What is the point of collateralized loans ? - page 2.

Tytanowy Janusz

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Quote from: disconnectme on January 24, 2021, 12:32:04 PM

There is no doubt the gas fee is making innovations for Ethereum Dapps o stall, but you say all these because of the amount involved in the transaction, assuming you are well capitalised this won't be an issue for you, I have paid $20 for $100 transaction before that was when I believe Ethereum will likely self destruct if it can't solve it scaling issue this year because we now have some promising L1 with better transaction speed

In most cases better transaction speed = lower decentrealization. Its impossible to cheat math.

I think that when it will become a real deal devs will impement second, semi-centralized layer that will offload main network immedialty. You will have an option to go on main chain for 10$ or on side-chain for 0.1$. With 100$ transaction you will chose semi-centralized option with 10 000$ you will go with main, more secured, decenteralized chain.

disconnectme

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There is no doubt the gas fee is making innovations for Ethereum Dapps o stall, but you say all these because of the amount involved in the transaction, assuming you are well capitalised this won't be an issue for you, I have paid $20 for $100 transaction before that was when I believe Ethereum will likely self destruct if it can't solve it scaling issue this year because we now have some promising L1 with better transaction speed

error08

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Quote from: spy100 on January 17, 2021, 05:27:10 AM

Quote from: jackg on January 16, 2021, 10:44:22 PM

Are you expecting free money?

If the value drops by 1/3 from your crypto to collateral asset, your collateral is sold on a dex afaik too.

So what's the point of collateral loan then ? If i can't use it for hedging ...

The point of collateral is for hedging, that's why money lenders required to have a strategy to avoid losses, from assessing a guarantee, a time limit, to the risks that may arise.
A stable coin such as USDC may be one of adequate collateral for the lender due to the value relatively stable compared to bitcoin and altcoins. Then, what is the problem? collateral is a must as a legal bond between both parties.
Nevertheless, take a loan probably not a good idea, why not exchange usdc into bitcoin or eth directly without having to burn the money for paying fees?
if the value of eth or btc increases, no need to pay the interest as well, you can take 100% profit, or vice versa.

redsun114

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Quote from: Hydrogen on January 22, 2021, 06:16:39 PM

On the surface, I don't see a massive difference between home owners taking out loans, using their house as collateral. And using cash or crypto as collateral. Liquidity is the main difference, obviously. There is collateral with typical fiat loans, its only structured differently.

Another idea for how this could work.

Crypto used as collateral in a loan may not be as taxable an asset, as crypto held in typical capital gains scenarios. Your $1,000 in collateral could become free from taxation?

I would guess there is a loophole or angle somewhere that could make this worthwhile from a financial perspective. The only question is where.

On the investment side of things you are right, if you are going to make an investment there is absolutely nothing different at all, it is basically the same thing. However if you want to buy a house, you can't get a crypto loan because .. well you have to pay a collateral and get money which will not get you to a house.

In real world you have a salary, and you show your salary as a proof that you will pay it back, and you get let's say 100k loan and buy a house and pay your mortgage with your income without paying anything at all, you are out of zero amount from the start, you just pay it monthly, you can't do that in the crypto world with a crypto collateral.

However if you want to invest, this is about the same in fact I have seen multiple business loans the same way, there was a constructor who wanted to built a home, he put 3 million dollars into bank account, took out 9 million dollars loan, spent that 9 million dollars without touching his 3, built those big buildings and paid the loan back. Same stuff here as well.

Broly46

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Not everyone is born equal, you won’t take the loan, but there is desperate enough people who would fall for that, you know time is very bad, people would need money to buy food, some people are dealing with buy food or save money everyday, whether they die from poverty or they buy food with loan, you see this is how credit card flourish and charging extreme rates. Go on to Twitter, you see plenty of desperate people taking loans.

KennyR

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With the collateralized loans we're providing security with some form of collateral. Loans are always high risk involved, when it comes to cryptocurrency the risk is even high. This is all because of the high Volatility. Whenever you get loans in cryptocurrency you'll receive in terms of USDT or against any of the stablecoin.

You get a loan of $2000 when the price of an ethereum is $1000 and now what you have is high. Same if the price of ethereum has gone down, you're supposed to pay more than what you've got. Apart from this you need to pay the interest. In such a way loans in terms of cryptocurrency is profiting as well as have high risk.

Taskford

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The only benefit you can get for getting loan is it will relieve your worries for short period of time, remember taking loan is quite relief to us especially when we need an emergency money for certain use. If we talk about getting benefit on it in terms of profit well no if you spend it on nonsense thing, but if we take a loan for something good like using it for good profitable business and other things well maybe even if you collateralized your car,house or any valuable asset still this is a good choice to be made since those can be called as healthy loan.

