I have 1 BTC, worth $27,000 today.
I lend that 1 BTC. I'm getting 1% on it. This is better than the pet rock that it otherwise is.
I can then borrow safely 50% of the value of that BTC, so $13,500 worth of goods. Now, I've magically given myself an additional $13,500, that I didn't have before.
The price of BTC would have to drop 50% before I'd be liquidated (some of my BTC would be automatically sold to cove the loan). Certainly, BTC can drop 50% in value... but if you are paying attention, you should have more than enough time to pay back that loan or add more BTC. In practice, BTC drops that much slowly over time (like a month or two), not in one go. It also works the other way, if BTC gains in value, you have less to worry about.
Let's say I pick to borrow ETH ($1800). I can now borrow 7.5 ETH at 3%. I can then lend that 7.5 ETH at 5%. I can then take those 5% earnings and sell those or even restake them.
Money legos. None of this requires permission or credit reports, just transactions on a blockchain. If you use a chain that has far lower fees (like Polygon, Arbitrium, Avalanche), then the fees are a rounding error in the cost of operations.
I do see the distinction you're trying to make though. That's why I qualified it with the word "collaterlized".
Let me also correct you: "Let's say you have one bitcoin. Your funds available for spending are $27,000".
No, we're not talking about selling the bitcoin. There is no 'spending' here. What you're doing is borrowing against the value of the bitcoin that you're holding. You don't need to sell it, you're using it as collateral. The system can liquidate you.
Just like people invest in a house and take equity out on it. Or they buy gold because they think it'll go up in value over time.
Regardless, you're being pedantic at this point. Back to the original discussion, there is utility to crypto now, and I've proven a way.
The point is that, unlike consumer loans, such loans require that the borrower has savings before they can take the loan. For example, most people who take a mortgage do so because they don't want to save money for 30 years before they can buy a house. They want to buy a house now, and save later. A mortgage loan allows them to do precisely that.
These other loans don't, and so they're less useful. They aren't completely useless. It's just that in most circumstances they aren't useful.
EXACTLY my point. If we actually turned lending and borrowing around so that you had to have collateral first (1), that could actually transform an entire economy, as well as people's minds away from spending what they don't have.
Credit card debt is at all time highs and they are raping people with high APY's on those funds.
(1) In SE Asia, they don't have the concept of credit reporting agencies and thus their 'credit cards' are all collateralized (what we refer to as debt cards). Living there is what turned me onto this concept and how it is a better way to do things. You can't spend more than what you've already deposited and you actually earn interest on it too!