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0 pointslatchkey2y ago0 comments

A complaint about crypto is that it is too volatile to hold. If you can hold AND put at least some of it (up to your comfortable collateralization ratio) to work through lending it out (and borrowing against it), then that can offset the volatility.

What you do with the borrowed funds is up to you and there are an endless stream of possibilities. One example is to re-lend out again for additional interest. Interest arbitrage is a way to make your existing capital, work for you.

Lend BTC +1%, Borrow ETH -3%, Stake ETH +5%. 2% profit on the ETH and 1% on the BTC. Of course, you could then sell the profits for say, USDC, which you can then lend out again (~4%) or use to pay your bills or drug habit or whatever...

At the end of the day, this is what banks do with your funds. But instead of giving them the vast majority of the interest, why not take the interest yourself?

Larger picture, I personally see this as the opposite of credit cards, which are a blight on society [0]. People go into debt that they may or may not be able to pay off in the future. Why not reverse that and teach people to not spend more than they can pay off (collateralized loans)? You're punished with liquidations instead of stupid high interest rates.

[0] https://www.cnet.com/personal-finance/credit-cards/americans...

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lottin2y ago

If the amount that you borrow is the same amount that you lend, both amounts cancel out. Your net investment position is zero. As I see it, you can't do anything you the borrowed funds because you haven't borrowed any funds. You have the same funds that you had before taking the "loan".

latchkeyOP2y ago

No. Here is an example:

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.

lottin2y ago

I don't think this is correct. Let's say you have one bitcoin. Your funds available for spending are $27,000 (we're assuming bitcoin has perfect liquidity, for the sake of the argument). If you borrow $13,500 against your bitcoin, your funds available for spending are now $13,500. So, less than what you started with. This isn't a loan. A loan increases your funds available for spending, not decreases them.

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0 pointslatchkey2y ago0 comments

At the end of the day, this is what banks do with your funds. But instead of giving them the vast majority of the interest, why not take the interest yourself?

[0] https://www.cnet.com/personal-finance/credit-cards/americans...

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lottin2y ago

latchkeyOP2y ago

No. Here is an example:

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.

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.

lottin2y ago

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