educate yourself."

I'll end my replies here. This is a circular non-productive 'conversation'. It is clear reading your past comments here that everything is negative from you, which is really strange to me. Seriously, have a great day, but I'm done.

You're insufferable.

The definition for the word encumbrance is literally the opening line and is the exact issue at hand that you refuse to address.

To quote it:

"Encumbrance means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership."

How does AAVE or any other smart contracts ensure there are no outside encumbrances?

It has to use human third parties and pay those fees, on top of the SC fees.

Really, you're just proving to me that folks promoting this garbage are childish, ignorant and baseleslly arrogant.

And BTW, You are the one running in circles. I've been asking you the same question without getting an answer for several comments now...

> It has to use human third parties and pay those fees, on top of the SC fees.

No, it doesn't. This can be codified into contracts and automated. Voting in the DAO ensures no single point of failure.

Any asset Off Chain must be validated Off Chain thereby adding external costs, which from my napkin math suggest the total costs would exceed traditional alternatives.

And that's without even addressing actually checking for encumberance of the asset, which then makes the whole thing no different than traditional contracts except for much higher costs, an inability to readily modify without significant expense (if at all), and more.

Without checking for encumberance Off chain the entire value proposition of an SC is a joke, as what the code says doesn't matter when a preexisting encumberance applies. (Ed: This applies to on chain assets as well)

And if you're going to say it's not for off chain assets then all your saying is that one essentially can only use existing crypto to secure a crypto loan, which undermine the point of the loan ever being obtained.

> all your saying is that one essentially can only use existing crypto to secure a crypto loan, which undermine the point of the loan ever being obtained

Pretty sure my loans are perfectly not undermined.

Again, avoiding the issue with a allusory deflection.

What's the issue again? Everything works fine for me.

I've been exceedingly clear.

All you're doing now is acting childish afaict, which just reinforces the view you've given of your position being based in immaturity, ignorance and idiocy.

Reread the thread and address the issue explicitly stated or just stop and accept your position is a failed one.

The collateral provably exists because blockchain code is public and ownership is secured via cryptography.

Are you asking about an off-chain asset that is brought on-chain? For that, you are correct you need to rely on a socially trusted institution that attests that the off-chain asset isn't actually owned by someone else.

There are some off-chain assets that are tokenized and are very trustworthy, IMO, such as USDC. And then there are a number of purely on-chain assets, such as ETH, MATIC (Polygon), and coins that power protocols like Uniswap and Aave and give the owner of those coins a right to dividends. The blockchain proves ownership of purely on-chain assets directly through cryptography.

I do want to add, you are being pretty combative here towards someone that was genuinely answering your questions.

So, by definition, the only asset that doesn't have external costs which make the SC cost _more_ than traditional paper contracts are those where the collateral asset is the exact same currency as will be issued?

You do see the glaring issue there right?

As for combative, I am beyond tired of the games played by crypto folks when it comes to answering basic questions they should already have the answers for.

If they don't answer the simple questions with clear and simple answers, then why should I act as though they are acting in good faith, let alone actually educated on the topics they claim the tech solves to know whether it solves a problem at all? Because from my perspective they sure as hell aren't.

Ed: oh I forgot to include the other major issue that undermines even on chain encumberance, that is the fact that a preceding off chain encumbrance takes precedent in court and thus even if the SC executes properly the funds may be taken by the courts as a consequence of preexisting encumbrance and thereby undermine the entire value proposition of the SC.

> As for combative, I am beyond tired of the games played by crypto folks when it comes to answering basic questions they should already have the answers for.

I did answer your questions.

No you absolutely did not.

Allusions are not answers.

You're hilarious.

For the record NFTs get a bad reputation because the public associates them with silly pictures traded for outrageous prices. However NFT simply means that the token itself is not fungible and can therefore be used to refer to something specific that does not have to be art at all. Tickets would be an example that multiple teams are working on using the same tech, although they may not refer to it as NFT because the name is tainted.

Ticketing is already fully digital and no blockchains or NFTs were required. This is AGAIN another example that people bring up where blockchain solves none of the relevant problems and they've ALREADY BEEN SOLVED WITHOUT CRYPTO

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