[w_TF]

Defi protocols are incredibly powerful tools; the only thing preventing me from never using a bank again is not being able to pay for goods directly with stable coins. It's obvious the vast majority of people maligning them have never used them.

[latchkey]

Consider this; other countries are more advanced than yours.

While China offered a centralized solution to p2p payments, the concept of paying for everything digitally is already ingrained into their culture. Stable coins are not far off from that.

Instead of getting a "cash rebate" by giving up all of our information to credit card companies (they are making a whole lot more than they are giving back), we should be collecting interest on our holdings and spending it more anonymously. Most people won't need credit when they have collateral. That seems like a more entertaining future.

[hanniabu]

It has nothing to do with digital. We could pay with credit cards and that's digital enough. The issue is the government seizing your assets, banks deciding to freeze your bank accounts, all the gatekeeping, all the rent seeking fees, all the institutional red tape, etc.

For example if I wanted to take out a loan, it'd take me days to weeks, high interest rates, and may not even get approved. With defi I can take out a loan in just a few minutes, no permission needed.

Also put aside your privilege and realize not everyone is in a first world country privy to the banking many take for granted.

[hermes8329]

So you get a loan and what if you just walk off with the cash? What piece am I misunderstanding that has enforcement for repayment?

[shane_b]

Liquidation. Most (all?) crypto loans are collateralized for the concerns you mention. If asset value drops to debt value plus a buffer, it’s liquidated. Someone else pays your debt and gets your assets. To pay back, you simply repay the same amount of the coin you borrow, lowering liabilities.

You get to keep what you borrowed in the case of liquidation but your assets are gone.

[hermes8329]

So why would I bother borrowing some if I already have more that is readily available at my fingertips

[shane_b]

I see your confusion but you don’t have more. After borrow, you have your deposit plus your borrow.

As to why, there are any number of reasons.

- you can avoid capital gains in deposit since a loan is not capital gains. Pay for an expense or start a biz. Anything.

- you can keep your btc while borrowing usd and put it into a yield. 5-20% isn’t uncommon to earn.

- you can buy other coins with the usd to extend your exposure although risky.

- you can borrow any coin, not just usd, as an effective short. Borrow a meme coin and pay back same amount of meme coin later but it’s worth less usd now.

Compare this to say credit card borrowing rates of 20+%. Borrow rates are based on the coin but can be effectively zero.

The why is up to you. It’s just not something that is possible with the regular system because of lock out.

When you use defi for a while, it becomes clear how much the traditional system locks us all out.

I personally deposit usd to get 5+% apy and then borrow for investing or expenses.

[scient]

So you take the money, walk away and someone else pays for it?

[shane_b]

No, you pay for it with your assets. Someone else pays to settle your debt and get your assets.

Example. You have $1000 btc deposited in a lending platform, you can borrow up to 80%. You borrow $800 usd. You keep the usd no matter what. If btc drops to $850 then someone pays $800 (usd debt) and gets btc worth $850. The buffer is so assets never drop below debt value.

[nightpool]

How do DeFi protocols handle loan defaults and repayment? shane_b describes in a sibling comment a scheme where your loan is over collateralized, but that doesn't make any sense—why take out a loan if you already have the money and could just "loan it to yourself" at 0% interest? How do DeFi loaning protocols handle Sybil attacks?

[jollybean]

"It's obvious the vast majority of people maligning them have never used them."

No, it's only obvious that people haven't thought through their supposed solutions.

If all we had was Defi, someone would have this glorious notion of inventing a regular centralized system and we'd all be the richer for it.

Our monetary system works pretty well. Some things are a bit tricky, but otherwise it's fine.

[jsemrau]

The on- and off-ramps into the cryptoverse are still really clunky. But I think we left the point of no return so it will only be a question of time until that is solved as well.