Comment by anon9001 | Hacker News Reader

Comment by anon9001 | Hacker News Reader

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Another thing that's exciting about crypto is that it lets users participate in more fair borrowing/lending.

As it stands today, you can lend at your coins at a yield rate close to the borrow's lending rate. That effectively makes all lenders, collectively, "the bank". It also means that borrowers will get a competitive rate for borrowing against their collateral.

This will end the days of getting 0% in your savings accounts while the bank is getting 10% lending out your money once people realize they can lend out their dollars themselves for a much higher yield.

It also lets you lend out your speculative crypto investments. Imagine if you could buy AMZN or NFLX and also lend it out to other people on margin. That's exactly how a margin account works, but of course your brokerage isn't going to let you do it. Crypto lets you play the role of issuing the margin rather than borrowing it, if you so choose.

People that are dismissing crypto have no idea what a revolution in finance this is going to cause.

People have been able to lend actual coins since before the banking system existed and there's a vast ecosystem of financial products and intermediaries that will allow you to get higher yields than bank accounts from lending directly to specific companies or people (or buying their debt) without touching crypto.

And you can't buy and hold but also lend AMZN or NFLX with crypto. Sure, you can buy assets that don't have real profit streams attached and lend them to short sellers, but I have no idea why anyone would think that revolution would be a net benefit to them....

How many people are involved in processing that vast ecosystem of intermediaries? It's a wild amount of inefficiency. Every major city has giant buildings filled with people pushing numbers on spreadsheets to make those products work. They're extremely inefficient. And to interact with those systems, you need to go through a middleman like a brokerage.

I think the analogue is Ally bank, which is known to give the largest returns on savings accounts, currently yielding a whopping 2%. Compare that with a crypto-ecosystem lender like Nexo which is yielding 8-10% on the same asset (USD).

> Sure, you can buy assets that don't have real profit streams attached and lend them to short sellers, but I have no idea why anyone would think that revolution would be a net benefit to them...

That's one of the profit streams my stock broker uses. Why shouldn't it be available to me?

The reason why you don't have access to any of these money-making "institutional" products (like lending stocks, underwriting insurance, or serving as a market-maker) is because they require a lot of administrative overhead. When you replace them with smart contracts, you democratize all of these services.

In a few years, it will be common for people to buy/sell/lend/insure all kinds of assets (physical, virtual, derivatives) from their phone without a middleman.

You can do it today if you're an advanced user with enough money to overcome the currently high transaction costs.

> It's a wild amount of inefficiency.

Only if you think that due diligence and actually collecting the repayments is inefficient. Someone like LendingClub will do all that for a 1% overhead with plain old fiat though if you don't want maturity transformation and deposit insurance.

I'd say it's a bug rather than a feature of the crypto ecosystem that people who sneer at 'numbers on spreadsheets' can 'earn 10% interest' if they buy enough tokens from a website whose 'institution license' page tells you what a license is but doesn't tell you which country they're headquartered in, never mind what licenses they actually hold. It's not removed the middleman so much as anonymised him and made it more likely he's running a Ponzi scheme.

> Only if you think that due diligence and actually collecting the repayments is inefficient.

I do think that! The due diligence you're describing is only necessary because the custodians can actually improperly handle the money. Embezzlement is a real thing in the traditional system.

Give smart contracts a few more years, and you're going to be more skeptical of the existing system of due diligence with custodians (which we know can be abused) when compared provably secure smart contracts (which we know can have bugs, but will eventually be stable).

If you think crypto is all a Ponzi scheme, you probably haven't been following it for the last couple of years.

Also if you think the traditional system is not a Ponzi scheme, you probably don't understand how it works.

> The due diligence you're describing is only necessary because the custodians can actually improperly handle the money. Embezzlement is a real thing in the traditional system.

Due diligence with loans has nothing to do with 'embezzlement' and everything to do with evaluating the creditor's probability of repayment from future earnings. You can't assess whether someone's business plan is high or low risk with a smart contract.

Embezzlement is more likely to be a problem when you're giving your money to a service as obviously shady as Nexo (a website which in addition to having the unusual model of borrowing fiat at 10% to lend it out at 5.9%, pointedly avoids saying where its based even in its legal documents, or what licenses it holds on its 'view licenses' page, but is very keen to promote what licenses and audits its founders' other business has in its marketing material...)

Wait, Nexo is your rebuttal here? The stuff the other person was talking about is a successor to Nexo.

Firms like Nexo use the yield farming services to make their questionable business plan viable! We will never know exactly what they were doing before but now they use decentralized versions of themselves.

Now this inevitably requires you to move the goal post to the critique that customers money is being put in smart contracts, good news there is also smart contract insurance that many people buy. I’m not kidding, 70% serious, that’s it’s own nuanced discussion but requires you to get off of a hill stuck in 2018.

I mentioned Nexo way earlier up the thread, comparing them to Ally, because they're both custodial retail shops that make their money behind the scenes without the user knowing anything.

But it is incredible how much crypto has changed since 2018. Back then I thought, well, maybe some day this will work. Now it's obvious that it will work, and I think adoption will be rapid once it starts happening.

I won't be surprised if there's a big wave of crypto stuff on HN/reddit/elsewhere again soon. Just like 2017, but this time it's actually useful for something.

My rebuttal to the suggestion smart contracts somehow change everything is that smart contracts can't do due diligence on ability to repay in future, and only the sort of sucker that thinks Nexo looks like a legitimate operation would consider due diligence an unnecessary overhead to lending. Smart contracts can't make lending below the cost of capital a sustainable business model either. And whilst not all crypto is a Ponzi, 'yield farming' involving people being rewarded for propping up the value of a token by paying into its smart contract by printing even more of that token is pretty much the definition of a Ponzi. Even someone as heavily invested in smart contracts as Buterin acknowledges as much.

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