[bpforster24]

I work at Dharma with Nadav and am happy to shed some light here.

Your point is well-taken and definitely a risk. What lenders plan to do, for loans collateralized by crypto, is overcollateralize substantially.

So, for instance, in order to take out a 50k USD loan, you may need to put up 2.5-3x of the value in ETH, say 150K USD worth of ETH. This protects against some of the volatility (though definitely not completely).

[jnordwick]

Why wouldn't you just sell the eth in the first place?

I havent read the whitepaper yet (i will this weekend), but it seems like the collateral is essentially locked up in the contract, so you lose any interest or other opportunity cost.

Even with only current instruments you could synthetically create this loan for cheaper: sell the BTC collateral for USD, buy futures to cover the BTC, invest the unused USD to collect interest..

The problem is that the collateral is locked in the contract and that collateral is another liquid currency.

[runeks]

> So, for instance, in order to take out a 50k USD loan, you may need to put up 2.5-3x of the value in ETH, say 150K USD worth of ETH.

Why on earth would someone borrow $50k if they have $150k on hand?

[manibatra]

I am guessing if the person borrowing believes that the asset that is being used as collateral ( ETH in this case ) will appreciate in value.

[mccoyspace]

Similar to what is required for bitcoin futures on cboe

[whatok]

CBOE margin requirements are nowhere near that. 40-44% depending on what kind of client as of 01-17-18.

http://cfe.cboe.com/margins/cfe-margins