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Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

dharma.io

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Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#21

Post by bpforster24 »

stanleydrew wrote: post #17
foota wrote: post #14

Earlier quoted context omitted.

Probably because collateralizing with the thing your borrowing is kind of pointless, yeah?

Oh yeah. I guess I assumed the thing being borrowed was off-chain (dollars, e.g.). My mistake.

I'm on the Dharma team with Nadav, and happy to shed some insight here.

So we think a really interesting use case in the short term is margin lending of crypto assets. Say you have 10 ETH and want to short-sell a different ERC20 token. You could lock up your ETH as collateral in a loan denominated in the other token, and then sell those tokens. If those tokens depreciate in value vs. ETH, when you buy back the tokens you'll have made a profit.

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#22

Post by bpforster24 »

jnordwick wrote: post #18

Too bad nobody I their right mind would borrow or lend such an obscenely volatile and deflationary instrument (unless they were going to scam it somehow).

I work at Dharma with Nadav and am happy to shed some light here.

Your point is well-taken and definitely a risk. What lenders plan to do, for loans collateralized by crypto, is overcollateralize substantially.

So, for instance, in order to take out a 50k USD loan, you may need to put up 2.5-3x of the value in ETH, say 150K USD worth of ETH. This protects against some of the volatility (though definitely not completely).

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#23

Post by hathathat »

arcticfox wrote: post #16
foota wrote: post #14

Earlier quoted context omitted.

Probably because collateralizing with the thing your borrowing is kind of pointless, yeah?

I agree, but isn't the point of borrowing against collateral that you have some utility from the collateral (e.g. a car you drive, a house you live in, part of a business you own) while you carry the loan? If these crypto "assets" like Kitties are rather unfungible for crypto "coins", then I suppose it would make sense, but then I'd be confused why the lender would accept the collateral.

Borrowing against collateral means the lender has something to seize if you fail to pay them back. The more valuable the collateral, the more money the lender will recover when they repossess and sell the collateral. This likelihood of recovery (if you default!) may make them willing to lend you more money, or give you a better interest rate.

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#24

Post by watoc »

arcticfox wrote: post #15
kang wrote: post #13

I have looking deeply into lending smart contract protocols - dharma, ethlend, salt, paypie, etc. My biggest complaint is all of them are so-called 'blockchain' products but not only can they be done better without blockchain, but that despite their product being all about decentralization, none of these projects are decentralised!

Every time blockchain has had a hype cycle over the years I start thinking of ideas to build on it. Then I realize all of my ideas would just be simpler, better, and more monetizable (minus Ponzi hype) if I just built them on traditional technologies.

That's usually the issue I have when selecting a technology before knowing what problem I want to solve.

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#25

Post by nahollander »

elmar wrote: post #8

next step a stable coin based on collateralized cats.

In all seriousness, this isn't a _totally_ unreasonable proposition -- Vitalik proposed an interesting route for creating stable tokens using baskets of debt obligations in a CDO format: https://ethresear.ch/t/collateralized-debt-obligations-for-i...

Perhaps unfeasible to appraise given that CryptoKitties haven't coalesced around any sort of stable value, but it'd be interesting to see what the volatility of NFTs like CryptoKitties is in comparison to normal tokens.

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#26

Post by nahollander »

kang wrote: post #13

I have looking deeply into lending smart contract protocols - dharma, ethlend, salt, paypie, etc. My biggest complaint is all of them are so-called 'blockchain' products but not only can they be done better without blockchain, but that despite their product being all about decentralization, none of these projects are decentralised!

@kang -- while I don't disagree that there's no shortage of snake oil and hand-waving in the blockchain industry ("Blockchain for X! Huzzah!"), I do disagree with your point about whether there is an efficiency gain to be had from representing debt agreements on a blockchain. The primary benefits are:

1. An ability to trustlessly hold and release digital collateral on an entirely peer-to-peer basis. This entirely removes the necessity for a whole class of middlemen that seek rent for existing lending agreements. 2. An ability to trade one's ownership in a loan as a cryptographic token -- again, something that necessitates various paying agents / clearing houses / intermediaries in the traditional capital markets ecosystem.

