Crypto mania !

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Janus887
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Re: Crypto mania !

Post by Janus887 »

Why would anyone pay 8% to borrow on AAVE when interest rates in USD (and pretty much every other fiat currency) are much lower? This tells me that these AAVE loans are backed almost entirely by other crypto, not dollars. In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.

The entire crypto market is essentially a casino where people are constantly bringing in counterfeit chips and introducing them into the floor games (through the use of Tether and by the introduction of new coins, which are then traded for existing coins). So everyone is gambling and taking each other's chips. Everyone is having a great time and seemingly getting rich. You might have a stack of hundreds of chips with a face value of $1,000 each, and you're feeling perfectly confident in that valuation since you just watched a fellow player cash out a few chips for USD at the cashier. The problem is that none of the gamblers on the floor seem to be aware that the cashier only has, let's say, a total of $1 million in cash available. And the face value of all the counterfeit chips circulating on the floor is thousands of times that amount. As soon as the players realize that not everyone will be able to cash out their chips, the rush to the exit begins, and the entire thing collapses. Most people walk away with nothing. The wealth was never real. It was all a mirage.

Crypto-enthusiasts will say that's no different than a bank run or broader financial market panic, but there are very important differences, namely:

1) We have centuries' worth of experience in dealing with and preventing bank runs
2) We have explicit protections against depositors losing their money (FDIC)
3) Governments and central banks can take legal and financial/monetary actions to counterweight the deleterious effects of financial panics on the broader economy and markets
4) Most importantly: there is no off-ramp from fiat currencies, whereas in contrast everyone currently investing in crypto is ultimately looking for an off-ramp of their investment by conversion to fiat. In other words, all crypto is denominated in fiat (or in some other crypto). But ultimately crypto must have some non-crypto peg, because otherwise it simply cannot be quantified to have any value whatsoever! This being the case, crypto is inherently and uniquely vulnerable to a total collapse brought on by a mad dash for the exits as everyone attempts to convert their crypto to fiat at the same time.

The crypto market is the largest and most egregious financial con game in the history of the world. The fact that many people have made money off it says nothing to disprove this statement, and actually supports it, as you would expect many people to make enormous amounts of easy money in a con of this size. That's how con games work - until the bottom falls out and the whole charade is revealed to have been nothing but a fraud the entire time. At the end of the day all of this crypto "wealth" will disappear in a puff of smoke and millions of people will lose their shirts.

Without getting too far off topic, we seem to be living through a strange period of history in which a large percentage of the population has lost basic touch with reality, in numerous facets of life. We have enjoyed a state of material superabundance for so long that most people can go through life completely oblivious to and disconnected from the workings of the natural world. The end result is that they become completely unable to differentiate objective reality from their personal interpretation of reality. And I believe the current cryptomania is simply another manifestation of this larger social trend, whereby people have mistaken worthless virtual tokens for actual wealth. Unfortunately for these people, reality always asserts itself sooner or later, and their delusions will be shattered to pieces, along with their fortunes.
BogleBuddy12
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Re: Crypto mania !

Post by BogleBuddy12 »

anon_investor wrote: Sat May 08, 2021 2:48 pm
HomerJ wrote: Sat May 08, 2021 2:44 pm I'm actually quite worried the longer it goes on.

I totally saw the housing crash coming, but I didn't care because I owned my house. I figured it would just hurt the people who borrowed too much, and banks who were dumb enough to lend to them.

But what happened was investment firms packaged those bad mortgage loans into "investment vehicles" called CDOs, which allowed the rot to spread throughout the entire financial system, and nearly brought it all down.

I fear the same may happen with crypto. At first, it was just going to hurt the people who bought bitcoin last or dogecoin last before the crash.. but now the investment firms are getting in on the action. They will find a way to repackage the crypto loans that already over-leveraged and a house of cards, and sell them to others, touting them as nearly risk-free, just like the did with CDOs (you'll own a tiny piece of a bunch of different mortages! What are the odds they all default at the same time?)

Same with crypto. I see a monumental crash someday. Every post here about how one can loan out crypto to other people who use those loans to speculate on more crypto scares the hell out of me.

All the crypto-proponents continually compare them to savings accounts at banks, but leverage is where the real danger lies.

If a bunch of people or institutions owned bitcoin, and bitcoin crashed 50%, even 80%, those people would just have a lot less money.

The danger is when a crash like that takes them above 100% losses because of leverage. Where people default, and then institutions default, and other institutions (who may have had zero crypto, but were intertwined with institutions that did) are affected as well.

It happened in 2008... The longer this goes on, and the more the Wall Street geniuses get involved, the more danger I see.

I just don't know how to hedge against it...
Hold some good old US Savings Bonds or Treasuries.
Yes exactly. My wife and I are young but we still hold 35% Total Bond Market. That is our hedge and meets our risk tolerance.
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watchnerd
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Re: Crypto mania !