Karartma1

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Quote from: yhiaali3 on January 23, 2021, 02:29:03 AM

I think that there is no material benefit from loans, I mean that you borrow when you do not have enough money to buy something but you have the guarantee. The guarantee may be a real estate, a car, or a friend’s guarantee. In the end, you buy what you want and then after that you have to return the loan + fees, this can be a single payment or in installments.
This is similar to loans in real life, so you cannot profit from the loan, all you can gain is speed up getting something that you cannot buy with the capital that you have, but in the end you are a loser because you will pay the loan + fees.

Taking out loans which have crazy LTVs as we speak it's not a good idea.
https://www.investopedia.com/terms/l/loantovalue.asp
Bitcoin and other cryptocurrencies have wild price oscillations and I would probably never rely on a collateralized loan that stands on these shaky foundations. There are some market conditions in which you could be lucky but then it's like gambling out money.
If you would have taken a loan in March 2020 with 1 btc that would have repaid what you have asked and more; while if you opened it at $42000, today you might have a big problem.

yhiaali3

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I think that there is no material benefit from loans, I mean that you borrow when you do not have enough money to buy something but you have the guarantee. The guarantee may be a real estate, a car, or a friend’s guarantee. In the end, you buy what you want and then after that you have to return the loan + fees, this can be a single payment or in installments.
This is similar to loans in real life, so you cannot profit from the loan, all you can gain is speed up getting something that you cannot buy with the capital that you have, but in the end you are a loser because you will pay the loan + fees.

shoreno

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usdc is stable coin same as usdt ? so thats 1k dollars , why not convert it to fiat instead of depositing it as colateral to borrow money ? in short , dont borrow money when you still have money because that just doesnt make sense in my own honest opinion .

i only borrow money when i dont have anything in me and as a borrower i will agree on any terms that a lender require but if i dont like the first few offers i saw , i will look for more better offers . in which platform was that op ? that looks like an abuse of fee , thats too much

exstasie

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Quote from: Hydrogen on January 22, 2021, 06:16:39 PM

On the surface, I don't see a massive difference between home owners taking out loans, using their house as collateral. And using cash or crypto as collateral.

The main difference is an underwater mortgage won't, by itself, cause foreclosure. As long as you make your payments on time, you can retain your equity position. Defi loans are much tougher on borrowers. If they can't add more collateral out of pocket during market declines, they risk liquidation.

Both examples expose you to market risk, but Defi loans are closer to margin trading, both in terms of equity volatility and liquidation risk.

Quote from: Hydrogen on January 22, 2021, 06:16:39 PM

Crypto used as collateral in a loan may not be as taxable an asset, as crypto held in typical capital gains scenarios. Your $1,000 in collateral could become free from taxation?

Yes, good point. That is assuming your collateral isn't liquidated, and that you're repaid with your original collateral and not another token:

https://tokentax.co/guides/defi-crypto-tax/

Hydrogen

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Quote from: Tytanowy Janusz on January 22, 2021, 02:51:19 AM

Quote from: Hydrogen on January 21, 2021, 04:02:13 PM

Loans normally require collateral. Proof of income, co-signer, etc.

[...]

Its more like staking $1,000 to earn $1,600 long term. (Albeit with low efficiency and high fees)

Might that be a fair description?

Completly wrong.

"Loans normally require collateral. Proof of income, co-signer, etc."

Loans normally require collateral .. true ... but in real world no one is taking a $$$ loan giving euro as collateral. People are giving hard to cash out things that they still need to use like houses as collateral and use $$$ to buy something else. Here we are talking about cash loan for cash collateral.

"Its more like staking $1,000 to earn $1,600 long term. (Albeit with low efficiency and high fees)"

??

This type of loans are being taken only in 2 reasons. When you need token xxx (to use it on platform or to buy something else) and you don't want to be exposed to currency risk of this token or you don't want to be exposed on currency risk resulting from not having token that you used as collateral or to leverage your holdings (and for some reason you are scared of leveraged tokens, margin trading, futures).

On the surface, I don't see a massive difference between home owners taking out loans, using their house as collateral. And using cash or crypto as collateral. Liquidity is the main difference, obviously. There is collateral with typical fiat loans, its only structured differently.

Another idea for how this could work.

Crypto used as collateral in a loan may not be as taxable an asset, as crypto held in typical capital gains scenarios. Your $1,000 in collateral could become free from taxation?

I would guess there is a loophole or angle somewhere that could make this worthwhile from a financial perspective. The only question is where.

Karartma1

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DeFi on Eth is completely broken now. As you said you will lose lots of money in fees only to get your loan. If you are not someone who can make money via those sketchy flash loans there's no point using lending/borrowing via eth platforms right now.
Also, as others have written here, collateralized loans during these heavy market weather conditions are simply crazy.

Mauser

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Quote from: spy100 on January 16, 2021, 07:32:41 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 ?

