[TekMol]

How can this make sense? If the collateral is X, then the borrowed amount (Y) has to be less then X. Why lend anything in the first place, when that means you can only spend Y while otherwise you could have spent X which is more?

[songeater]

Say I own 1 bitcoin at $10k/BTC. I want to go buy a mining rig for $5k. I could sell 0.5BTC and buy the rig. BUT, I believe that BTC is going to $20k, and I don't want to sell. So I go to person X and say lend me $5k against what is currently $10k of BTC. He has 2x collateral coverage... so he makes the loan. if BTC falls to $7500, he may have the option to sell and recover his loan. I get my money so I can create more "money" out of thin air (or rather electricity and metal). When BTC goes to $20k I am rich. RICH.

[onecooldev24]

This can easily be done on CME futures market, we don't need dharma for this. Futures can be used in multiple ways to swap inherent volatility with a fixed stream of return.

[matte_black]

What happens if after immediately getting his $5k BTC I buy a sweet rig for $15K BTC and the price of bitcoin drops to $4k?

I guess I can’t spend the collateral in the first place?

[anilshanbhag]

This can happen on the stock market too. When bitcoin drops to around $5k, you get margin called and bitcoin will get sold on the open market.

[nahollander]

This happens quite regularly in the world of margin trading.

Imagine the following:

1. I own ETH, and want to hold my ETH position so I can enjoy price increases, but I need liquidity to live my day to day life and, well, it's hard to pay for things with ETH. 2. Instead of selling ETH and exiting my position, I put ETH up for collateral and borrow a stable-coin (like DAI) against it. That way, I maintain my price exposure to ETH, but have liquid cash to use for my day-to-day needs.

[TekMol]

Oh! So this is not about lending buying power. But about lending in the context of betting on currencies.

A lends 10 Xcoins to B. B puts 11 Ycoins into escrow. A will either get back 11 Xcoins or 11 Ycoins.

If Xcoins rise in price relative to Ycoins, B is happy and A is sad.

If Xcoins fall in price relative to Ycoins, B is sad and A is happy.

[matte_black]

And if you don’t use coins for day to day living expenses?

[cortesoft]

You could cash out the borrowed coins for cash.