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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

#51

Post by SkyMarshal »

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.

>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?

Close, you can abstract "utility" one layer higher to "demand", or more accurately demand relative to supply. The thing you collateralize needs to be in demand by enough people to ensure it remains valuable over at least the life of the loan, but realistically much longer (so the lender is assured it will always be perceived by the market to have current and future value over any period during which the lender may need to reposses and resell the collateral). Utility gives things value which gives them demand, but it's really the demand that matters. There must always be a ready buyer for the collateral. Scarcity, like with Cryptokitties, gives things value too (rationally or not, but welcome to the human race).

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

#52

Post by mbrock »

SkyMarshal wrote: post #6
nahollander wrote: post #2

Hey HN! We're the team behind Dharma protocol, building the infrastructure for the tokenized debt agreements on the Ethereum blockchain. In this code school, we teach you how to build a loan collateralized by a CryptoKitty. We hope you enjoy! If you're interested in learning more visit us at dharma.io or join our chat.

This is a clever idea. I've long been skeptical of debt on blockchains b/c there aren't good means of enforcing repayment without resorting to trusted irl/off-chain components, and then why bother doing it on chain in the first place. But collateralizing with digital assets created on-chain is a really interesting approach, obvious in hindsight, but perhaps requiring the prerequisite of real implementation of unique…

The MakerDAO system (which I contribute to) issues a token called dai against Ethereum token collateral. The dai token is meant to have low volatility measured against fiat money.

There's roughly 9 million USD worth of outstanding dai tokens at the moment, all representing a form of debt to the MakerDAO system with ETH as collateral.

The first version uses only ETH as collateral, with a high degree of overcollateralization. The next version is supposed to use different collateral types.

One interesting type of collateral is tokenized gold, as will be issued by the Digix project.

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

#53

Post by sandGorgon »

nahollander wrote: post #36
kang wrote: post #33

Earlier quoted context omitted.

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 :)

Oh this is interesting. In India, debt agreements have to be underwritten. Moreover, this right is a hard-to-get license that is granted by the central bank - Reserve Bank of India. Not sure what the regulations are in other countries.

Underwriting is a heavily regulated process in most countries with licensing requirements. You could claim that you do not underwrite yourself,so don't fall under regulatory purview. Interestingly your model will fall under the P2P regulations of India and China - where there are specific models where the marketplace does not underwrite, but risk is assumed by lender. Or - you have to make sure that the underwriters are regulated entities.

P.S. I run a lending startup in India. We primarily look at the Blockchain as a means to solve the credit history problem in India.

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

#54

Post by runeks »

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…

> 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.

Why on earth would someone borrow $50k if they have $150k on hand?

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

#55

Post by thisisit »

nahollander wrote: post #2

Hey HN! We're the team behind Dharma protocol, building the infrastructure for the tokenized debt agreements on the Ethereum blockchain. In this code school, we teach you how to build a loan collateralized by a CryptoKitty. We hope you enjoy! If you're interested in learning more visit us at dharma.io or join our chat.

I have question on this tutorial - How are you ensuring the value part of the equation. Lets say I own one of the cryptokitties worth $100k:

https://www.cnbc.com/2017/12/06/meet-cryptokitties-the-new-d...

What happens if the cryptokitty loses 10% of its value? And how does the contract know this loss in value?

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

#56

Post by whatok »

mccoyspace wrote: post #32
bpforster24 wrote: post #22

Earlier quoted context omitted.

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

CBOE margin requirements are nowhere near that. 40-44% depending on what kind of client as of 01-17-18.

http://cfe.cboe.com/margins/cfe-margins

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

#57

Post by manibatra »

runeks wrote: post #54
bpforster24 wrote: post #22

Earlier quoted context omitted.

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…

> 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. Why on earth would someone borrow $50k if they have $150k on hand?

I am guessing if the person borrowing believes that the asset that is being used as collateral ( ETH in this case ) will appreciate in value.

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

#58

Post by DennisP »

gbhn wrote: post #46
adrianratnapala wrote: post #38

Earlier quoted context omitted.

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, becau…

While some important records are public, many are not. It isn't obvious that all debtors want the details of their debt made world-readable, for instance.

Right, which is why in the article I linked, I describe a system that stores only the hash of the debtor's personal data on chain. A lender with the preimage can still use that to prove its case.

For stronger privacy we'd need ring signatures or zksnarks, so a person can't be identified by the flow of payments, but those technologies exist on various blockchains already.

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