With fiat loans, you can pretty much get free money without anything being taken from you right away. With DeFi loans, you pretty much have to give away the keys to your house if you want to use it as collateral (unless we’re talking flash loans which isn’t practical for anything but instant arbitrage). It’s like you can only get “loaned” a percentage of what you already had. It’s like you pretty much have to already have to assets to be loaned anything. With fiat loans, it seems like your credit score is what mostly constitutes your loan amount so I could only have pocket lint and still get maybe 5k cash and if I don’t pay, my credit score goes down and then I might actually have to give up my car which I don’t actually own all the way. Can someone explain what I’m missing? How’s it a loan if I can only pretty much be loaned what I already have and have to lock up what I offer as collateral. So now taking out a DeFi loan, I have less money to work with despite being paid some minimal interest to have collateral locked up. With DeFi, it’s like owning a house and bank giving you cash of 80% of your house but now you can’t use your house. where is the leverage?
Edit: I was trying to understand why there are no under-collateralized loans in DeFi? And why more don’t talk about or emphasize this being a benefit or setback? Is this a benefit or a setback? Does defi want under-collateralized loans or should it stay away from them?
21 thoughts on “Why is everyone ignoring the fact that you can’t really get a loan in DeFi?”
The unsecured fiat loans you are talking about have outrageous interest rates. At best, you’re looking at a 10% interest rate for an unsecured personal loan with a stellar credit rating, if you’re talking credit cards, it’s closer to 30%. These types of loans are usually utilized by people in bad situations to close a gap/immediate need because they have no other options or have a solid plan to quickly pay it back before too much interest is accrued.
Loans with sane interest rates always require collateral, whether thats a home equity loan, a loan secured by a portfolio of publicly traded equities, to buy a car, or business assets.
So yeah, you can’t get a usurious, predatory unsecured loan with crypto, but I’m not sure how this is some sort of huge disadvantage. The purpose of AAVE and similar protocols is to satisfy needs for liquidity without selling and giving up your position or to leverage your position, not to line the pockets of bankers so desperate people can fulfill their immediate needs/emergencies.
There is no way to buy something for more money than you currently hold in DeFI. Period.
You dont understand finance, is the problem.
In your last sentence, you literally describe a home equity LOAN.
Your concept of free money is a great one way ticket to the poorhouse. Loans are not free money. Either you back it by assets or you back it by credit — which is why our economy is in such bad shape.
Leverage is available. Theres DeFi protocols that support derivatives and option trading.
What you want is a credit based loan. Theres a few projects like Mars protocol working on it.
DeFi is fine. If you want your “free money” I suggest you visit quick loans on your street corner.
Over-collaterized loans are probably the most talked about subject in DeFi. Nobody is ignoring this.
As for the leverage part : you deposit 1k in DAI, you borrow 900, you deposit that 900, you borrow 800, etc. It’s pretty simple.
You’re looking for uncollateralized loans. Kind of like credit cards and line of credit.
You don’t have that option in defi, yet. It’s coming, but you will likely need great social value in the crypto world and pay a higher interest rate.
Be the change you seek. Send me some ETH in the form of a loan. I won’t provide you with any collateral but don’t worry, you can trust me, I promise to pay you back.
When you get an auto loan, you pay for it with high interest rates and you back it with employment/ paychecks. Getting a loan from a bank for a 30yr mortgage is near impossible without a paycheck. They don’t even like company owners. I laugh with my boss/owner of company that i have an easier time getting a loan since I get paychecks and he only has profit, despite owning a multi million dollar business. They want to see paychecks, and so this is the price you pay for these loans, your freedom to not have a job with regular income (in most cases). Even helocs usually require proof of income, despite being collateralized by a home.
But you’re confused by utility here I think. When you take out a loan on bitcoin, you do it because you believe bitcoin will go up over time. You sit on your btc and then use the loan to do whatever. In the us there’s tax benefits to this as well.
When you put a heloc on your home you’re doing the exact same thing. You sit on your home while also spending the money. It’s increasing risk though because if it goes down in value and you’ve leveraged it that hurts.
So for example, I can buy some avax, deposit it on benqi, take a loan out in stable coins, park the stables in an lp and earn 20% on those stables, all the while enjoying the appreciation of avax. If avax goes down though, I’m sad.
Non collateralised lending: https://mars-protocol.medium.com/a-vision-for-the-fields-of-mars-and-contract-to-contract-c2c-lending-9c6e4239f72c
Hey, rich people say: “when you take a loan, whatever you do with that money is NON-TAXABLE”
Interesting timing as Mars Protocol on Terra allows for this and just launched their lockdrop 2 days ago.
I put my Eth and btc up for a loan to get a car, paid it off in full. Tokens appreciated in value and i eventual paid the car off with profit and still have some left over, and that’s after making no payments for over a year and it’s entirely mine I have the title and “owe” nothing to anybody.…. Do that with traditional finance. Last week I needed to rent a truck and an air scrubber for some demolition/construction work, I had the money but didn’t feel like parting ways with it, took out a loan, now I have dai and Avax sitting on aave and i may be able to let it pay itself off with interest, or profits if I’m lucky, but the bottom line it, I’m earning interest and gains on assets I would have otherwise sold or spent. Your thinking is flawed.
Loan in defi is liquidity for an asset or leverage. The loans ur talkin about in tradfi is debt slavery
There are several protocols, blockfi, Nexo, and the one I’m most excited about liquid loans.
Defi is still young, it will get there.
Everything is about collateral, cant ask a mortgage without having an asset to back it up…..
You should AAVE or AXL their lending and borrowing protocol is pretty good you can check it out I’m more familiar with the AXL platform.
‘You’ on Tezos. You can stake your underlying XTZ and get a collateral loan in uBTC or uUSD. tzBTC and XTZ LP tokens can also be used as collateral. Good luck
I believe you have the answer. As you said you can get a fiat loan as easy as going grocery shopping. But it’s also a way to devalue your fiat money. Yes, you have easier access to that dollar amount, but that same dollar amount is worth less and less everyday because of the free loan.
Since the supply of fiat money is technically infinite and controlled by the government, they don’t really care about the purchasing power of each dollar you have, they care about printing more money to pocket for themselves for next 4 years.
The fact that cryptocurrency supply is limited and it’s harder for you to get a loan in Defi makes you think when you spend your hard-earned money not just swipe your credit card thoughtlessly on a new IPhone.
This is the definition of strong money.
It’s even better with the fact that you can use NFT as collateral in the process. Govworld and other lending protocols are indeed taking this whole lending deals into a whole new level
every debt is over-collateralized. Even with a credit card, the bank can hurt your credit (which has value on its own) and can come after your assets if you don’t pay.
There are unsecured fiat loans as the lenders knows who you are and can go after you in real life.