Post by watchnerd »

BogleBuddy12 wrote: Thu May 13, 2021 10:39 pm

Yes exactly. My wife and I are young but we still hold 35% Total Bond Market. That is our hedge and meets our risk tolerance.
How much of TBM is Treasuries these days?

(I'm embarassed I don't know off the top of my head given I hold it my risk portfolio)

But I like having a bond ladder of Treasury TIPS and STRIPS that lasts for the next 16 years as insurance against whatever blowup the crypto market throws at me, in which the damage to my 2% crypto holdings will pale in comparison to the damage done to my much larger stock and bond portfolio.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% crypto & securitized gold || LMP TIPS/STRIPS || RSU + ESPP
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HomerJ
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Re: Crypto mania !

Post by HomerJ »

Janus887 wrote: Thu May 13, 2021 10:32 pm Why would anyone pay 8% to borrow on AAVE when interest rates in USD (and pretty much every other fiat currency) are much lower? This tells me that these AAVE loans are backed almost entirely by other crypto, not dollars. In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.

The entire crypto market is essentially a casino where people are constantly bringing in counterfeit chips and introducing them into the floor games (through the use of Tether and by the introduction of new coins, which are then traded for existing coins). So everyone is gambling and taking each other's chips. Everyone is having a great time and seemingly getting rich. You might have a stack of hundreds of chips with a face value of $1,000 each, and you're feeling perfectly confident in that valuation since you just watched a fellow player cash out a few chips for USD at the cashier. The problem is that none of the gamblers on the floor seem to be aware that the cashier only has, let's say, a total of $1 million in cash available. And the face value of all the counterfeit chips circulating on the floor is thousands of times that amount. As soon as the players realize that not everyone will be able to cash out their chips, the rush to the exit begins, and the entire thing collapses. Most people walk away with nothing. The wealth was never real. It was all a mirage.

Crypto-enthusiasts will say that's no different than a bank run or broader financial market panic, but there are very important differences, namely:

1) We have centuries' worth of experience in dealing with and preventing bank runs
2) We have explicit protections against depositors losing their money (FDIC)
3) Governments and central banks can take legal and financial/monetary actions to counterweight the deleterious effects of financial panics on the broader economy and markets
4) Most importantly: there is no off-ramp from fiat currencies, whereas in contrast everyone currently investing in crypto is ultimately looking for an off-ramp of their investment by conversion to fiat. In other words, all crypto is denominated in fiat (or in some other crypto). But ultimately crypto must have some non-crypto peg, because otherwise it simply cannot be quantified to have any value whatsoever! This being the case, crypto is inherently and uniquely vulnerable to a total collapse brought on by a mad dash for the exits as everyone attempts to convert their crypto to fiat at the same time.

The crypto market is the largest and most egregious financial con game in the history of the world. The fact that many people have made money off it says nothing to disprove this statement, and actually supports it, as you would expect many people to make enormous amounts of easy money in a con of this size. That's how con games work - until the bottom falls out and the whole charade is revealed to have been nothing but a fraud the entire time. At the end of the day all of this crypto "wealth" will disappear in a puff of smoke and millions of people will lose their shirts.

Without getting too far off topic, we seem to be living through a strange period of history in which a large percentage of the population has lost basic touch with reality, in numerous facets of life. We have enjoyed a state of material superabundance for so long that most people can go through life completely oblivious to and disconnected from the workings of the natural world. The end result is that they become completely unable to differentiate objective reality from their personal interpretation of reality. And I believe the current cryptomania is simply another manifestation of this larger social trend, whereby people have mistaken worthless virtual tokens for actual wealth. Unfortunately for these people, reality always asserts itself sooner or later, and their delusions will be shattered to pieces, along with their fortunes.
This person may be right.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
Marseille07
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Re: Crypto mania !

Post by Marseille07 »

Janus887 wrote: Thu May 13, 2021 10:32 pm Why would anyone pay 8% to borrow on AAVE when interest rates in USD (and pretty much every other fiat currency) are much lower? This tells me that these AAVE loans are backed almost entirely by other crypto, not dollars. In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.

The entire crypto market is essentially a casino where people are constantly bringing in counterfeit chips and introducing them into the floor games (through the use of Tether and by the introduction of new coins, which are then traded for existing coins). So everyone is gambling and taking each other's chips. Everyone is having a great time and seemingly getting rich. You might have a stack of hundreds of chips with a face value of $1,000 each, and you're feeling perfectly confident in that valuation since you just watched a fellow player cash out a few chips for USD at the cashier. The problem is that none of the gamblers on the floor seem to be aware that the cashier only has, let's say, a total of $1 million in cash available. And the face value of all the counterfeit chips circulating on the floor is thousands of times that amount. As soon as the players realize that not everyone will be able to cash out their chips, the rush to the exit begins, and the entire thing collapses. Most people walk away with nothing. The wealth was never real. It was all a mirage.
I think your description of the crypto market is accurate, but it's actually quite big now (2.25T?) and I don't see people rushing to the exit. Even with Tesla suspending BTC, it was a 10% dip and the market cap recovered within a day.

