From user experience, I personally don't see a strong benefit of crypto. It always looks like a Ponzi Scheme to me. When early users are people driven by greed than productivity, it is a HUGE problem.
Thank you for reaffirming my point! The purpose of defi is to re-distribute dollars from people buying in to people cashing out, while providing literally no other goods or services. It's not like people want these tokens for other purposes -- you buy them so you can sell them to subsequent participants.
Despite the deceptive machinations of defi, the act of selling out leaves a paper trail that exposes you to liability for income taxes, capital gains taxes, and (if you wrote the token code) securities regulations. But I have some good news: if you live in the US, you at least have until May 17 to file your quarterly estimated taxes.
Not at all. You didn't read my post above did you? Let me ask you, if you want to be a market maker for the NASDAQ, can you do so with $1K in capital? Can you do it 24/7 from any country in the world? No? Can you loan money to someone in Thailand in 15 seconds? Can you borrow money from a pool of lenders from 84 different countries? No? Can you build an app that plugs into your bank, NASDAQ, and a video game API without paying anyone any service or API fees? No??
Well you don't get DeFi. So you should study both the traditional existing system as well as this new one so you can see quite clearly why this system exists and what problems it solves.
Buddy, I'm not worried about taxes on profits vs. losses. It's no different than stock trading. No one has ever pretended there isn't a paper trail: of course there is! It's an open blockchain. But you're running with your pet theory for why it exists straight over a cliff.
Hate to break it to you, buddy, but you can't do these things with defi tokens either.
> Let me ask you, if you want to be a market maker for the NASDAQ, can you do so with $1K in capital? Can you do it 24/7 from any country in the world?
If you're implying that NASDAQ won't let me be a market maker with $1k capital, then why should I believe that they'll do it if I offer $1k-equivalent of defi tokens instead?
Also, I can do this today. I'd start a market maker company with my funds and with funds from other like-minded people.
> Can you loan money to someone in Thailand in 15 seconds?
Show me a defi protocol that lends money, and I'll show you a protocol that only permits over-collaterialized loans, backed by other defi tokens that are just as limited.
Also, yes -- I can lend money to people in Thailand in 15 seconds. I simply invest my money in a local bank that will do it for me.
> Can you borrow money from a pool of lenders from 84 different countries?
Absolutely. Do you understand how banking works?
> Can you build an app that plugs into your bank, NASDAQ, and a video game API without paying anyone any service or API fees?
I don't know if you've ever tried to actually write software before, but I can say with 100% confidence that defi isn't going to open up my bank's APIs, NASDAQ's APIs, and video games' APIs to me. That's because these entities make money by charging for API access, and the existence of defi isn't going to change this.
Even if each of these entities were realized as defi contracts, the underlying blockchain miners still charge me a fee to mutate state within them.
> Buddy, I'm not worried about taxes on profits vs. losses. It's no different than stock trading.
Then you clearly do not understand how tax law or finance works. I humbly suggest you get familiar with it, and quickly, lest you end up with completely-avoidable penalty fees (or in a jail cell).
https://en.cryptonomist.ch/2020/11/09/uniswap-liquidity-pool...
https://docs.aave.com/faq/borrowing
https://defirate.com/synthetix/
https://defi.cx/makerdao-how-does-it-work/
As for collateralized loans, they are the norm in traditional finance, too. When you take out a mortgage, it's collateralized by the house. When you borrow for a car, guess what happens if you don't pay? Unsecured, revolving loans are usually credit cards, with very high interest rates.
If you're snarking about the $30B in lending activity on crypto (up from less than $1B a year ago, on pace to 10x over the next 12 months), because it's collateralized, you don't understand what percentage of lending is collateralized and how big that market is worldwide (hint: its hundreds of trillions).
> That's because these entities make money by charging for API access, and the existence of defi isn't going to change this.
The point, for your intentional ignorance, is that the DeFi system is completely open. Open source, open access, pluggable, and composable. In that sense DeFi follows the Unix philosophy. And that is just one reason why DeFi will take over ever greater portions of the existing system. It is going to eat traditional finance.
https://en.m.wikipedia.org/wiki/Unix_philosophy
> Then you clearly do not understand how tax law or finance works. I humbly suggest you get familiar with it, and quickly, lest you end up with completely-avoidable penalty fees (or in a jail cell).
