> I still find it pretty mind blowing that an algorithm can loan me money.
Algorithmic lending has been a thing for decades though. What do you think a credit score is for if not a tool to let computers decide whether to give you credit or not?
Algorithmic lending has been a thing for decades though. What do you think a credit score is for if not a tool to let computers decide whether to give you credit or not?
DeFi is unlocking the value of an asset, making it liquid and allowing me to participate in other investment opportunities without an APR.
One example is on Kaurura. I have KSM, Stake that KSM for a 19% APR Rate. Throw that LKSM into a vault and mint AUSD as long as i have 160% collatoral ratio. I can then use that aUSD i printed, buy other assets and participate in liquidity pools, which are giving anywhere from 50% to 300% APR.
It's a new era of finance. Play around in the space before you say it's worthless.
I have no experience with crypto, but this I don't understand.
> DeFi is unlocking the value of an asset, making it liquid...
Like a mortgage or a bond issuance (bonds are secured against assets of the corporation)?
> Credit is loaning you money and providing an interest rate. Usually something insane like 15%.
Average rate for a 30-year fixed mortgage in the US is about 4%[1]. Average Aaa corporate bond yield is 3.43%[2]. I guess that you are talking about interest rate on credit cards? I think that credit card debt is pretty small compared to the size of the mortgage or bond markets.
> One example is on Kaurura...
I'm not sure I follow you here, but it sounds like you get a loan at 19% APR against some collateral. Then you use the loan as capital for some other investment at a higher rate of return.
My question: how is this any different, for example, from a company issuing bonds at 4% coupon rate and using the proceeds to fund operations when the company's profit margin is, say, 50%?
Let's say it's a matter of scale; I, as a person, can't issue bonds to trade on a public market. But I can get a mortgage and invest in other stuff hopefully at a return higher than the rate on the loan.
As I said, I don't understand how this is a "new era of finance".
[1] https://www.valuepenguin.com/mortgages/average-mortgage-rate....
>how is this any different, for example, from a company issuing bonds at 4% coupon rate and using the proceeds to fund operations when the company's profit margin is, say, 50%?
It's nothing like that. Because A.) It's not getting people to loan me money. Company issuing bonds at 4% has to pay that 4% to get access to their assets because it's 'Risky'. In the blockchain there is no risk because they have constant oracle access to the price of the underlying asset so i can do it for free, with no counter party. Simple a piece of code collectively floating on thousands of nodes running around the world.
I'm sorry, but this sounds ridiculous.
Now it's "$X but with crypto!". Only with crypto there's a constantly evolving set of jargon that obfuscates the fact that yeah, traditional finance does it already To be fair, the dotcom era had it's fair share of obfuscating jargon too. Maybe crypto just seems worse because the dotcom boom was so far back in my memory.
I think there might be some actual valuable use cases for crypto. I just wish all the people reinventing the wheel and thinking it's new would get out of the way. Then at least we can find out if crypto actually has something interesting it can do.
1.) Amplified losses if the securities in your account decline in value
2.) Margin calls or liquidation of securities
3.) Losses greater than the original investment are possible
- Not possible due to constant access via oracles to the underlying asset. The Protocol may experience more loss in very rare instances, but as an individual i never will.
And due to 3.) is why you have an 'interest rate'. I have no rate of interest on my margin loan. The protocol generates money from trade fees, more liquidity is and leverage increases TVL.