I'm not in the party, but it can go on for a long time.
Prahasaurus
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Re: Crypto mania !

Post by Prahasaurus »

Janus887 wrote: Thu May 13, 2021 10:32 pm Why would anyone pay 8% to borrow on AAVE when interest rates in USD (and pretty much every other fiat currency) are much lower? This tells me that these AAVE loans are backed almost entirely by other crypto, not dollars. In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.

The entire crypto market is essentially a casino where people are constantly bringing in counterfeit chips and introducing them into the floor games (through the use of Tether and by the introduction of new coins, which are then traded for existing coins). So everyone is gambling and taking each other's chips. Everyone is having a great time and seemingly getting rich. You might have a stack of hundreds of chips with a face value of $1,000 each, and you're feeling perfectly confident in that valuation since you just watched a fellow player cash out a few chips for USD at the cashier. The problem is that none of the gamblers on the floor seem to be aware that the cashier only has, let's say, a total of $1 million in cash available. And the face value of all the counterfeit chips circulating on the floor is thousands of times that amount. As soon as the players realize that not everyone will be able to cash out their chips, the rush to the exit begins, and the entire thing collapses. Most people walk away with nothing. The wealth was never real. It was all a mirage.

Crypto-enthusiasts will say that's no different than a bank run or broader financial market panic, but there are very important differences, namely:

1) We have centuries' worth of experience in dealing with and preventing bank runs
2) We have explicit protections against depositors losing their money (FDIC)
3) Governments and central banks can take legal and financial/monetary actions to counterweight the deleterious effects of financial panics on the broader economy and markets
4) Most importantly: there is no off-ramp from fiat currencies, whereas in contrast everyone currently investing in crypto is ultimately looking for an off-ramp of their investment by conversion to fiat. In other words, all crypto is denominated in fiat (or in some other crypto). But ultimately crypto must have some non-crypto peg, because otherwise it simply cannot be quantified to have any value whatsoever! This being the case, crypto is inherently and uniquely vulnerable to a total collapse brought on by a mad dash for the exits as everyone attempts to convert their crypto to fiat at the same time.

The crypto market is the largest and most egregious financial con game in the history of the world. The fact that many people have made money off it says nothing to disprove this statement, and actually supports it, as you would expect many people to make enormous amounts of easy money in a con of this size. That's how con games work - until the bottom falls out and the whole charade is revealed to have been nothing but a fraud the entire time. At the end of the day all of this crypto "wealth" will disappear in a puff of smoke and millions of people will lose their shirts.

Without getting too far off topic, we seem to be living through a strange period of history in which a large percentage of the population has lost basic touch with reality, in numerous facets of life. We have enjoyed a state of material superabundance for so long that most people can go through life completely oblivious to and disconnected from the workings of the natural world. The end result is that they become completely unable to differentiate objective reality from their personal interpretation of reality. And I believe the current cryptomania is simply another manifestation of this larger social trend, whereby people have mistaken worthless virtual tokens for actual wealth. Unfortunately for these people, reality always asserts itself sooner or later, and their delusions will be shattered to pieces, along with their fortunes.
Also, rock and roll music! Who listens to that? Just a bunch of screeching and wailing.
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EnjoyIt
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Re: Crypto mania !

Post by EnjoyIt »

Prahasaurus wrote: Fri May 14, 2021 3:44 am
Janus887 wrote: Thu May 13, 2021 10:32 pm Why would anyone pay 8% to borrow on AAVE when interest rates in USD (and pretty much every other fiat currency) are much lower? This tells me that these AAVE loans are backed almost entirely by other crypto, not dollars. In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.

The entire crypto market is essentially a casino where people are constantly bringing in counterfeit chips and introducing them into the floor games (through the use of Tether and by the introduction of new coins, which are then traded for existing coins). So everyone is gambling and taking each other's chips. Everyone is having a great time and seemingly getting rich. You might have a stack of hundreds of chips with a face value of $1,000 each, and you're feeling perfectly confident in that valuation since you just watched a fellow player cash out a few chips for USD at the cashier. The problem is that none of the gamblers on the floor seem to be aware that the cashier only has, let's say, a total of $1 million in cash available. And the face value of all the counterfeit chips circulating on the floor is thousands of times that amount. As soon as the players realize that not everyone will be able to cash out their chips, the rush to the exit begins, and the entire thing collapses. Most people walk away with nothing. The wealth was never real. It was all a mirage.