I think the main point here is to provide security for the lender. The question would also be if you would be able to get a loan if there was no collateral behind it. Also we need to take into consideration what the same transaction would cost with a bank. A bank will never give out a loan as collateral. So if you would take out the money from a bank, there would likely be some form security the bank asks for.

Tytanowy Janusz

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Quote from: Hydrogen on January 21, 2021, 04:02:13 PM

Loans normally require collateral. Proof of income, co-signer, etc.

[...]

Its more like staking $1,000 to earn $1,600 long term. (Albeit with low efficiency and high fees)

Might that be a fair description?

Completly wrong.

"Loans normally require collateral. Proof of income, co-signer, etc."

Loans normally require collateral .. true ... but in real world no one is taking a $$$ loan giving euro as collateral. People are giving hard to cash out things that they still need to use like houses as collateral and use $$$ to buy something else. Here we are talking about cash loan for cash collateral.

"Its more like staking $1,000 to earn $1,600 long term. (Albeit with low efficiency and high fees)"

??

This type of loans are being taken only in 2 reasons. When you need token xxx (to use it on platform or to buy something else) and you don't want to be exposed to currency risk of this token or you don't want to be exposed on currency risk resulting from not having token that you used as collateral or to leverage your holdings (and for some reason you are scared of leveraged tokens, margin trading, futures).

Hydrogen

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Quote from: Tytanowy Janusz on January 21, 2021, 03:53:20 AM

But its collateralized loans man. Its not like you dont have money so you take a loan. Its like you have money but you need different type of money that you don't want to take currency risk from owning one (or not owning collateralized one).

Loans normally require collateral. Proof of income, co-signer, etc.

The $1,000 collateral is returned at the end, when the loan is paid off?

Its not a straight trade $1,000 for $600.

Its more like staking $1,000 to earn $1,600 long term. (Albeit with low efficiency and high fees)

Might that be a fair description?

exstasie

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It only makes sense for speculation, namely crypto vs. USD speculation.

Let's say you're bullish on ETH, and want exposure to its upside. But you also need to raise capital. You could solve both problems by using your ETH as collateral for a USD-pegged loan. After ETH rises in value, the margin requirements on the loan will be lowered. Then you can sell your gains and pay the loan off.

It's essentially a form of margin trading. If you're wrong and the market moves against you, your collateral could be liquidated.

magneto

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You're completely right, but this is why most collateralised loans aren't worth it unless they are

a) Very long term with a sizable amount of interest to the lender and
b) Beneficial to the borrower in the sense that it allows them to trade on margin/derive tax benefits.

For instance, a person why speculates on BTC going up might use their BTC as collateral in a USD-denominated loan. He can then use the USD loan to purchase more BTCs - and if his bet pays off, i.e., BTC prices indeed rally, then the loan size will actually shrink in terms of BTC and thus turning a profit.

Or, consider scenario two where the individual may need short term financial relief but don't want to give up their BTC long/pay CGT on realised profits. Taking out a collateralized loan doesn't incur CGT the same way disposal of assets do in most jurisdictions, which means that people may prefer this venue even if interest/fees are relatively high.

Tytanowy Janusz

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Quote from: Hydrogen on January 19, 2021, 05:51:03 PM

I think its only profitable as a business loan. I'll try to give an example of a common way someone might use this.

$650 DAI is used to purchase a lawn mower.
Lawns are mowed on weekends at a cost of $35
2 lawns mowed per week, times 52 weeks in a year equals 104 mowings
104 mowings times $35 per lawn equals $3640

It can work as start up capital to start a business that earns more money.

...

Here is another example which might be more relatable.

$650 DAI used to purchase a twitch capable gaming rig
Stream on twitch a few days a week to try and make back the loan $$ with profit

But its collateralized loans man. Its not like you dont have money so you take a loan. Its like you have money but you need different type of money that you don't want to take currency risk from owning one (or not owning collateralized one).

Quote from: davis196 on January 18, 2021, 07:16:46 AM

OP is asking about the point of putting your crypto as a collateral and getting a crypto loan,not about earning from crypto loans.

Sure about it?

Quote from: spy100 on January 16, 2021, 07:32:41 PM

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

Hydrogen

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Quote from: spy100 on January 16, 2021, 07:32:41 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 ?

I think its only profitable as a business loan. I'll try to give an example of a common way someone might use this.

$650 DAI is used to purchase a lawn mower.
Lawns are mowed on weekends at a cost of $35
2 lawns mowed per week, times 52 weeks in a year equals 104 mowings
104 mowings times $35 per lawn equals $3640

It can work as start up capital to start a business that earns more money.

...

Here is another example which might be more relatable.

$650 DAI used to purchase a twitch capable gaming rig
Stream on twitch a few days a week to try and make back the loan $$ with profit

Topic: What is the point of collateralized loans ? - page 2. (Read 604 times)