[majormajor]

What? Why?

We're talking about taking out a loan where you don't have 100% of the amount in advance.

You could lose your job, your business could go south, you could ditch for another country and never use whatever bank account or wallet you had your downpayment in again, all those things that are basically currency-independent. Breaking a contract is a people issue, turning paperwork into "smart" code doesn't actually tie a chain around someone's ankle, and it certainly doesn't guarantee their future income.

[rglullis]

> where you don't have 100% of the amount in advance.

This is not what I said. Willing to put 80% on down payment does not mean not having ways to pay things in full.

- You might have the cash, but not interested in becoming totally illiquid.

- You might be interested in getting a mortgage for the tax deductions.

- You might have only the cash the downpayment, but use another property that you already own as collateral.

- You might have only the cash for the downpayment, but you are going to buy the house to rent it.

Point is, with "traditional" finance, you can only do these things if you are negotiating the whole package with the same bank, and this is how they "get" you. If people could actually manage their own wealth, there would be no strings attached.

And let's not even get into the other kinds of issues such as bank's "rules" that seem totally reasonable but end up making the life of marginalized groups more difficult.

[majormajor]

Ok, so a secured loan? Those exist, sure. What does crypto get you in most of those cases?

In the "all I've got is a million bucks in gold I stole from a vault and can't show a paper trail" case: I don't care. Not a valuable use case for me. That reason alone doesn't move the needle on crypto for me.

In other cases: seems like you're gonna have an easy time getting a loan. lending to people who don't need it is the easiest sort of loan to make.

(In most of these cases, e.g. multiple properties or non-liquid assets, I'm not sure why I want to put down more collateral anyway...)

Edit: you added something about how with traditional banks you have to do it all-or-nothing with a single bank and that's how they "get" you. I'm not sure how anyone's being "gotten," especially in recent times where rate competition has resulted in cheaper money than ever before. But it's also not true in most of the cases you outlined. If you have multiple sorts of assets that you want to borrow against instead of securing the loan with the property itself, you can take out a bunch of other loans on those other assets and pay cash for the property.

Then you bring up historically marginalized communities and such... If you could sell me on the benefits for most of the folks in the world, people who may only have 5% down compared to a traditional bank... that would be a different convo, but "additional ways for people with assets to borrow money" doesn't sound so interesting, as it is.

[rglullis]

Sorry, I was in the middle in the edit and I think I ended up sort-of responding to this comment.

> What does crypto get you in most of those cases?

Speed and reduced operational costs, for one. If I wanted, I could get a collaterized loan on DeFI and have the money on my bank account faster than it would take me to fill the bank load application form.

Most importantly, it gets disintermediation: a bank might be interested in selling a loan if it has some level of profitability. In DeFI, anyone can be a bank, so the market tends to be a lot more open and competitive.

> In most of these cases, e.g. multiple properties or non-liquid assets, I'm not sure why I want to put down more collateral anyway...

Because, e.g, you've done the math and you realized that you don't want to pay more interested that is needed?

> If you could sell me on the benefits for most of the folks in the world, people who may only have 5% down compared to a traditional bank

Sure: https://trustlines.network/ TL;DR: it's a system where people can create distributed credit lines, local currencies (for use in impoverished communities that have no money but still need to have a credit rating mechanism) and so on. People could do this with community banks and credit co-ops, but it would be extremely difficult to have, e.g, such a system being capitalized by someone outside of the community. With Trustlines, you can have people in rich countries contributing for the system without middlemen like in a standard micro-credit alternative.

[majormajor]

So the main difference seems to be just claims about speed and cost. E.g. trading down payment/secured-vs-unsecured/etc for different rates is all perfectly possible by bank-shopping today in the US. Perhaps systems elsewhere are less open, I wouldn't know, but happy to say there could be value in developing countries with less infra, though the ceiling for the valuation of such a system seems much lower. But I'm skeptical that speed would hold up for a lot of these scenarios. Things like inspecting the property you claim to have that will be part of your collateral. The actual transfer of funds has never been the slow part of any loan I've gotten - even a bank wire in the US, slow as the US banking system is compared to what I've read about Europe, can go through in a day. All the due diligence to make sure I'm who I say I am and have what I say I am takes a lot longer. I don't see blockchains really changing that for the simple reason that whether or not a blockchain says I own a piece of property or the state government says I own a piece of property, neither of those guarantee that in the real world it's in good condition, currently possessed by me (vs trying to borrow against a stolen car, say), etc.

Re: the Trustlines thing - from a scan of the website, what does crypto bring that one of the non-crypto implementations of "help do microlending in developing countries" from 10 years ago couldn't do? When I looked at that back then, reading people's stories, what they said they wanted to do with the money, etc, was all manual and, of course.

[rglullis]

It's not just the time to get the loan. It's also the time to settle disputes. Say that you wanted to lend money to someone who gives a collateral, and they default. How long would it take to go to the courts to make sure you can get what it is owed? On the blockchain, this is instant.

[majormajor]

Setting aside the potential values of the human element (e.g. the ability of a court to void a contract deemed illegal or done under duress), isn't that only true for digital assets?

If you secured it against artwork, for instance, that might've already been shipped to another country.

(As an aside, I would be all in favor of expanding the court system so stall tactics are less effective.)

[puranjay]

Ser, there is really no such thing as a under-collateralized loan in crypto.

The “ease of access” of crypto loans is not really as big as you think - any lender will happily give you an instant “loan” if you front 150% of the collateral.

Its, infact, a wildly inefficient use of capital. Imagine if the rest of the lending industry worked on that premise - would you get a loan for your house if you had to first front 150% of the price of the house to your bank?

[rglullis]

Who said anything about undercollaterized loans? I'm well aware of how it works.

Currently, we have only "capital-for-capital" collateral, but there is nothing stopping to have some other types of products in the future. One can envision smart contracts that control future revenue (e.g, a blockchain-based subscription service) and we could put that for collateral.

The point is that for the loans that are possible to do on the blockchain, they can be done without middlemen. We can take a blockchain-based systems and work to make them more efficient. We can not take traditional finance systems and make them more open or without middlemen.

[puranjay]

How do you settle pricing in this system? Its easy enough if your asset has enough liquidity and distribution to arrive at a fair market price, but what if the price isn’t transparently obvious - as it is for most assets.

In your example of a blockchain based subscription service used as a collateral, revenues would likely accrue in some native token. Which will likely be volatile. So you have to first settle on a volatility range. Then you have to settle on a fair market multiple for the asset. Do you go with 30x MRR? And is this MRR on the token’s current price, twap?

I’ve seen so many projects try to get loans against NFTs right and even most of them struggle to do it with the “blue chip” NFTs.

At some point, you have to ask if the middlemen in the current system exist for a reason. Perhaps the system organizes itself in this fashion - repeatedly throughout history - because offers some efficiencies and safeguards that are not worth completely discarding.

Its a flawed system of course. But the crypto system is arguably even worse for 95% of assets on the planet.