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DeFi risks and the decentralisation illusion

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Re: DeFi risks and the decentralisation illusion

#101

Post by thebean11 »

lottin wrote: post #95
Ekaros wrote: post #60

Earlier quoted context omitted.

This really sounds most like gambling. And not a financial instruments that is very supportive for economy. Like let's say company loaning money to purchase equipment.

Yes, these loans can't be used to fund investment or consumption in the real economy. The only use-case of crypto-loans, as far as I know, is making leveraged bets on the prices of crypto-currencies.

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

Re: DeFi risks and the decentralisation illusion

#102

Post by hrhrhrhrhr »

majormajor wrote: post #75
hrhrhrhrhr wrote: post #58

Earlier quoted context omitted.

If you believe that the value of Bitcoin is going to go up, it makes sense to lock is as a collateral and spend the borrowed fiat instead of selling the Bitcoins.

Is there a part of the system that keeps working even if the value of bitcoin stops (being believed to keep) going up all the time? If ETH or some other new token takes more and more mindshare from btc isn’t that a big inflationary pressure on the crypto ecosystem as a whole? More tokens = less valuable tokens. At some point buy the dip will turn into cash out.

If the value of Bitcoin stops going up, sooner or later your debt grows larger than the amount you were allowed to borrow and your collateral gets liquidated by someone who implemented the fastest liquidator bot.

https://docs.aave.com/developers/guides/liquidations

Re: DeFi risks and the decentralisation illusion

#103

Post by landemva »

hellojesus wrote: post #88
aeternum wrote: post #14

Earlier quoted context omitted.

Maybe someone does want to create a very special and expensive type of bread and sell it worldwide. In order to accept payment, they must become a merchant with some centralized entity (Paypal, Mastercard, Visa). They must hope they live in the subset of countries where this is allowed. They must agree to a one-sided TOS that can be changed at any time. Then they must hope that all their buyers are honorable and trus…

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.

Re: DeFi risks and the decentralisation illusion

#104

Post by landemva »

lottin wrote: post #84
jermaustin1 wrote: post #57

Earlier quoted context omitted.

I'm going to preface this with I have no idea how any of this ACTUALLY works, and I'm probably wrong, but the "blockchain" abstracts all the more complicated bits away. I'm not a crypto diehard, and probably never will be. I think they are neat, and I have about 10% of my net worth tied up in a handful of coins. Here is my understanding how we can all be banks without even really thinking about it. Some coins (PoS sp…

The idea that banking activities can be automated and that therefore people will be able to ditch banks and do their own banking without resorting to professional banking services is unreasonable, for the simple reason that if this could be done, banks would have already done it, since they have every incentive to reduce costs. They would have laid off all the staff and replace it with a smart contract. They haven't…

Have you considered if much of this is due to debt-based currency? If people hold valuable fungible tokens, it becomes possible to make collateralized loan products and even synthetic stable tokens such as DAI.

Re: DeFi risks and the decentralisation illusion

#105

Post by agentultra »

AnthonyMouse wrote: post #77
agentultra wrote: post #25

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. Much of the financial legislation that regulates banks, payment systems, and other intermediaries is created in response to fraudsters and scammers. There are lots of "shock asorbers" that you might not be aware of. In the US payments system, a…

> 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.

Re: DeFi risks and the decentralisation illusion

#106

Post by giantrobot »

anonymousDan wrote: post #51
Osiris wrote: post #42

Earlier quoted context omitted.

DeFi loans are over-collatoralized usually by 1.5-2x. If you want to borrow $100k, you put up $200k in collateral.

Sorry I don't get it. Why would you lock up 200k in order to borrow 100k? Why not just use part of the 200k you already have?!

You gotta pay the upline!

Re: DeFi risks and the decentralisation illusion

#108

Post by edvinbesic »

vmception wrote: post #17
edvinbesic wrote: post #12

Earlier quoted context omitted.

Small nitpick but CeDeFi is a term coined by Binance to make them appear more palatable and competitive. Binance is a centralized network so it's a CeFi foundation with all the controls that come with that, but with a DeFi coat of paint. Coinbase is a centralized exchange (Cex, not a Dex) so it has little to do with DeFi in general.

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

Re: DeFi risks and the decentralisation illusion

#109

Post by lottin »

thebean11 wrote: post #101
lottin wrote: post #95

Earlier quoted context omitted.

Yes, these loans can't be used to fund investment or consumption in the real economy. The only use-case of crypto-loans, as far as I know, is making leveraged bets on the prices of crypto-currencies.

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.

Re: DeFi risks and the decentralisation illusion

#110

Post by lottin »

landemva wrote: post #104
lottin wrote: post #84

Earlier quoted context omitted.

The idea that banking activities can be automated and that therefore people will be able to ditch banks and do their own banking without resorting to professional banking services is unreasonable, for the simple reason that if this could be done, banks would have already done it, since they have every incentive to reduce costs. They would have laid off all the staff and replace it with a smart contract. They haven't…

Have you considered if much of this is due to debt-based currency? If people hold valuable fungible tokens, it becomes possible to make collateralized loan products and even synthetic stable tokens such as DAI.

I don't know what you mean by debt-based currency, but no I don't think that using tokens instead of currency changes anything. The process of granting and managing a loan is exactly the same regardless of whether the loan is denominated in currency or in some token.
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