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Comment by RustyConsul | Hacker News Reader

Credit is loaning you money and providing an interest rate. Usually something insane like 15%.

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.

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> It's a new era of finance

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....

[2] https://fred.stlouisfed.org/series/AAA

The KSM is staked to ensure concencus of the network. proof of stake is like proof of work, but instead you are betting that this node is behaving and the node themselves are running cryptographic hash schemes like bitcoin. So like bitcoin, you are paid for validating the concensus of the network so you are paid that APR. Taken another step further, if you create a smart contract and lock the KSM in it, and that smartcontract stakes the coin for you, it can mint LKSM that proves your ownership in the pool. Slowly but surely the price of LKSM and KSM will diverge in LKSM's favor since the KSM in the smart contract is generating returns for being staked. So you can always redeem it with a slowly appreciating exchange rate. So all that to have a liquid form of staked KSM. You can now use the LKSM to mint AUSD and you can trust you can pay that back because you have colateral lockeed in a vault. Now when i participate n pools, I earn fees for providing liquidity of two assets. Now when people are trading, they can dip into the pool, swap their assets and no one has to be on the 'Other-side' of the trade. They get minimal slippage, and i get paid a trade fee that's much lower than what you can get in traditional finance (Usually fractions of a penny).

>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 think you don't understand interest rates. One man's interest is another man's cost of capital. If someone is paying you 4% for a riskless loan, it means they are overpaying for capital.

"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."

I'm sorry, but this sounds ridiculous.

It sounds like someone at a horse track who has brought along his loan shark.

I miss Ponzi, he really just took my money and dealt with the details for me. Now you say I have to do all this work?

this is a margin loan it’s not a new concept

It's a fascinating throwback to the dotcom boom where everything was "It's $X, but on the internet!"

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.

Four risks with margin loans. The first two also apply with crypto:

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.

4.) Interest rates may rise, increasing the cost of your loan.

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.

This comment is indistinguishable from satire.

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