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Why should you care about Ethereum Layer-2?

thecryptojournal.substack.com

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Re: Why should you care about Ethereum Layer-2?

#31

Post by Tenoke »

cle wrote: post #21
spapas82 wrote: post #6

As a tl;dr for people not familiar with web3. Doing things in the web3 that change the Blockchain (like buying nfts for example) has a large cost on "gas" (ie fees you pay for your transaction to be included in the Blockchain). These are more that $30 euros and may go up to $80 euros (depending on what you want to do). So if you want to buy an nft for like $30 you will pay $30 more for the ethereum fees. This makes w…

> This is possible because polygon uses a different concencus model (proof of stake) than ethereum (proof of work). Does this mean Polygon will become obsolete when Ethereum moves to PoS?

No if it really becomes an L2 (currently it's just a sidechain). L2s are here to stay as the scaling solution unless Ethereum change their minds on what direction to go in again.

Re: Why should you care about Ethereum Layer-2?

#32

Post by CurrentB »

lottin wrote: post #23
jtsiskin wrote: post #18

Earlier quoted context omitted.

Are you saying that most loans are uncollateralized?

I'm saying that blockchain technology is inherently incompatible with financing, which is the basic and most important function of finance.

There's no reason why Blockchains can't also incorporate their own trust model to facilitate lending that isn't fully collateralized. There are already projects working towards this. Pseudonymous p2p lending isn't some impossible thing.

The current frothy state of crypto, unsustainable as it may be, is evidence that people are willing to trust crypto projects enough to give them money if there's a chance of getting some amount of more money. Much of this looks like equity financing. Debt financing isn't inherently off limits though it just is harder.

Re: Why should you care about Ethereum Layer-2?

#33

Post by JaimeThompson »

cle wrote: post #21
spapas82 wrote: post #6

As a tl;dr for people not familiar with web3. Doing things in the web3 that change the Blockchain (like buying nfts for example) has a large cost on "gas" (ie fees you pay for your transaction to be included in the Blockchain). These are more that $30 euros and may go up to $80 euros (depending on what you want to do). So if you want to buy an nft for like $30 you will pay $30 more for the ethereum fees. This makes w…

> This is possible because polygon uses a different concencus model (proof of stake) than ethereum (proof of work). Does this mean Polygon will become obsolete when Ethereum moves to PoS?

>when Ethereum moves to PoS

The Sun having entered the red giant phase will take out Polygon long before Ethereum actually moves to PoS.

Re: Why should you care about Ethereum Layer-2?

#34

Post by dannyw »

lottin wrote: post #26
ricochet11 wrote: post #17

Earlier quoted context omitted.

There is no reason that the third-party cant be a contract with globally accessible permissionless apis, that let you borrow peer2peer or peer2protocol against your assets, and that upon you not repaying your debt liquidates your position (by other people/protocols bidding for the assets that are out of position, usually over-collateralized at 150% min). Most of defi is structured in this way and it is working fine,…

You don't seem to get it. If the borrower has to put up 100% collateral it means that their buying power remains the same. Borrowers borrow money in order to increase their present buying power (at the expense of future buying power). You can't do that with overcollateralised loans, smart contracts, or blockchain technology.

Mortgages are overcollateralized loans.

Credit cards are loans based on future income streams (which can be securitised in fact with crypto technology -- think a defi bank automatically getting 20% of your future income until it is repaid)

Re: Why should you care about Ethereum Layer-2?

#35

Post by carlosdp »

lottin wrote: post #28
mywaifuismeta wrote: post #27

Earlier quoted context omitted.

> You don't seem to get it No, you are only describing a part of what borrowing is about. Your use case is valid, but it is just one of many use cases. Consider the following: I own a a long-term retirement account, but I need to pay an emergency medical bill and don't have cash at hand. Obviously I don't want to liquidate my savings account, but I can put it up as collateral to go to a bank and get a cash loan. If I…

An overcollateralised loan is equivalent to a swap (a type of derivative). Swaps have their uses, and are used in finance, but they don't provide financing . The point is if blockchain technology can't be used to do financing, and it definitely can't, just don't call it the "future of finance", because it is not. It can't perform the basic function of finance, which is financing.

How is a mortgage not financing, and how is a mortgage not just another over-collateralized loan?

