In the current implementation / use cases we're focused on, your collateral, which is held in a smart contract, would become eligible for seizure by the lender.
If my collateral is another liquid asset it doesn’t make sense to borrow, and if it isn’t how exactly does the lender go about seizing it? I want this explanation to reach a satisfactory conclusion.
Already, though, there are many interesting assets in the world of crypto that are particularly well suited to being put up for collateral -- namely, the emerging class of crypto-collectibles such as CryptoKitties.
Each property/car could essentially be represented by its own smart contract, initially held by the mortgage lender. When you pay an instalment of your mortgage, it executes the contract to "release" the equity to you.
When it comes to selling, to change the name on the contract, the buyer would pay based on the split between the lender and the owner, or pay to the owner who has to close the contract with the bank (in the event of moving to a new property, the bank and owner get their relevant proportions on Property 2's smart contract, and it goes again).
You could then "lend" out the equity you've earned from the bank, and use it as collateral for something else, getting it back once you've satisfied the terms of that agreement (meaning, if you don't, the person you lent it to is a creditor on the selling of the house/closing of the contract).
It's essentially automating/giving an interface to an existing contractual relationship. I think this interface might actually be clearer for some people who are financially uneducated, as it expresses their ownership percentage, debt obligations, and potential secured borrowing options in one go. Whilst a lot of it could be done without the crypto side of things if everything happens with the same bank/group of people, with buying and selling assets, you're working on trust with a bunch of different organisations and people, the ledger aspect could help with this.
>> I'm not a crypto-apologist
> This doesn't gain anything over existing legal contracts.
>> I think this interface might actually be clearer for some people who are financially uneducated, as it expresses their ownership percentage, debt obligations, and potential secured borrowing options in one go. Whilst a lot of it could be done without the crypto side of things if everything happens with the same bank/group of people, with buying and selling assets, you're working on trust with a bunch of different organisations and people, the ledger aspect could help with this.
I'm not arguing for it, merely point out the potential use case people would push for, and if it were to be pushed, I outlined why I think it could beat out existing legal contracts.
Would appreciate a rebuttal to my points.
People already have a hard time dealing with contracts written in their own native tongues, why would they prefer having to read and validate source code? Even if a few standard blockchained contracts emerged for real estate deals that could be validated into human language, regular people are terrible at using and trusting software that they use irregularly. In some jurisdictions it is possible to buy and sell houses without involving lawyers or bankers, but most people use their services anyway because they are legally obligated to act in their client's interests, and they are experts at such things. Obviously you will also have to include the government-administered land title registry, an institution that have slowly evolved over centuries and works very well. There is no good reason to decentralize land titles, even if it were possible.
So even if bringing public-key encryption and software interpreters into a real estate deal were to introduce some efficiencies compared to dealing with word docs and paper copies that any country lawyer could amend and attest to without having to hire a Solidity developer and praying that it's one that can handle a weird contract addendum without introducing a bug, which is a big if, the costs and complexities would barely budge because there is a lot more that goes into a real estate transaction than validating contracts.
Crypto-apologists (I know you're not one) seem to include a lot of people who have never stressed out over a real estate deal, or worked on a helpdesk.
My proposal is less about the legal setup, and more about the ongoing interaction with the contract, which might aid with financial education, especially around equity (see how many people are caught up in interest-only mortgages), and debt leverage.
Whether you use a ledger or not depends on how it could actually work, but there aren't many other solutions that give transparency among multiple disparate parties, without a reliance on a credit agency (which, as we all know, has caused some... issues...).
Not sure whether I'm keen on that vision of the future or not, but I can definitely see the day where physical assets are represented by some digital manifestation/token.
You can’t honestly be serious about this. Please get outside the Silicon Valley bubble and look around.
Imagine the following:
1. I own ETH, and want to hold my ETH position so I can enjoy price increases, but I need liquidity to live my day to day life and, well, it's hard to pay for things with ETH. 2. Instead of selling ETH and exiting my position, I put ETH up for collateral and borrow a stable-coin (like DAI) against it. That way, I maintain my price exposure to ETH, but have liquid cash to use for my day-to-day needs.
A lends 10 Xcoins to B. B puts 11 Ycoins into escrow. A will either get back 11 Xcoins or 11 Ycoins.
If Xcoins rise in price relative to Ycoins, B is happy and A is sad.
If Xcoins fall in price relative to Ycoins, B is sad and A is happy.
I guess I can’t spend the collateral in the first place?