You clearly don't understand that Coinbase just went public as a company and that many more legal entities exist fully legally in the crypto ecosystem such as Gemini, Avanti, Greyscale, Galaxy, Kraken, etc not to mention overseas entities in Europe and Asia. There's nothing illegal about participating in crypto.
I understand how to do addition and subtraction and how to do FIFO and LIFO. In fact, there's software programs to automate it. Who woulda thunk it.
But that's not really the topic at hand.
> It is going to eat traditional finance.
Why should I believe this? Even if high transaction fees, bad UX, and non-existent scalability weren't significant barriers to adoption, why should I believe that traditional finance won't simply co-opt successful defi projects?
The fact that traditional finance does not do some things that defi does has nothing to do with technical capabilities, and everything to do with legality and market sizes. There's no grand conspiracy afoot -- traditional finance would let you do a lot more with your money than you can right now if it was profitable and legal.
If you're telling me that defi is going to "eat traditional finance" because traditional finance won't touch unprofitable or illegal activities, then what are you really saying about defi's prospects?
> There's nothing illegal about participating in crypto.
No one said that crypto is illegal. Tax evasion, on the other hand...
These are just collateralized loans that are automated. Nobody here would touch your businesses “in the real world” because it would take like 90 days to get any liquidity with those processes, compared to 15 seconds (1 block). There is nothing mysterious about a collateralized loan with a conservative loan to value ratio. The first thing you got wrong is that most services have a low LTV not 100%. Usually between 25-55%. Businesses in the real world do touch that.
The other thing you’re missing is who what and why. These aren't businesses these are basically self-replicating robot toll booths who are doing what lending businesses also try to do: pool liquidity and in some cases reinvest that greater liquidity.
When borrowers deposit collateral they are typically passing through a smart contract that then adds their deposit to a liquidity pool that the market can access. It requires confidence in these smart contracts that the collateral will remain available but that confidence is generally there. The market typically taps these liquidity pools for easier trading with lower spreads at larger amounts or for the repo market (flash loans). Lenders are repaid usually in the asset they lent, as well as a project’s token which amplifies yield. The risk isnt contigent on the projects token existing or going up, which I think you missed. For some platforms that is true but that is usually yield farming, but if you think a market need is unfulfilled just launch another version.
Typically earning or otherwise having enough of the project’s token allows people to vote on controlling some parameters, such as the interest rates provided or augmented by how much of the project token or the use of which liquidity pools or eligible assets in the system.
Back to the borrowers and lenders, yeah they can get and give personal loans for discretionary spending at market provided interest rates even in stablecoins.
And people do this in traditional markets - it's known as "asset backed lending" or margin trading. Both things that my investment account allow me to do.
Example 1) lend USDC for 25% interest on Venus.io. Borrow DOT at 3-4% interest. Stake DOT for 12% interest and collect the difference.
Example 2) Lend USDC for 25% at Venus.io. Borrow BUSD for 12% interest. Trade the BUSD for USDC 1:1. Lend that USDC to borrow more BUSD. Repeat until you max out you reserve ratio.
Venus is a fork of Compound and MakerDao.
Taleb got profiled in the New Yorker, his Black Swan book became popular, and he has rode that and Twitter ever since. I highly recommend people see him for what he is - a public figure that is a bullshitter like anyone else - at least until he shows proof that he is some sort of investor oracle. He has actively sued people who revealed how much money his prior fund lost, as those documents are floating around but he attacks anyone who publicly reveals them.
Mark Spitznagel, a cofounder of Empirica (Taleb's old fund), went on to start Universa which did pretty well with similar theories (tail-risk strategies and insurance via options against extreme market risk) in both the 2008-2009 period and last year, when they booked a huge return. So there's some evidence that the theories work to produce uncorrelated (or negatively correlated) returns that outperform the market[1].
[1]: Universa's flagship "Black Swan Protection Protocol" fund has produced a mean annual return on invested capital of 76% since the firm was created in 2008. https://www.forbes.com/sites/antoinegara/2020/04/13/how-a-go...
I had always understood a ponzi as being something paid out by later investors, and where you had a plausible reason to believe in increase in value.
Here the plausible reason is “bitcoin will take over the financial system and everyone will need it” or “bitcoin will be the new store of value and everyone will want it”. In either event payout necessarily comes from later investors.
Ponzi appears to be an income-producing asset, but the income is paid out from the principal.