Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

DeFi risks and the decentralisation illusion

bis.org

Post reply on HN
Print view View original

111–120 of 140 posts

Re: DeFi risks and the decentralisation illusion

#111

Post by hiq »

pishpash wrote: post #76
RandomLensman wrote: post #71

Earlier quoted context omitted.

There is a ton of regulations aimed at proper functioning of markets unrelated to banks. In uncollateralized situations you cannot verify/verification is meaningless as you might not be able to claim what you verified.

Let me pose the question thusly: Is there any decision making process by a bank, even ones executed by humans, not formalizable programmatically, provided sufficient information? If not, then what's to prevent decentralized finance from working just as well, provided the same information into the system?

1. The way you'll provide the real-world information won't be decentralized (it'll be some kind of oracle).

2. The costs of decentralized finance are too high.

Re: DeFi risks and the decentralisation illusion

#112

Post by vmception »

edvinbesic wrote: post #108
vmception wrote: post #17

Earlier quoted context omitted.

a) who cares who coined it, it is a classification used by many and quickly conveys the shared concept that matches that classification, which is the overall point of language b) Coinbase is many products. Coinbase Staking is the one that matches what was described above. Don't conflate the front facing CEX for everything they offer. No different than Amazon not being a bookstore, nor just an ecommerce platform. It i…

a) it does matter because despite what you think CeDeFi is only there to create confusion in the industry. Centralized decentralized finance. Which is it? b) staking has nothing to do with DeFi

so for anyone passing by (this isn't a response to you any more I no longer care what you think but I do care what others think)

Banks and brokers that offer exposure to the defi market are called CeDeFi because you could interact with DeFi yourself with no restrictions but the organizations that help you are just banks and brokers so it is a centralized company layer on top of the defi market. Those come with restrictions.

Their staking products allow you to provide them with liquidity, similar to a deposit at a bank or certificate of deposit (CD) at a bank, where they take your balance and put it in DeFi products to make a better yield for themselves.

Re: DeFi risks and the decentralisation illusion

#113

Post by hellojesus »

landemva wrote: post #103
hellojesus wrote: post #88

Earlier quoted context omitted.

Or they could sell their bread locally for cash only. Or they could make their own payment processor if the existing ones weren't doing a good enough job for them. There are a lot of avenues to work around the cartel of the banking industry, and I am a fan of any implementation that ignores the unconstitutional Bank Secrecy Act. Crypto does fall into this category but is not the only method.

'Or they could make their own payment processor...' Theoretically maybe. Money transmission laws will likely trip them up. Big barrier to entry.

Yes, that's why I stated that crypto was still applicable. You get the benefits of money transfer without the barriers to entry (except maybe in converting to and from fiat).

Re: DeFi risks and the decentralisation illusion

#114

Post by defaultprimate »

delabay wrote: post #99
defaultprimate wrote: post #73

Earlier quoted context omitted.

This, but applied to crypto bagholders

The psychological momentum of BIS far exceeds that of crypto. BIS and affiliated parties are comprised of thousands of old guard who have built their career and sense of self worth on the belief what they are doing is necessary and beneficial for society. Crypto participants are at max involved a few years and overwhelmingly young 20-somethings. Just as science advances one funeral at a time, so too will this whole i…

The psychological momentum of cryptobros far exceeds that of central bankers. Cryptobros and affiliated parties are comprised of thousand of vanguard who have built their entire financial future and self worth on their very limited life experience and ignorance of even the most basic economic principles and history, and a technological screw driver behaving as a hammer looking for a nail. BIS participants are, at minimum, involved for decades in global finance and markets with exceptional educations and understanding of the forces at work, unpredictable and unstable they may be.

Just as popular ignorance driven by hype, buzzwords, and FOMO has lead to bubble after bubble, victimization by ponzi schemers, and endless financial fraud, so to will the crypto space. It will help if we just stop debating whether crypto assets function in any way differently than a ponzi scheme and acknowledge they have zero capability of scaling as a currency to meet the demand of global finance, particularly while providing no security or recourse against basic human error like incorrect payee, charge backs, identity theft, etc, and are nothing more than a speculative asset with zero intrinsic value waiting for the next greater fool to come along.

"Just accept that my bags will always be around and eventually worth more than I paid for them"

No, I don't think I will

Re: DeFi risks and the decentralisation illusion

#115

Post by thebean11 »

lottin wrote: post #109
thebean11 wrote: post #101

Earlier quoted context omitted.

Why not? One can easily borrow USDC or another stablecoin with crypto collateral, withdraw to USD and use it for non-crypto investments..

Because if I already have $10,000 to put as collateral, to get a $10,000 loan to buy a $10,000 car, it means I didn't have a need for borrowing funds to begin with. I can go straight to buying the car without borrowing money. Whereas if I need to borrow the funds, I won't be able to get the loan because I don't have the 100% collateral required.