Crypto-enthusiasts will say that's no different than a bank run or broader financial market panic, but there are very important differences, namely:

1) We have centuries' worth of experience in dealing with and preventing bank runs
2) We have explicit protections against depositors losing their money (FDIC)
3) Governments and central banks can take legal and financial/monetary actions to counterweight the deleterious effects of financial panics on the broader economy and markets
4) Most importantly: there is no off-ramp from fiat currencies, whereas in contrast everyone currently investing in crypto is ultimately looking for an off-ramp of their investment by conversion to fiat. In other words, all crypto is denominated in fiat (or in some other crypto). But ultimately crypto must have some non-crypto peg, because otherwise it simply cannot be quantified to have any value whatsoever! This being the case, crypto is inherently and uniquely vulnerable to a total collapse brought on by a mad dash for the exits as everyone attempts to convert their crypto to fiat at the same time.

The crypto market is the largest and most egregious financial con game in the history of the world. The fact that many people have made money off it says nothing to disprove this statement, and actually supports it, as you would expect many people to make enormous amounts of easy money in a con of this size. That's how con games work - until the bottom falls out and the whole charade is revealed to have been nothing but a fraud the entire time. At the end of the day all of this crypto "wealth" will disappear in a puff of smoke and millions of people will lose their shirts.

Without getting too far off topic, we seem to be living through a strange period of history in which a large percentage of the population has lost basic touch with reality, in numerous facets of life. We have enjoyed a state of material superabundance for so long that most people can go through life completely oblivious to and disconnected from the workings of the natural world. The end result is that they become completely unable to differentiate objective reality from their personal interpretation of reality. And I believe the current cryptomania is simply another manifestation of this larger social trend, whereby people have mistaken worthless virtual tokens for actual wealth. Unfortunately for these people, reality always asserts itself sooner or later, and their delusions will be shattered to pieces, along with their fortunes.
Also, rock and roll music! Who listens to that? Just a bunch of screeching and wailing.
Nice job on misdirection. I think everyone is no looking away.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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JonnyDVM
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Re: Crypto mania !

Post by JonnyDVM »

You guys missed the massive dip. The market is streaming back up again. This marketplace is punctuated by frequent violent dips downward followed by fast recoveries.
I’d trade it all for a little more | -C Montgomery Burns
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watchnerd
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Re: Crypto mania !

Post by watchnerd »

JonnyDVM wrote: Fri May 14, 2021 6:21 am You guys missed the massive dip. The market is streaming back up again. This marketplace is punctuated by frequent violent dips downward followed by fast recoveries.
I don't think I missed anything. The dip didn't drop below my original entry price.
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runninginvestor
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Re: Crypto mania !

Post by runninginvestor »

>>1) We have centuries' worth of experience in dealing with and preventing bank runs
2) We have explicit protections against depositors losing their money (FDIC)<<

In the US, 1 isn't necessarily true. FDIC was created in the early 1930's after banking panics, it'll be interesting how bank runs will be tested in a digital world (hopefully we never experience it). If any banking run were to happen nowadays and people couldn't access their money digitally, I could see it spurring increased interest in cryptocurrency. That's likely the nature of a generation that has lived through the 08-09 banking/investment banking recession. Crypto asset storage would likely be analogous to our grandparents storing money in tin cans in the yard.

2) What's really interesting to me was the talk of people storing crypto wallet seed keys in safe deposit boxes. Deposit boxes aren't insured holdings in a bank so it's kind ironic that you if you hold crypto as a hedge against banking system failures, you could lose part of your seed to that very failure.
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watchnerd
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Re: Crypto mania !

Post by watchnerd »

runninginvestor wrote: Fri May 14, 2021 6:41 am
2) What's really interesting to me was the talk of people storing crypto wallet seed keys in safe deposit boxes. Deposit boxes aren't insured holdings in a bank so it's kind ironic that you if you hold crypto as a hedge against banking system failures, you could lose part of your seed to that very failure.
I don't know where people are finding physical banks with deposit boxes.

Physical bank branches around me are closing faster than opening.
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Prahasaurus
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Re: Crypto mania !

Post by Prahasaurus »

Here is a fantastic, step by step, overview of how to earn interest on dollar deposits within DeFi. Highly recommended:

https://medium.com/@jonathanalbert/earn ... 57bb167a32

It goes through all the steps, assuming you are just getting started.
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txhill
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Re: Crypto mania !

Post by txhill »

Prahasaurus wrote: Fri May 14, 2021 4:50 am Everyone looking for off ramps? Not true, thanks to DeFi. No value in high interest Aave loans? Then why do people do it? Aave has 18 billion USD in their protocol! Crypto is "the largest and most egregious financial con game in the history of the world"? Please.
$19 billion now :)
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JonnyDVM
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Re: Crypto mania !

