What is the point of collateralized loans ?

chaoscoinz

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Quote from: spy100 on January 16, 2021, 08:32:41 PM

Let's say i have 1000 USDC

Step 1 i deposit it ( gas fee is taken + approve fee i think )
Step 2 i set it as collateral ( gas fee is taken )
Step 3 now i want to borrow 700 DAI ( APY 12.82% ),i click on it
Step 4 approve ( gas fee is taken )
Step 5 Around 650 DAI is sent to my address ... 50 usd lost in fees

What's the catch ? I just lost money... How can you make money from taking this type of loan ?

Disclaimer: "Not financial advice, just an opinion"

The voice of wisdom often falls upon deaf ears, but here goes nothing! Collateralized loans are good, simply because it provides the less fortunate who would otherwise be turned away, to acquire an easy low interest loan, at any given time, with no bank or centralized authority to cancel you out.
On top of that, some loan platforms provide governance tokens (cryptocurrency), all you would have to do is put 2 + 2 together and profit.

posi

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Quote from: whyrqa on March 02, 2021, 09:06:43 AM

At least everyone knows that a secured loan can be obtained without any problems, and in this situation, not only the lender, but also the borrower gets an advantage.

The borrower and the lender always get advantages but the op doesn't understand the advantage of collateral loan aside the profit making it also give the borrower the chance to keep his precious holding while he borrows another particular he needed to trade or making an optimistic investment.

whyrqa

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At least everyone knows that a secured loan can be obtained without any problems, and in this situation, not only the lender, but also the borrower gets an advantage.
But I would like to point out the fact that banking institutions, without any particular fear, issue loans to people who can offer something valuable on collateral or provide a solvent guarantor.

Mauser

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I think the main point behind collateralized loans is too make them cheaper. The interest rate is much lower if there a collateral behind the loan than if there isn't one. The borrowers incentive to default on a loan is much lower if he loses the collateral than otherwise. To be honest it is very hard to get a loan without collertal. Because even your monthly salary will be viewed as collateral by the lender.

RealMalatesta

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Quote from: Tytanowy Janusz on February 09, 2021, 03:46:34 AM

No one is borrowing 8k doge using 10k doge as collateral.

Haha you are right and if they do, the lender should ask, are you okay? LoL Grin

.

Borrowing the same coin after putting the coin in collateral is like you ask someone to please hold his water bottle and then ask for a sip of water from the same bottle.

Quote from: Tytanowy Janusz on February 09, 2021, 03:46:34 AM

You could get USDT loan using doge as collateral and buy more doge with this usdt and earn on pomp but again... You are not earning on loan here. You earn thanks to your decision to invest USDT into DOGE. You earn because you exposed your money to currency risk and not by borrowing money.

I will try and simplify for people who are still confused. Let's consider an example:

You had 10k doges and you took a loan of $400 (considering the market price was 5 cent per doge and usually 20% additional value of collateral is put to get loans, so you put $500 worth of collateral and took $400).

Now you get $400 from which you bought another 8k doges and the value of doge coin reaches from 5 cent to 8 cents, imagine. You sell the 8k doges and you get $640 if my maths is working fine.

Now you pay back your loan and you earned ($240 - interest) profit. That's how it goes.

tippytoes

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Quote from: CarnagexD on February 27, 2021, 01:36:41 PM

There's none. It's literally made for people desperate enough to let themselves in the hellish trap that is collateralized loans. Imagine getting less than what you want to borrow and then still having to pay the whole amount as if they just didn't took a fee out of the blue. So never ever take collateralized loans unless you want to play life in hard mode.

I am not a fan of such platforms also. Instead of making your life easy, it will give you headache instead. If you have the money in the first place, I think the better thing to do is just be contented for what you have and just make use of it. Instead of borrowing and giving it as a collateral loan. You may end up losing all your money, if you can't pay them on time. There will be more problems that may arise if you forgot your responsibilities as a borrower. As you implied, they will make your life difficult instead of alleviating your financial problem.