Every loan has some form of collateral. Even credit cards do, it's just less tangible: you are staking your credit score, which they'll start chipping away at as soon as you start defaulting.

Re: Why should you care about Ethereum Layer-2?

#36

Post by carlosdp »

lottin wrote: post #22
yuvalr1 wrote: post #14

Earlier quoted context omitted.

Loans are an important concept, that's true. Do blockchains inherently prevent loans? I'm not sure, I think Ethereum smart contracts enable the concept of loans. The 3rd party here is the contract itself, as I understand it.

If I lend you 1 ETH, I have no means to make you pay me back. Smart contracts can't do that either. A smart contract cannot seize 1 ETH from your wallet and send it back to my wallet. Blockchains are designed specifically to prevent that.

That's not true, you can definitely do this with a smart contract blockchain like Ethereum, and there are plenty of loan protocols already that do this in production with $ billions in assets transacted.

No one can steal your ETH from your wallet, but they can liquidate your staked collateral held by the smart contract.

Re: Why should you care about Ethereum Layer-2?

#37

Post by lottin »

dannyw wrote: post #34
lottin wrote: post #26

Earlier quoted context omitted.

You don't seem to get it. If the borrower has to put up 100% collateral it means that their buying power remains the same. Borrowers borrow money in order to increase their present buying power (at the expense of future buying power). You can't do that with overcollateralised loans, smart contracts, or blockchain technology.

Mortgages are overcollateralized loans. Credit cards are loans based on future income streams (which can be securitised in fact with crypto technology -- think a defi bank automatically getting 20% of your future income until it is repaid)

The problem isn't overcollateralisation itself but the inability to seize the collateral in particular, and assets in general. A mortgage depends crucially on the bank's ability to seize the collateral in the event of default, and the same applies to credit cards. The problem is blockchain assets are unconfiscatable, which means any form of financing involving such assets is unworkable.

Re: Why should you care about Ethereum Layer-2?

#38

Post by lottin »

carlosdp wrote: post #35
lottin wrote: post #28

Earlier quoted context omitted.

An overcollateralised loan is equivalent to a swap (a type of derivative). Swaps have their uses, and are used in finance, but they don't provide financing . The point is if blockchain technology can't be used to do financing, and it definitely can't, just don't call it the "future of finance", because it is not. It can't perform the basic function of finance, which is financing.

How is a mortgage not financing, and how is a mortgage not just another over-collateralized loan? Every loan has some form of collateral. Even credit cards do, it's just less tangible: you are staking your credit score, which they'll start chipping away at as soon as you start defaulting.

A mortgage is indeed a form of financing because the lender does not keep the collateral until the debt is paid off in full. If they did, there would be no financing going on. It would be equivalent to saving for 30 years and then buying the house.

Re: Why should you care about Ethereum Layer-2?

#39

Post by lottin »

carlosdp wrote: post #36
lottin wrote: post #22

Earlier quoted context omitted.

If I lend you 1 ETH, I have no means to make you pay me back. Smart contracts can't do that either. A smart contract cannot seize 1 ETH from your wallet and send it back to my wallet. Blockchains are designed specifically to prevent that.

That's not true, you can definitely do this with a smart contract blockchain like Ethereum, and there are plenty of loan protocols already that do this in production with $ billions in assets transacted. No one can steal your ETH from your wallet, but they can liquidate your staked collateral held by the smart contract.

If the collateral is "held by a smart contract" it means your buying power hasn't changed and you haven't financed anything.

Re: Why should you care about Ethereum Layer-2?

#40

Post by lottin »

CurrentB wrote: post #32
lottin wrote: post #23

Earlier quoted context omitted.

I'm saying that blockchain technology is inherently incompatible with financing, which is the basic and most important function of finance.

There's no reason why Blockchains can't also incorporate their own trust model to facilitate lending that isn't fully collateralized. There are already projects working towards this. Pseudonymous p2p lending isn't some impossible thing. The current frothy state of crypto, unsustainable as it may be, is evidence that people are willing to trust crypto projects enough to give them money if there's a chance of getting s…

Debt financing is definitely not simply harder but entirely impossible. If you think otherwise, please explain how the borrower can be made to repay the debt with this technology.
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