Post by JonnyDVM »

watchnerd wrote: Fri May 14, 2021 6:28 am
JonnyDVM wrote: Fri May 14, 2021 6:21 am You guys missed the massive dip. The market is streaming back up again. This marketplace is punctuated by frequent violent dips downward followed by fast recoveries.
I don't think I missed anything. The dip didn't drop below my original entry price.
Why must you turn this board into a hall of lies? Ehterium hit $5595 for about 12 seconds yesterday. You had a multi-second window where you could have averaged down.
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JonnyDVM
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Re: Crypto mania !

Post by JonnyDVM »

HomerJ wrote: Thu May 13, 2021 11:28 pm
Janus887 wrote: Thu May 13, 2021 10:32 pm Why would anyone pay 8% to borrow on AAVE when interest rates in USD (and pretty much every other fiat currency) are much lower? This tells me that these AAVE loans are backed almost entirely by other crypto, not dollars. In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.

The entire crypto market is essentially a casino where people are constantly bringing in counterfeit chips and introducing them into the floor games (through the use of Tether and by the introduction of new coins, which are then traded for existing coins). So everyone is gambling and taking each other's chips. Everyone is having a great time and seemingly getting rich. You might have a stack of hundreds of chips with a face value of $1,000 each, and you're feeling perfectly confident in that valuation since you just watched a fellow player cash out a few chips for USD at the cashier. The problem is that none of the gamblers on the floor seem to be aware that the cashier only has, let's say, a total of $1 million in cash available. And the face value of all the counterfeit chips circulating on the floor is thousands of times that amount. As soon as the players realize that not everyone will be able to cash out their chips, the rush to the exit begins, and the entire thing collapses. Most people walk away with nothing. The wealth was never real. It was all a mirage.

Crypto-enthusiasts will say that's no different than a bank run or broader financial market panic, but there are very important differences, namely:

1) We have centuries' worth of experience in dealing with and preventing bank runs
2) We have explicit protections against depositors losing their money (FDIC)
3) Governments and central banks can take legal and financial/monetary actions to counterweight the deleterious effects of financial panics on the broader economy and markets
4) Most importantly: there is no off-ramp from fiat currencies, whereas in contrast everyone currently investing in crypto is ultimately looking for an off-ramp of their investment by conversion to fiat. In other words, all crypto is denominated in fiat (or in some other crypto). But ultimately crypto must have some non-crypto peg, because otherwise it simply cannot be quantified to have any value whatsoever! This being the case, crypto is inherently and uniquely vulnerable to a total collapse brought on by a mad dash for the exits as everyone attempts to convert their crypto to fiat at the same time.

The crypto market is the largest and most egregious financial con game in the history of the world. The fact that many people have made money off it says nothing to disprove this statement, and actually supports it, as you would expect many people to make enormous amounts of easy money in a con of this size. That's how con games work - until the bottom falls out and the whole charade is revealed to have been nothing but a fraud the entire time. At the end of the day all of this crypto "wealth" will disappear in a puff of smoke and millions of people will lose their shirts.

Without getting too far off topic, we seem to be living through a strange period of history in which a large percentage of the population has lost basic touch with reality, in numerous facets of life. We have enjoyed a state of material superabundance for so long that most people can go through life completely oblivious to and disconnected from the workings of the natural world. The end result is that they become completely unable to differentiate objective reality from their personal interpretation of reality. And I believe the current cryptomania is simply another manifestation of this larger social trend, whereby people have mistaken worthless virtual tokens for actual wealth. Unfortunately for these people, reality always asserts itself sooner or later, and their delusions will be shattered to pieces, along with their fortunes.
This person may be right.
This can all be true, and yet as long as you're towards the front of the line cashing out your chips everything is hunky-dory. There will be bag holders in this just like every other financial mania in history. That doesn't mean you can't participate in the fun, and make a quick buck.
I’d trade it all for a little more | -C Montgomery Burns
WhyNotUs
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Re: Crypto mania !

Post by WhyNotUs »

Prahasaurus wrote: Fri May 14, 2021 3:44 am Also, rock and roll music! Who listens to that? Just a bunch of screeching and wailing.
Maybe, or you think it is the Beatles and I think it is the Monkees.

I do think that there is a place for crypto currency for reasons that Robert T described and to facilitate global trade with a currency that is not tied to a particular country. That crypto would have requirements that the couple of cryptocurrencies that I am aware of do not have. It would be fundamentally different.

That is not to say that some people are not making money, lots of money. As early players transition their funds into hard assets and currency, I can see the instawealth. A home near me recently sold for a little less than $2M and the realtor shared that the buyer was moving funds into physical assets as there is an expectation of increased efforts for taxation on crypto profits coming.