CarnagexD

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There's none. It's literally made for people desperate enough to let themselves in the hellish trap that is collateralized loans. Imagine getting less than what you want to borrow and then still having to pay the whole amount as if they just didn't took a fee out of the blue. So never ever take collateralized loans unless you want to play life in hard mode.

skarais

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Quote from: YOSHIE on February 13, 2021, 09:16:53 AM

You mention all the costs and inputs that occur on the loan, it will happen.

Back to the question point, "income" depends, what you borrowed for.
Loans are divided into many categories.
• personal needs loans.
• investment loans etc.

Well, here are two options that can be answered, loans, if you use that money to buy Bitcoin at a low price of 1-2 months, because you sell Bitcoin when the price rises, the loan is returned, otherwise your risk.
the profit you get, you can use it again to invest, that's how to make a loan.
One more thing, if you use it for personal needs, you automatically have to look to cover the loan, without income.

For this type of loan for investment purpose, in my opinion it will only increase the risk of bad loan. The main thing that concern me is price fluctuation, which can make it difficult for borrowers to pay off overdue loan. It is not advisable to borrow a certain amount of fund just to invest in crypto, if it were me then I would never have done it. Even though there is an opportunity to make a profit, I think borrowers often have problem repaying loan.

Loan for personal need are only more realistic to do even though we have to pay a certain amount of interest when paying it off. Even though I have to get some money out of my pocket when I pay, at least I can still avoid bad loan.

hopenotlate

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Purpose of giving a collateral to get a lon is quite simple and logic and works the same way in crytpo or real life provider : lets say you have something valuable you worked hard for and don't want to sell ; when you need some money for real life needs, businesses deals or whatever the needs might be you can borrow them from other poeple/banks/providers or cryptoservices ( like smartcredit.io am currenlty advertising in my signature).
Your collateral protect the lender from the risk you deafalt on your loan and you will have it back when you repay your loan because you value it more that its monetary value.

Profiting from borrowing? You can do that in case yuo have a businesses opportunity that gives you a return higher than the interest you have to pay on your loan.

Jemzx00

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Quote from: YOSHIE on February 13, 2021, 09:16:53 AM

Quote from: spy100 on January 16, 2021, 08:32:41 PM

How can you make money from taking this type of loan ?

You mention all the costs and inputs that occur on the loan, it will happen.

Back to the question point, "income" depends, what you borrowed for.
Loans are divided into many categories.
• personal needs loans.
• investment loans etc.

Well, here are two options that can be answered, loans, if you use that money to buy Bitcoin at a low price of 1-2 months, because you sell Bitcoin when the price rises, the loan is returned, otherwise your risk.
the profit you get, you can use it again to invest, that's how to make a loan.
One more thing, if you use it for personal needs, you automatically have to look to cover the loan, without income.

Agreed you can't always make an income when loaning. First of all, when loaning crypto or any money, you are guaranteed to have a negative balance on you no matter if you have a collateral provided.
Just as Yoshie explained, you can make an income if you loan for investment reason which have a guaranteed return because if not, then you're just like gambling with no way of knowing if you lose and broke or win and multiply your earnings.
Collaterals are there for safe keeping for the borrower to make sure their money is safe in case any default has happened.

YOSHIE

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Quote from: spy100 on January 16, 2021, 08:32:41 PM

How can you make money from taking this type of loan ?

You mention all the costs and inputs that occur on the loan, it will happen.

Back to the question point, "income" depends, what you borrowed for.
Loans are divided into many categories.
• personal needs loans.
• investment loans etc.

Well, here are two options that can be answered, loans, if you use that money to buy Bitcoin at a low price of 1-2 months, because you sell Bitcoin when the price rises, the loan is returned, otherwise your risk.
the profit you get, you can use it again to invest, that's how to make a loan.
One more thing, if you use it for personal needs, you automatically have to look to cover the loan, without income.

