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Comment by 0x53 | Hacker News Reader

Certain application in the decentralized finance space will allow you to borrow a cryptocurrency based on collateral in another currency. So in this case you deposit bitcoin and get Luna out. Then you sell the Luna. Then after the price crashes you buy Luna to repay your debt. Basically shorting Luna

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So, I put up 10BTC as collateral to get 110LNA - worth 11BTC - on the promise that I'll pay back 120LNA - worth 12BTC.

I sell the LNA for 11BTC worth of dollars. A meteor comes and destroys the price of LNA, sending it to a penny. When my loan is due, I buy 120LNA for a buck twenty and pay it back. I keep all of the 11BTC worth of dollars, having essentially bought them for a dollar.

Something like that? Seems like it fucks lenders more than holders, but I'm guessing that a lot of holders use some trickery to act as lenders as well. Neat scam.

Yep that’s essentially how it works. However, it can be risky either way. For instance, what if the price of Luna had gone up massively? Well then you would have had to repurchase Luna for a lot more than you sold it for. Basically, it reduces down to the exact same scenario as shorting a stock.

Pretty close, I'm guessing there are peer to peer lending platforms but typically you do it through a smart contract where assets are pooled together. So when you put your 10 BTC in the lending pool, you can only borrow up to ~80% of that value. If the price of BTC goes down, your BTC gets liquidated if it gets to within 5% of your borrow amount

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