Using the BTC as collateral lets you stay long BTC and get the car. You also avoid paying capital gains since you aren’t selling.

The positions are fundamentally different. If you take the loan you are long BTC and short dollars. If you sell BTC for the car you have zero of both.

Re: DeFi risks and the decentralisation illusion

#116

Post by delabay »

defaultprimate wrote: post #114
delabay wrote: post #99

Earlier quoted context omitted.

The psychological momentum of BIS far exceeds that of crypto. BIS and affiliated parties are comprised of thousands of old guard who have built their career and sense of self worth on the belief what they are doing is necessary and beneficial for society. Crypto participants are at max involved a few years and overwhelmingly young 20-somethings. Just as science advances one funeral at a time, so too will this whole i…

The psychological momentum of cryptobros far exceeds that of central bankers. Cryptobros and affiliated parties are comprised of thousand of vanguard who have built their entire financial future and self worth on their very limited life experience and ignorance of even the most basic economic principles and history, and a technological screw driver behaving as a hammer looking for a nail. BIS participants are, at min…

Your comment takes me back to the 90s when fax machines were superior to email.

You're clearly not paying attention to the space.

Everybody in this space is 20-30 years old. Bet against demographics, I dare you.

Re: DeFi risks and the decentralisation illusion

#117

Post by [deleted] »

fennecfoxen wrote: post #81
nickff wrote: post #48

Earlier quoted context omitted.

> "you should see what happened to a financial system in the bad old days, when there were banks but no deposit insurance, and there would sometimes be a run on the banks, and they lose all their customers' cash, and the shock waves ripple through the whole economy." It is my understanding that there was never a run on a solvent bank; runs were the consequences of bank failures, not the causes of them. It should also…

Historical bank runs were associated with a variety of causes; while some were caused mostly by bank failure due to asset shocks, others (e.g. the panics of 1893 and of 1933) were clearly marked by contagion, and even healthy banks were ruined by runs. https://eh.net/encyclopedia/banking-panics-in-the-us-1873-19... (+ Postscript for original post: I typoed BIS as BLS because I'm used to the latter, oops)

[deleted]

Re: DeFi risks and the decentralisation illusion

#118

Post by ethanbond »

pishpash wrote: post #74
ethanbond wrote: post #23

Earlier quoted context omitted.

Banks hand out loans to mitigate localized shocks all the time, which is one thing that prevents them from turning into more macro shocks.

You make it sound as if the ability to create loans is an intrinsic property of banks, as opposed to it being a licensed monopoly granted to such institutions by the state.

Anyone can give out loans. Having enough capital to give out tons of loans simultaneously, though, is yes a semi-unique feature of a bank.

Re: DeFi risks and the decentralisation illusion

#119

Post by xur17 »

beefield wrote: post #28
norswap wrote: post #3

Earlier quoted context omitted.

All loans are overcollateralized, and basically used for leverage: put up your bitcoins as collateral, borrow stablecoins, buy more bitcoins. So the risk is limited as long as the loans can be liquidated in time in case of a price crash. The rates are determined the ratio of all stablecoin liquidity provided vs the amount actually borrowed. Liquidity providers can remove liquidity at any time, and so the smaller the…

> So the risk is limited as long as the loans can be liquidated in time in case of a price crash. If I may guess, it seems unlikely there are too many folks in DeFi circles who have ever heard acronym LTCM. (TL;DR: A bunch of actual Nobel laureates (no kidding, or at least as much as Nobel price in economics is an actual Nobel) founded a huge and famous hedge fund with a trading strategy assuming they can liquidate t…

Collateral is sold off automatically once they breach some threshold (varies, but it's always > 100%), and there are bots that compete to do this as quickly as possible. This is in no means perfect, but it is quite responsive, and did survive crypto's March 2020 price crash.

Re: DeFi risks and the decentralisation illusion

#120

Post by AnthonyMouse »

agentultra wrote: post #105
AnthonyMouse wrote: post #77

Earlier quoted context omitted.

> The US government responded to the 2008 financial crisis with the Dodd-Frank Act of 2008 to protect everyone against the kind of speculation that caused that financial crisis. Let's review the 2008 financial crisis. The was a thing called a credit default swap. It's a type of insurance. If you make a loan, and the borrower fails to pay you back, the insurance pays you instead. The insurance actuaries did the math o…

A good deal of US banking legislation came into being in response to various crises. Like the Federal Reserve Act in response to the Panic of 1907. It's pretty normal. A lot of this legislation exists to provide buffers to protect people from all kinds of situations. That's why we have legislation and regulation.

> A good deal of US banking legislation came into being in response to various crises. Like the Federal Reserve Act in response to the Panic of 1907. It's pretty normal.

It's also the financial equivalent of invading Iraq in response to 9/11.

Post reply on HN