Tytanowy Janusz

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Quote from: justdimin on February 09, 2021, 03:27:07 AM

Quote from: Tytanowy Janusz on February 08, 2021, 03:33:30 AM

You need to go to wikipedia and read the definition of "profit". The loan did not benefit the borrower in this situation. Exposure to currency risk of the token you hodl and used as collateral gives you profit, not laon. You borrowed 10 000 doge and get 10 000 doge -fee, where you see profit here?

The "idea" (which I agree is stupid but there are so many that does it) is the fact that you could potentially do it twicefold if you can actually find a legit place for it. Basically it means that you have 10k doge, and you get 10k doge more with it, and if you can somehow get it in fiat terms, that means you paid for 10k doge price at that point, let's say it is 760 dollars you paid for, and you have to pay back 800 dollars with interest, or even 900 dollars doesn't really matter for this example.

The idea is that if you paid 760 bucks for 10k doge and bought that, and also showed that as collateral and got another 10k doge for 760 dollars or all your doge will be gone, that means if you lose money, it will be paid from your own dogecoins, however if you earn money, let's say doge goes up and now 10k doge worths 1000 dollars, you will be paying 760 of that back, plus interest, whatever is left is your profit on top of that 10k you already owned. Of course this rarely happens anywhere, they are all weird type of loans.

Well... iamsheikhadil needs to learn the definition of "profit" and You need to learn how loans work and ... the definition of "profit". No one is borrowing 8k doge using 10k doge as collateral. This does not make sense. And even if you will do it, you will not earn more thanks to that even if doge will pump. You will give back 8k doge, get back your 10k doge and where is your profit here? You had 10k doge before loan, you have 10k doge now.

You could get USDT loan using doge as collateral and buy more doge with this usdt and earn on pomp but again... You are not earning on loan here. You earn thanks to your decision to invest USDT into DOGE. You earn because you exposed your money to currency risk and not by borrowing money.

There is no way to earn on getting loans. You can earn using borrowed money well.

justdimin

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Quote from: Tytanowy Janusz on February 08, 2021, 03:33:30 AM

You need to go to wikipedia and read the definition of "profit". The loan did not benefit the borrower in this situation. Exposure to currency risk of the token you hodl and used as collateral gives you profit, not laon. You borrowed 10 000 doge and get 10 000 doge -fee, where you see profit here?

The "idea" (which I agree is stupid but there are so many that does it) is the fact that you could potentially do it twicefold if you can actually find a legit place for it. Basically it means that you have 10k doge, and you get 10k doge more with it, and if you can somehow get it in fiat terms, that means you paid for 10k doge price at that point, let's say it is 760 dollars you paid for, and you have to pay back 800 dollars with interest, or even 900 dollars doesn't really matter for this example.

The idea is that if you paid 760 bucks for 10k doge and bought that, and also showed that as collateral and got another 10k doge for 760 dollars or all your doge will be gone, that means if you lose money, it will be paid from your own dogecoins, however if you earn money, let's say doge goes up and now 10k doge worths 1000 dollars, you will be paying 760 of that back, plus interest, whatever is left is your profit on top of that 10k you already owned. Of course this rarely happens anywhere, they are all weird type of loans.

Tytanowy Janusz

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Quote from: iamsheikhadil on February 07, 2021, 10:42:52 AM

Not really, getting loans by using crypto as collateral can actually benefit the borrower in tremendous ways. A few days ago, Dogecoin was at 0.01$ I guess? Let's say I had 10000 dogecoins, which is equal to 100$ that time. If I use doge as collateral and got myself a $80 loan in USDT or fiat, and let's say I have to repay $100 after one month. But in this mean time, Dogecoin pumped up to 0.07$ (7 times!). After a month I return the $100, and get back my dogecoin worth $700 now!

