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Comment by lottin | Hacker News Reader

Thanks for the information, but none of that addresses the problem I described earlier. All these pseudo-decentralised lending platforms that you mentioned happen to rely on a central party that "approves" borrowers. Once a borrower gets "approved" they sign a loan agreement with the central party. In the case of default, the central party can initiate legal action against the borrower. This is how these "decentralised" loans work. The only reason they work is because they aren't decentralised at all. They're conventional loan agreements that are enforced by courts of justice. The pseudo-decentralised platform plays the same exact role as a financial intermediary in conventional finance. Decentralised lending platforms where borrowers can get uncollateralised loans DO NOT exist. The technology does not allow it. There are no mechanisms through which make the borrower repay the loan.

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> Decentralised lending platforms where borrowers can get uncollateralised loans DO NOT exist. The technology does not allow it. There are no mechanisms through which make the borrower repay the loan.

They do exist, Aave allows for this, there is no one to approve the flash loan. Just that you can only borrow the funds for specific context that I described and the borrower will have to pay off the loan or the loan wont be made and will fail. You can't do this at all in tradfi.

> They're conventional loan agreements that are enforced by courts of justice.

And even if these happen traditionally, no defi involved, the borrower many not be able to pay of the loan. Risk will be eaten by someone. Courts of justice can't squeeze blood from stone. But Aave doesn't face this risk. Maybe other protocols will, but thats the risk people have to accept when they engage with the different protocols.

As a curiosity, a "flash loan" is a loan in which the principal is received and repaid simultaneously and therefore has little practical utility, other than facilitating wash trading and other forms of market manipulation, which are prohibited in regulated markets.

I guess there's those like yourself that would deem it of little practical utility for anyone to borrow permissionlessly and without a large pool a capital of their own to take advantage of arb opportunities that arise in markets (and make those markets more efficient for those that use it). Luckily, defi participants are not bounded by your opinions.

It's unclear whether these flash loans can even be used to exploit arbitrage opportunities. Arbitrage involves simultaneous transactions in different markets, whereas flash loans only allow simultaneous transactions in the same blockchain. Anyway, arbitrage is not a sufficient condition for market efficiency. There's plenty of evidence showing that crypto-markets are rife with fraud and are anything but efficient.

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