Re: decentralization -- that's a fair point. Right now, Dharma is functionally a centralized code base controlled by a centralized set of contributors. In the future, however, we hope to transition to a decentralized governance model so that the protocol can serve as a piece of common, shared public infrastructure -- unfortunately, we don't have robust enough decentralized governance models quite yet in the crypto community.

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#27

Post by foota »

bpforster24 wrote: post #21
stanleydrew wrote: post #17

Earlier quoted context omitted.

Oh yeah. I guess I assumed the thing being borrowed was off-chain (dollars, e.g.). My mistake.

I'm on the Dharma team with Nadav, and happy to shed some insight here. So we think a really interesting use case in the short term is margin lending of crypto assets. Say you have 10 ETH and want to short-sell a different ERC20 token. You could lock up your ETH as collateral in a loan denominated in the other token, and then sell those tokens. If those tokens depreciate in value vs. ETH, when you buy back the tokens…

Interesting, so something like:

I get a loan for 20 magic bean coins, secured with 1 eth when the exchange rate is 20 magic bean coins for 1 eth. (Do I have to pay interest on this? Do I forfeit it at some point? Iiuc Dharma seems to be just a framework for setting up these schemes, so this might be controllable by the person creating the eth-mbc loans?)

Then I sell my 20 magic beanstalk coins for 1 eth.

A week later, magic beans have massively depreciated because there was a critical vulnerability discovered, code-named GIANTS and now I can get 40 magic bean stalks for 1 eth.

So I sell 0.5 eth for 20 bean stalks, and use that to pay off my loan?

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#28

Post by foota »

bpforster24 wrote: post #21
stanleydrew wrote: post #17

Earlier quoted context omitted.

Oh yeah. I guess I assumed the thing being borrowed was off-chain (dollars, e.g.). My mistake.

I'm on the Dharma team with Nadav, and happy to shed some insight here. So we think a really interesting use case in the short term is margin lending of crypto assets. Say you have 10 ETH and want to short-sell a different ERC20 token. You could lock up your ETH as collateral in a loan denominated in the other token, and then sell those tokens. If those tokens depreciate in value vs. ETH, when you buy back the tokens…

I was thinking the other day about a service called Verifier that could be implemented with something like this.

Verifier would allow a person to take a token of some sort from a website, and send some eth to the Verifier. Now the service knows that the person has put in some stake, and can grant them an account (this is as a sort of abuse protection).

If the person wants they can take their money back, but the website can find this out and cancel the person's account.

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#29

Post by kang »

nahollander wrote: post #26
kang wrote: post #13

I have looking deeply into lending smart contract protocols - dharma, ethlend, salt, paypie, etc. My biggest complaint is all of them are so-called 'blockchain' products but not only can they be done better without blockchain, but that despite their product being all about decentralization, none of these projects are decentralised!

@kang -- while I don't disagree that there's no shortage of snake oil and hand-waving in the blockchain industry ("Blockchain for X! Huzzah!"), I do disagree with your point about whether there is an efficiency gain to be had from representing debt agreements on a blockchain. The primary benefits are: 1. An ability to trustlessly hold and release digital collateral on an entirely peer-to-peer basis. This entirely rem…

Both the points and your third point about a centralized system being able to decentralize itself - I am saying all of them are impossible (given current knowledge - unless you have secret protocols...).

Re: Show HN: Collateralized Debt Agreements Using Smart Contracts and Virtual Cats

#30

Post by nahollander »

kang wrote: post #29
nahollander wrote: post #26

Earlier quoted context omitted.

@kang -- while I don't disagree that there's no shortage of snake oil and hand-waving in the blockchain industry ("Blockchain for X! Huzzah!"), I do disagree with your point about whether there is an efficiency gain to be had from representing debt agreements on a blockchain. The primary benefits are: 1. An ability to trustlessly hold and release digital collateral on an entirely peer-to-peer basis. This entirely rem…

Both the points and your third point about a centralized system being able to decentralize itself - I am saying all of them are impossible (given current knowledge - unless you have secret protocols...).

For points 1 and 2, it's no secret :) See for yourself: https://whitepaper.dharma.io

For point ,: you're correct in that we (as in the crypto community in general) have yet to come up with good on-chain governance mechanisms, so its likely that robust decentralized governance systems are at least a few years away.

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