[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?

[bpforster24]

Yeah that's essentially right. The only modification I'd make is in your last step, what'd you need to do is buy back the magic bean coins (because you owe them to someone else). So you you wouldn't "sell 0.5 eth for 20 bean stalks", you'd buy 20 bean satlks for 0.5 ETH. You'd then pay back the loan, at which time your 1 ETH of collateral would be released back to you. Now you'd have 0.5 ETH in profit from selling magic bean coins high and buying low, as well as your original 1 ETH.

Regarding your parenthetical questions: 1) yes, you'd pay interest on this. you'd negotiate this interest rate with the person lending you the magic bean coins 2) yes, there are a couple scenarios where you'd forfeit your collateral: a) if you were wrong, and the price of magic bean coins appreciated beyond the value of your collateral; b) if even if you were right and the price depreciates you forget to pay back the loan 3) that's correct, Dharma is just the protocol for the creation of the loans, so the terms of the loan would be determined by the constituent parties (the borrower, lender, and underwriter)