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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

#31

Post by DennisP »

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!

In theory, they can be done just fine without blockchains, but in practice, it doesn't always work out that well, especially when the borrowers don't have much money. Matt Taibbi's recent book The Divide described all sorts of abuses, in which loans are sold and resold, the loans' owners swear they have records they don't actually have, courts trust them because they don't have the resources to check, and borrowers lose to default judgements because they weren't properly served, and in some cases didn't owe the money in the first place or had already paid it off.

Whereas if the loan and payment data were on a public blockchain (with personal details hashed), records wouldn't get lost and courts could easily verify them.

You could argue that we should reform our centralized systems, but that's hard to actually do, which is sorta the point of removing the need to trust them in the first place.

http://www.blunderingcode.com/ethereum-credit-cards/

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

#32

Post by mccoyspace »

bpforster24 wrote: post #22
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 complete…

Similar to what is required for bitcoin futures on cboe

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

#33

Post by kang »

nahollander wrote: post #30
kang wrote: post #29

Earlier quoted context omitted.

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.

The 'underwriter' in dharma protocol is essentially current day middleman. You contradicted yourself by saying "trustlessly" in point 1 and then admitting to point 3. Point 2 is unenforceable without current legal system.

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

#34

Post by splintercell »

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.

I think the problem here is that you're attacking the wrong part of the problem. Otherwise, why did you even get excited by the original idea being built on the blockchain, to begin with?

Imagine if you thought that it would be a great idea to create decentralized payment system on the internet where people can accept and make payments in a peer to peer manner.

Except, this is 2001. There is no such thing as a blockchain. You face the problem of double spend, and soon enough, you come to the realization that you could create a peer to peer accept/send online payment system much better if it is centralized.

Thus, Paypal is born.

But does that mean a blockchain based decentralized payment system was completely useless? Not really, it is clearly demonstrated by the popularity of bitcoin in a world with capital controls, WikiLeaks payment sanctions etc.

The real reason behind this effect is that the tech world is excited about decentralization, but it doesn't fully understand that there are a lot of missing components required to create say "a censorship-resistant online forum" or "decentralized blah blah service".

On the top of that, nobody except for the people who are being actively censored or prevented from doing things by the centralized institutions truly need the decentralization.

Most SV technologists would be really excited by the idea of a decentralized, censorship proof forum. Except, you will only attract the alt-right (as of now) to it. Why? Because the non-alt-right is perfectly fine with the censorship, as it favors them currently.

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

#35

Post by bpforster24 »

foota wrote: post #27
bpforster24 wrote: post #21

Earlier quoted context omitted.

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…

Yeah that's essentially right. The only modification I'd make is in your last step, what'd you need to do is buy back the magic bean coins (because you owe them to someone else). So you you wouldn't "sell 0.5 eth for 20 bean stalks", you'd buy 20 bean satlks for 0.5 ETH. You'd then pay back the loan, at which time your 1 ETH of collateral would be released back to you. Now you'd have 0.5 ETH in profit from selling magic bean coins high and buying low, as well as your original 1 ETH.

Regarding your parenthetical questions: 1) yes, you'd pay interest on this. you'd negotiate this interest rate with the person lending you the magic bean coins 2) yes, there are a couple scenarios where you'd forfeit your collateral: a) if you were wrong, and the price of magic bean coins appreciated beyond the value of your collateral; b) if even if you were right and the price depreciates you forget to pay back the loan 3) that's correct, Dharma is just the protocol for the creation of the loans, so the terms of the loan would be determined by the constituent parties (the borrower, lender, and underwriter)

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

#36

Post by nahollander »

kang wrote: post #33
nahollander wrote: post #30

Earlier quoted context omitted.

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.

The 'underwriter' in dharma protocol is essentially current day middleman. You contradicted yourself by saying "trustlessly" in point 1 and then admitting to point 3. Point 2 is unenforceable without current legal system.

Debt agreements aren't required to be underwritten in every instance -- it's an entirely optional addition. If you want to see an example of a debt agreement in which there is no underwriter or middleman and collateral is trustlessly secured -- well, it's linked as OP :)

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

#37

Post by ucaetano »

mtgx wrote: post #20
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!

I'm not really a fan of crypto landing platforms, but one thing many forget about cryptocurrencies is that they do have one intrinsic value = extreme liquidity. How fast can you get lending users to put $100 million to a billion into your non-blockchain platform? Maybe 5 years, with VC money for marketing? Now compare that with how fast you can do it with a blockchain crypto platform. And it's still very early days =…

> How fast can you get lending users to put $100 million to a billion into your non-blockchain platform?

Do you mean a stock sale? Once it's passed all SEC certifications and so on for going public and done your IPO, a company can do that in as simply as filing a form with the SEC and directing the sale of the stocks.

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

#38

Post by adrianratnapala »

DennisP wrote: post #31
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!

In theory, they can be done just fine without blockchains, but in practice, it doesn't always work out that well, especially when the borrowers don't have much money. Matt Taibbi's recent book The Divide described all sorts of abuses, in which loans are sold and resold, the loans' owners swear they have records they don't actually have, courts trust them because they don't have the resources to check, and borrowers l…

This is an interesting point, until now I thought blockchains were only useful for decentralisers, which in turn were only useful for people who wanted something like censorship resistance.

But here is a different use-case -- keep records well. Traditional systems are actually pretty bad because of the incentives. My bank statements for example are often very confusing, and online data only goes back 18 months, because the bank has little incentive to do better.

And that is in a relatively benign market. Title deeds, and the kind of loan documentation you are talking about create positive incentives for abuse.

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

#39

Post by Quiark »

DennisP wrote: post #31
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!

In theory, they can be done just fine without blockchains, but in practice, it doesn't always work out that well, especially when the borrowers don't have much money. Matt Taibbi's recent book The Divide described all sorts of abuses, in which loans are sold and resold, the loans' owners swear they have records they don't actually have, courts trust them because they don't have the resources to check, and borrowers l…

Yes but I can also imagine all kinds of problems coming from keeping private keys. Stolen, lost, hacked (see Estonian id card)(well all right, secp256k1 is much less susceptible to it than RSA).

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

#40

Post by unabridged »

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.

Blockchain is not going to make some traditional company rich. Its going to be used to build things like a decentralized, public web of trust that can be used for open, public uber & airbnb clones.
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