[latchkey]

It is baked into the contracts and the way that the networks and protocols work. The general idea isn't super complicated though.

You have tokens, they sit in a wallet that you control. Let's say you own 10 ETH. Then that is in your wallet. Those ETH are mathematically provable to be in your wallet.

In the case of AAVE, you send your tokens to their contract, they give you back a receipt token which represents how much they owe you. Once your tokens are in their contract, you are free to borrow against the value that is locked up. If you get liquidated due to not maintaining your loan ratio, AAVE just keeps your tokens and your receipt tokens are then invalid.

There aren't any steps left out. It is really on you to read the documentation and bring some understanding around how all this works. I'll point you here: https://docs.aave.com/hub/

I googled and found another good article for you: https://www.leewayhertz.com/how-defi-lending-works/

[DropInIn]

Just ignored my questions to give the standard allusions rants....

"proves the collateral exists" means who validates the asset doesn't have a standard run of the mill contract/lien/etc?

Just answer that, and _actually_ answer it (the site sure doesn't in any reasonable nor concise manner) and we'll go from there.

[dbmikus]

The collateral provably exists because blockchain code is public and ownership is secured via cryptography.

Are you asking about an off-chain asset that is brought on-chain? For that, you are correct you need to rely on a socially trusted institution that attests that the off-chain asset isn't actually owned by someone else.

There are some off-chain assets that are tokenized and are very trustworthy, IMO, such as USDC. And then there are a number of purely on-chain assets, such as ETH, MATIC (Polygon), and coins that power protocols like Uniswap and Aave and give the owner of those coins a right to dividends. The blockchain proves ownership of purely on-chain assets directly through cryptography.

I do want to add, you are being pretty combative here towards someone that was genuinely answering your questions.

[DropInIn]

So, by definition, the only asset that doesn't have external costs which make the SC cost _more_ than traditional paper contracts are those where the collateral asset is the exact same currency as will be issued?

You do see the glaring issue there right?

As for combative, I am beyond tired of the games played by crypto folks when it comes to answering basic questions they should already have the answers for.

If they don't answer the simple questions with clear and simple answers, then why should I act as though they are acting in good faith, let alone actually educated on the topics they claim the tech solves to know whether it solves a problem at all? Because from my perspective they sure as hell aren't.

Ed: oh I forgot to include the other major issue that undermines even on chain encumberance, that is the fact that a preceding off chain encumbrance takes precedent in court and thus even if the SC executes properly the funds may be taken by the courts as a consequence of preexisting encumbrance and thereby undermine the entire value proposition of the SC.

[latchkey]

> As for combative, I am beyond tired of the games played by crypto folks when it comes to answering basic questions they should already have the answers for.

I did answer your questions.

[DropInIn]

No you absolutely did not.

Allusions are not answers.

[latchkey]

You're hilarious.

[latchkey]

> standard allusions rants

Oh, I see, you just want a hostile battle and don't want to do any sort of actual conversation around knowledge you refuse to learn on your own.

> "proves the collateral exists" means who validates the asset doesn't have a standard run of the mill contract/lien/etc?

I don't understand this line at all.

[DropInIn]

Making a vague reference to something isn't an answer, nor is a random link and a "look here", especially when the link doesn't provide the answer.

And the fact you don't understand that line is the proof you don't know enough about traditional contracts to be able to compare them to smart contracts.

Seriously.... you've just done more to prove to me that you crypto folks are generally just ignorant of real world issues.

[latchkey]

> you've just done more to prove to me that you crypto folks are generally just ignorant of real world issues.

I didn't know I was supposed to "prove" anything to you or handhold you on reading even the basics of the available documentation. All I have to say is your loss for not making the effort on your own and being so negative and combative. Good luck sir.

[DropInIn]

Just more deflections and allusions.

https://www.lawinsider.com/dictionary/encumbrance

Educate yourself.

[latchkey]

You chastise me above for "the site sure doesn't in any reasonable nor concise manner" and then you do something even more silly. Oh the hypocrisy. At least I don't say something rude like "educate yourself."

I'll end my replies here. This is a circular non-productive 'conversation'. It is clear reading your past comments here that everything is negative from you, which is really strange to me. Seriously, have a great day, but I'm done.