undefined | Better HN

0 pointsmannykannot8y ago0 comments

I have not figured out how this would solve the problem of on-blockchain debt:

"If the funds used for coupon payments are controlled by the bond's smart contract, then those payments can indeed be guaranteed. But this also means those funds cannot be used by the bond issuer for anything else. And if those funds aren’t under the control of the smart contract, then there is no way in which payment can be guaranteed.

In other words, a smart bond is either pointless for the issuer, or pointless for the investor."

0 comments

3 comments · 1 top-level

runeks8y ago· 2 in thread

> I have not figured out how this would solve the problem of on-blockchain debt

There really is no problem, unless you have unrealistic expectations as to what a blockchain can do.

There’s essentially no difference between lending a company money, with which it purchases machinery, and lending this machinery directly to the company. Believing a blockchain can ensure that when I lend you my car (a form of machinery) I will get it back without a scratch, is simply unreasonable.

mannykannotOP8y ago

I don't know if you have a valid argument in general, but your specific example seems to be a bit off the mark. If I buy a conventional bond issued by a company and hold it until term, and the company does not default, I am owed coupon payments and a return of the principal. I am taking interest-rate, inflation and default risks, but not depreciation.

I expect an on-blockchain contract would have to allow for default (which I suppose it could, given a way to signal external events.) Currently, of course, this is handled through negotiation, arbitration, or ultimately the bankruptcy courts. It would certainly seem unrealistic to expect that to be replaced by smart contracts anytime soon.

runeks8y ago

You’re right. Only if we ignore depreciation of capital goods are the two examples equivalent.

But I was trying to convey the fact that money is just a replacement for physical goods, such that if the lender doesn’t purchase something with the lent funds, the loan would be meaningless. And as soon as the lender spends the lent funds, there’s a risk that it won’t be able to recover this cost. In other words, riskless credit makes no sense, since the presence of risk is why there’s a potential return for the lender in the first place.

j / k navigate · click thread line to collapse