None of this is going to change what anyone thinks but I would say that those buying in now seem a little late to the game to me if your goal is speculation, YMMV. The Dogecoin story is one that may be taught in business school in the future, if things go the way that I suspect.

In the end, I am glad that Stephen Stills was not accepted to join the Monkees and a little sad that he tried out.
I own the next hot stock- VTSAX
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Re: Crypto mania !

Post by EnjoyIt »

Prahasaurus wrote: Fri May 14, 2021 4:50 am
EnjoyIt wrote: Fri May 14, 2021 4:21 am
Prahasaurus wrote: Fri May 14, 2021 3:44 am
Janus887 wrote: Thu May 13, 2021 10:32 pm Why would anyone pay 8% to borrow on AAVE when interest rates in USD (and pretty much every other fiat currency) are much lower? This tells me that these AAVE loans are backed almost entirely by other crypto, not dollars. In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.

The entire crypto market is essentially a casino where people are constantly bringing in counterfeit chips and introducing them into the floor games (through the use of Tether and by the introduction of new coins, which are then traded for existing coins). So everyone is gambling and taking each other's chips. Everyone is having a great time and seemingly getting rich. You might have a stack of hundreds of chips with a face value of $1,000 each, and you're feeling perfectly confident in that valuation since you just watched a fellow player cash out a few chips for USD at the cashier. The problem is that none of the gamblers on the floor seem to be aware that the cashier only has, let's say, a total of $1 million in cash available. And the face value of all the counterfeit chips circulating on the floor is thousands of times that amount. As soon as the players realize that not everyone will be able to cash out their chips, the rush to the exit begins, and the entire thing collapses. Most people walk away with nothing. The wealth was never real. It was all a mirage.

Crypto-enthusiasts will say that's no different than a bank run or broader financial market panic, but there are very important differences, namely:

1) We have centuries' worth of experience in dealing with and preventing bank runs
2) We have explicit protections against depositors losing their money (FDIC)
3) Governments and central banks can take legal and financial/monetary actions to counterweight the deleterious effects of financial panics on the broader economy and markets
4) Most importantly: there is no off-ramp from fiat currencies, whereas in contrast everyone currently investing in crypto is ultimately looking for an off-ramp of their investment by conversion to fiat. In other words, all crypto is denominated in fiat (or in some other crypto). But ultimately crypto must have some non-crypto peg, because otherwise it simply cannot be quantified to have any value whatsoever! This being the case, crypto is inherently and uniquely vulnerable to a total collapse brought on by a mad dash for the exits as everyone attempts to convert their crypto to fiat at the same time.

The crypto market is the largest and most egregious financial con game in the history of the world. The fact that many people have made money off it says nothing to disprove this statement, and actually supports it, as you would expect many people to make enormous amounts of easy money in a con of this size. That's how con games work - until the bottom falls out and the whole charade is revealed to have been nothing but a fraud the entire time. At the end of the day all of this crypto "wealth" will disappear in a puff of smoke and millions of people will lose their shirts.

Without getting too far off topic, we seem to be living through a strange period of history in which a large percentage of the population has lost basic touch with reality, in numerous facets of life. We have enjoyed a state of material superabundance for so long that most people can go through life completely oblivious to and disconnected from the workings of the natural world. The end result is that they become completely unable to differentiate objective reality from their personal interpretation of reality. And I believe the current cryptomania is simply another manifestation of this larger social trend, whereby people have mistaken worthless virtual tokens for actual wealth. Unfortunately for these people, reality always asserts itself sooner or later, and their delusions will be shattered to pieces, along with their fortunes.
Also, rock and roll music! Who listens to that? Just a bunch of screeching and wailing.
Nice job on misdirection. I think everyone is no looking away.
There is nothing of substance to misdirect. Just a very emotional outburst that has little basis in reality, directed at something new and still greatly misunderstood.

Everyone looking for off ramps? Not true, thanks to DeFi. No value in high interest Aave loans? Then why do people do it? Aave has 18 billion USD in their protocol! Crypto is "the largest and most egregious financial con game in the history of the world"? Please.

If you don't understand something, that's OK. You don't need to be scared. Just take the time to educate yourself. The easy way out is to call it all a scam and be done with it. That way you don't need to bother learning about what is really happening.
Who is borrowing AAVE and what are they using those funds for? This is a very serious question where the answer can make a huge difference.
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Re: Crypto mania !

Post by watchnerd »

JonnyDVM wrote: Fri May 14, 2021 7:09 am Why must you turn this board into a hall of lies? Ehterium hit $5595 for about 12 seconds yesterday. You had a multi-second window where you could have averaged down.
I'm such a loser.
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Re: Crypto mania !

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WhyNotUs wrote: Fri May 14, 2021 7:25 am The Dogecoin story is one that may be taught in business school in the future, if things go
How do you suspect it will go?
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Re: Crypto mania !

