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Comment by lottin | Hacker News Reader

Sorry, but something doesn't add up. How is "cheaper credit" created by a collateralized loan exactly?

If you put up your home or property as collateral, you can still own the property will getting lower rates. Similar thing with the Dai loans I am describing there.

Yes, but it's not quite the same, because both the collateral and the asset being borrowed belong in the same asset class. It's as if you're renting a car but you have to put up the same car that you're renting (only in a different colour) as collateral. It seems a little pointless. Usually, people want to rent a car because they don't have a car. Likewise, they want to borrow money, because they don't have money.

Wrong for two reasons:

1. There is no restriction that the asset being borrowed and the collateral are in the same asset class - loans can be extended based on whatever criteria the DAO in charge of the Dai votes on. There are a number of loans backed by real property investments in the US, see [0] under RWA. There are a number of loans also backed by large holdings in US bonds.

2. Dai is pegged to the dollar. It can be instantly exchanged with the dollar at a number of onramps. It is not equivalent to holding volatile crypto like ethereum.

[0]: daistats.com

Okay, these loans that are backed with real world assets are just traditional finance right? We were discussing loans that are granted automatically to anyone without requiring an approval, remember:

> How I can take out a collateralized loan, anywhere in the world, without having to ask for approval?

Is it traditional finance if it is a backing loan for dollar-pegged assets that can be held by anyone in the developed world (ie. rather than rely on your rapidly decreasing Naira - buy some Dai from a local dealer and you have a stable store of value backed by a global basket of assets)? And if the entities granting the loans are anonymous decentralized collectives?

I agree that the overcollateralized loans backed by crypto are less useful unless you want to be investing crypto, which is what I mentioned at the beginning of my comment. I am not the commentator who said the thing about anywhere in the world without approval.

A loan agreement that is enforced by courts of justice is traditional finance certainly.

Loans in decentralised finance use smart contracts, instead of relying on the legal system.

> Loans in decentralised finance use smart contracts, instead of relying on the legal system.

Code over law.

And what I was pointing out is that there is a use-case for crypto. DeFi.

> It's as if you're renting a car but you have to put up the same car that you're renting (only in a different colour) as collateral.

Huh? That confused the heck out of me. How would you get the same car that you're renting in a different color?

The same model. Or a different model, but one that is worth the same in the market.

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