You need to go to wikipedia and read the definition of "profit". The loan did not benefit the borrower in this situation. Exposure to currency risk of the token you hodl and used as collateral gives you profit, not laon. You borrowed 10 000 doge and get 10 000 doge -fee, where you see profit here?

iamsheikhadil

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Quote from: Tytanowy Janusz on January 17, 2021, 05:17:31 AM

Earn .... from ... loans ...
Once again
Earn .... from ... borrowing money
You get it? No where in the world you will be able to earn on borrowing money from other person. Its the person you get a loan is earning on you ... No matter what you loan and when and how the value of this asset is changing. You always have to pay what you borrowed + fees. Whats the point of collateralized loans than? Just like in real world. Its all the usages you can have form loan. You need a car? You loan money from bank with your hose as a collateral. You earned on this? No, but you have a car that you can use. You borrowed USDT using ETH as collateral? You have now USDT that you can use to buy other crypto (leverage your portfolio) You borrowed BNB using ETH? You can now use it for lauchpools, lauchpads etc. You want to use product of company that requires you to own a token for premium account but you don't want to be exposed on currency risks? You borrow it for USDC.

Not really, getting loans by using crypto as collateral can actually benefit the borrower in tremendous ways. A few days ago, Dogecoin was at 0.01$ I guess? Let's say I had 10000 dogecoins, which is equal to 100$ that time. If I use doge as collateral and got myself a $80 loan in USDT or fiat, and let's say I have to repay $100 after one month. But in this mean time, Dogecoin pumped up to 0.07$ (7 times!). After a month I return the $100, and get back my dogecoin worth $700 now!

aesma

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The example in the OP doesn't make sense, borrowing a stablecoin with another stablecoin as collateral.

The idea behind a collateralized loan is to keep your collateral because you think it will gain in value long term, so let's say bitcoin. And you borrow dollars that you need right now. It's not a way to make money, it's a way to get dollars from your bitcoin, without having to sell any bitcoin.

Now I know that people advertise using borrowed funds to "invest" in high yield defi projects, even doing this in a cascade, but to me it looks like Ponzi schemes, and thus very risky.

Even the initial loan is risky, because all these DeFi companies are fairly new, and might not last that long...

Webetcoins

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Unfortunately that has been a thing for years, people always asked "if I am giving 120 dollars worth of ethereum to get 100 dollars worth of litecoin, what is the point of this?".

Back in the day that was for double down on the price, because you did with crypto prices and not fiat prices, which means if you pay 120 dollars worth of ethereum and get 100 dollars worth of litecoin, and if all those coins increase 50% that means you now have 240 dollars worth of ethereum and 200 dollars worth of litecoin but pay back once again 100 dollars worth of litecoin anyway, so you end up with 100 dollars extra income. That was the reason people took out loans in crypto form with collateral.

However these days there are so many things going on with the world that I can't even say what is with these new tokens that deal with lending, they are doing all kinds of new things I can't catch up.

faulkner27

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Collateral is an item of value used to secure a loan. Collateral minimizes the risk for lenders. If a borrower defaults on the loan, the lender can seize the collateral and sell it to recoup its losses. Other personal assets, such as a savings or investment account, can be used to secure a collateralized personal loan.

barbara44

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It is actually useless when you have stable coins as collateral, I kind of agree on that. But when you have a coin which you believe will see a hike in the prices soon and hence you don't want to sell them that is where these loans help a lot. I will try and explain with an example.

- You have 10k TRX and you need a loan of $100.
- Now you have a feeling that TRX might jump from 3 cents to 10 cents in the next couple of weeks.
- You can just put your TRX as collateral and ask for loan
- Once you repay the loan you get back your coins in TRX so if the value increases you gained profit while still having your loan request completed.

You can do the same on Binance too if I am not mistaken as they allow you to borrow money, not exactly how sure how it works but I read somewhere about it.

Twentyonepaylots

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The only reason it's not making sense now, at least personally, is because of the ridiculous gas fees of Ethereum. It sometimes even outweighs the price of what you're cashing out. In paper, collateralized loans work well, you take a loan, you use the loaned money for trading or to gain profit basically, you pay the capital and keep your profits. Until gas fees came.

Topic: What is the point of collateralized loans ? (Read 580 times)