Post by Janus887 »

Prahasaurus wrote: Fri May 14, 2021 6:54 am Here is a fantastic, step by step, overview of how to earn interest on dollar deposits within DeFi. Highly recommended:

https://medium.com/@jonathanalbert/earn ... 57bb167a32

It goes through all the steps, assuming you are just getting started.
This is a good link that is actually worth reading, because it exposes the absurdity of what you are promoting as "crypto-banking". This term is incredibly misleading, and would more accurately be described as "crypto-loan sharking". This entire concept of "DeFi" involves people borrowing and lending cryptocurrencies to each other at high rates. You seem to think it's simply magical that you can earn over 8% by lending in this manner, but you ignore the obvious corollary that there are two sides to this transaction: in order for you to lend at that rate, you must have a borrower willing to pay it.

That being the case, can you explain to me who in their right mind would prefer to borrow crypto at a rate of 8, 10 or 12% at at time when fiat interest rates have never been lower? If The USDC stablecoin is actualy backed by dollars 1 for 1, why wouldn't you just borrow in dollars in the first place? To ask the question is to answer it. Obviously no one would do this. Something fishy is afoot. The situation is only explainable if we realize that USDC is NOT in fact backed by dollars 1 for 1, and that there is a whole hell of a lot more crypto sloshing around than there are dollars behind it. That being the case, a lot of crypto enthusiasts don't mind paying high interest rates to acquire more crypto for trading. Why not pay 8% annual interest to acquire an asset that's appreciating at well over 100% a year at this point? It's a great plan. Until crypto stops going up, of course. That really throws a monkey wrench in the whole operation. When the value of crypto craters at some point (which it will, probably sooner rather than later) all of these loans will be unable to be paid back and the entire thing will collapse. The writer of this article literally admits as much himself:
Smart contracts for collateralized loans have the additional risk of not having enough funds to return money to all of its depositors. The same risk exists with traditional banking but is less likely and less frequent. This can happen if the prices for cryptocurrencies plummet.

Platforms like Aave allow users to deposit cryptocurrencies and use their crypto as collateral for loans. If the prices plummet, the total amount borrowed can exceed the total value of the collateral causing the system to lock down and prevent withdraws. Withdraws will resume once prices return to normal. In the worst-case scenario, protocols like Aave have built-in insurance policies to cover funds. I have chosen to work with Aave in particular because it is the largest Decentralized Finance (DeFi) lending platform with over 18 billion dollars deposited into the network.
"Built-in insurance policies?" Oh boy. This is starting to sound familiar. Collateralized debt obligations, anyone? It seems that this crypto bubble is combining the worst elements of the tech bubble (ludicrous, unfounded hype driving insane valuations) and the housing bubble (transfering risk systemically through derivative contracts). Truly, we have learned nothing. We will be lucky if the crypto bubble is able to burst without inflicting serious damage on the broader economy. But the longer this charade continues, the less likely that happy outcome becomes. More likely, given how this bubble combines the worst of the tech and the housing bubble as I pointed out, we will see it collapse in a similar manner: the rapidity of the tech bubble collapse, and the systemic damage of the housing bubble contagion. The recriminations at that point will be wide-ranging, as society is forced to collectively regain their financial senses all at once.
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Re: Crypto mania !

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Janus887 wrote: Fri May 14, 2021 8:46 am That being the case, can you explain to me who in their right mind would prefer to borrow crypto at a rate of 8, 10 or 12% at at time when fiat interest rates have never been lower?
It's not a bad rate if you're using it to leverage crypto trading, given the high crypto returns in a bull year.
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Re: Crypto mania !

Post by alluringreality »

Prahasaurus wrote: Fri May 14, 2021 4:50 am If you don't understand something, that's OK. You don't need to be scared. Just take the time to educate yourself. The easy way out is to call it all a scam and be done with it. That way you don't need to bother learning about what is really happening.
They did not just call it a scam. They asked what people are doing to justify crypto borrow rates. They suggested fraud built on altcoins. They also noted that crypto owners generally measure their assets in terms of actual currency instead of cryptocurrency.

Crypto leverage is probably used to buy more crypto or to short crypto. Outside of those sorts of considerations, and very short-term loans, it might make sense to use some other form of borrowing, since realistically most crypto players likely have access to traditional finance at this point. Crypto supporters have talked altcoin rotation here recently to build assets, so that point appears plausible. Both Bitcoin and Dogecoin supporters have been trying to get their cryptos to a target dollar amount, and again the suggestion seems within the realm of possibility. I really don't see where Janus887's main question and suggestions conflict with my reading to this point.
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Re: Crypto mania !

