[nahollander]

Hey HN! We're the team behind Dharma protocol, building the infrastructure for the tokenized debt agreements on the Ethereum blockchain. In this code school, we teach you how to build a loan collateralized by a CryptoKitty. We hope you enjoy! If you're interested in learning more visit us at dharma.io or join our chat.

[SkyMarshal]

This is a clever idea. I've long been skeptical of debt on blockchains b/c there aren't good means of enforcing repayment without resorting to trusted irl/off-chain components, and then why bother doing it on chain in the first place.

But collateralizing with digital assets created on-chain is a really interesting approach, obvious in hindsight, but perhaps requiring the prerequisite of real implementation of unique collectible digital assets that retain value. Collateral can be cryptographically locked up and payment enforced in the event of default, all trustlessly. Are you guys the first to do this or are there any others doing this too?

[bpforster24]

Your first point is well taken - without some sort of identity layer on the blockchain to create either social or reputational accountability, unsecured loans probably will not flourish.

Regarding you second comment, what's cool is that we can collateralize not just collectibles, but any ERC20 token as well, which makes the protocol substantially more attractive.

[mbrock]

The MakerDAO system (which I contribute to) issues a token called dai against Ethereum token collateral. The dai token is meant to have low volatility measured against fiat money.

There's roughly 9 million USD worth of outstanding dai tokens at the moment, all representing a form of debt to the MakerDAO system with ETH as collateral.

The first version uses only ETH as collateral, with a high degree of overcollateralization. The next version is supposed to use different collateral types.

One interesting type of collateral is tokenized gold, as will be issued by the Digix project.

[stanleydrew]

Couldn't you just collateralize with blockchain tokens themselves? Why do you need on-chain "unique collectible digital assets that retain value"?

[foota]

Probably because collateralizing with the thing your borrowing is kind of pointless, yeah?

[arcticfox]

I agree, but isn't the point of borrowing against collateral that you have some utility from the collateral (e.g. a car you drive, a house you live in, part of a business you own) while you carry the loan?

If these crypto "assets" like Kitties are rather unfungible for crypto "coins", then I suppose it would make sense, but then I'd be confused why the lender would accept the collateral.

[SkyMarshal]

>but isn't the point of borrowing against collateral that you have some utility from the collateral (e.g. a car you drive, a house you live in, part of a business you own) while you carry the loan?

Close, you can abstract "utility" one layer higher to "demand", or more accurately demand relative to supply. The thing you collateralize needs to be in demand by enough people to ensure it remains valuable over at least the life of the loan, but realistically much longer (so the lender is assured it will always be perceived by the market to have current and future value over any period during which the lender may need to reposses and resell the collateral). Utility gives things value which gives them demand, but it's really the demand that matters. There must always be a ready buyer for the collateral. Scarcity, like with Cryptokitties, gives things value too (rationally or not, but welcome to the human race).

[hathathat]

Borrowing against collateral means the lender has something to seize if you fail to pay them back. The more valuable the collateral, the more money the lender will recover when they repossess and sell the collateral. This likelihood of recovery (if you default!) may make them willing to lend you more money, or give you a better interest rate.

[stanleydrew]

Oh yeah. I guess I assumed the thing being borrowed was off-chain (dollars, e.g.). My mistake.

[bpforster24]

I'm on the Dharma team with Nadav, and happy to shed some insight here.

So we think a really interesting use case in the short term is margin lending of crypto assets. Say you have 10 ETH and want to short-sell a different ERC20 token. You could lock up your ETH as collateral in a loan denominated in the other token, and then sell those tokens. If those tokens depreciate in value vs. ETH, when you buy back the tokens you'll have made a profit.

[foota]

Interesting, so something like:

I get a loan for 20 magic bean coins, secured with 1 eth when the exchange rate is 20 magic bean coins for 1 eth. (Do I have to pay interest on this? Do I forfeit it at some point? Iiuc Dharma seems to be just a framework for setting up these schemes, so this might be controllable by the person creating the eth-mbc loans?)

Then I sell my 20 magic beanstalk coins for 1 eth.

A week later, magic beans have massively depreciated because there was a critical vulnerability discovered, code-named GIANTS and now I can get 40 magic bean stalks for 1 eth.

So I sell 0.5 eth for 20 bean stalks, and use that to pay off my loan?

[foota]

I was thinking the other day about a service called Verifier that could be implemented with something like this.

Verifier would allow a person to take a token of some sort from a website, and send some eth to the Verifier. Now the service knows that the person has put in some stake, and can grant them an account (this is as a sort of abuse protection).

If the person wants they can take their money back, but the website can find this out and cancel the person's account.

[thisisit]

I have question on this tutorial - How are you ensuring the value part of the equation. Lets say I own one of the cryptokitties worth $100k:

https://www.cnbc.com/2017/12/06/meet-cryptokitties-the-new-d...

What happens if the cryptokitty loses 10% of its value? And how does the contract know this loss in value?

[meri_dian]

Hi, let's say someone wanted to work at dharma.io. What sort of Ethereum skills would you look for?

[SkyMarshal]

https://dharma-labs.workable.com/

[mempko]

In fiat money systems, banks create new money when they make a loan. If you take a loan from a non bank entity, they clearly can't make new fiat money, so money supply stays fixed. My question is, should these loans be interest free? Because if they are not, there is an obvious systemic issue of economic musical chairs...

Or is the idea these contracts live within the broader fiat systems? I suppose you can use a crypto currency with a growing money supply.