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alluringreality wrote: Fri May 14, 2021 8:56 am Crypto leverage is probably used to buy more crypto or to short crypto.
Well, yeah, why would I put up real money as collateral, even if the interest rate is lower, when I can put up other crypto, instead, even if the rate is higher?

If my crypto collateral goes 'poof', it was 'house money', anyway.

Although, with the IRS paying more attention to crypto, this may be more of a problem than it used to be.
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Re: Crypto mania !

Post by nisiprius »

SuperSaver wrote: Thu May 13, 2021 7:34 pm Dogecoin to be listed on Coinbase!!!!!!!!

(In 6-8 weeks).

Why so long?
Does this bring legitimacy or laughability to the industry?
It confirms what is already obvious. There is a fever for short-term speculation, period. Not just in cryptocurrency.

People are literally buying shares in "a company for carrying out an undertaking of great advantage, but nobody to know what it is" (SPACs). Nobody was buying GME stock for the dividends, they were buying it in the (probably false) belief they were taking money away from wicked institutional short sellers. Nobody is buying Dogecoin because they think it will be useful in Venezuela, they are buying it because they think they can make a quick profit on it.

The serious crypto fans in the forum talk about which cryptocurrency has technically superior design features, as if that will determine which survive. But for any cryptocurrency to become permanent, what is necessary is to take an assertion of value out of thin air and bootstrap it into a widely shared belief system that it is valuable because everyone else agrees it is valuable.

Traditional fiat money is a system of shared belief that has been developed slowly over centuries and involves deep participation by the culture and by legal and governmental agencies. Cryptocurrency hopes to accelerate this process into Internet speeds. L. Ron Hubbard famously said in the 1950s that the best way to make money would be to start a religion. Cryptocurrency is like that.

But the point is, the success of a currency is not solely determined by utility. It is largely determined by confidence, faith, belief. Irrationality-bootstrapped-into-rationality might lead to a success for a cryptocurrency, but the one that succeeds won't necessarily be the one with the superior algorithms or highest energy efficiency. It might be Dogecoin. Not because of superior algorithms or energy efficiency, but because it might just be the one that catches the public's eye. It might be "the hit," the way some songs or shows become hits. Particularly if it goes high enough for long enough.
Last edited by nisiprius on Fri May 14, 2021 9:03 am, edited 2 times in total.
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Re: Crypto mania !

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Janus887 wrote: Fri May 14, 2021 8:46 am That being the case, can you explain to me who in their right mind would prefer to borrow crypto at a rate of 8, 10 or 12% at at time when fiat interest rates have never been lower? If The USDC stablecoin is actualy backed by dollars 1 for 1, why wouldn't you just borrow in dollars in the first place? To ask the question is to answer it. Obviously no one would do this. Something fishy is afoot.
I see this argument quite a lot, which is perfectly sensible from a Boglehead perspective where all of us have solid credit ratings and access to cheap credit. This is not the case for everyone. When you're well off, life is cheaper. You are forgetting about:

- The amount of credit card balances that aren't paid off every month, so they're paying outrageous usurious rates.
- People who use payday lenders. They pay even MORE outrageous rates. You wouldn't believe it. In some states without rate caps it gets to 600% APR.
- Number of adults in the United States who do not have ANY credit score: 53 million. Worldwide? Yeah, it's probably in the billions.

These are all people who would benefit from a bankless system. They'd pay 10% to borrow compared to the options they otherwise have available to them (which may be none at all). And lenders can finally lend because there's now a programmatic system that minimizes any counterparty default risk, and doesn't require even going out and finding borrowers in the first place.

And even among the banked, how many people really want to fill out a bunch of loan docs AND sell assets incurring capital gain taxes, if they want to have immediate access to additional capital for a trade or opportunity (which does NOT have to be in crypto)? It's more than you think (because many of those people already are making use of these platforms already).

You're underestimating the addressable market here because you are failing to consider the underbanked and unbanked in the world, just because you have it good already.
Last edited by txhill on Fri May 14, 2021 9:04 am, edited 1 time in total.
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Re: Crypto mania !

Post by dt123 »

Janus887 wrote: Fri May 14, 2021 8:46 am
Prahasaurus wrote: Fri May 14, 2021 6:54 am Here is a fantastic, step by step, overview of how to earn interest on dollar deposits within DeFi. Highly recommended:

https://medium.com/@jonathanalbert/earn ... 57bb167a32

It goes through all the steps, assuming you are just getting started.





"Built-in insurance policies?" Oh boy. This is starting to sound familiar. Collateralized debt obligations, anyone? It seems that this crypto bubble is combining the worst elements of the tech bubble (ludicrous, unfounded hype driving insane valuations) and the housing bubble (transfering risk systemically through derivative contracts). Truly, we have learned nothing. We will be lucky if the crypto bubble is able to burst without inflicting serious damage on the broader economy. But the longer this charade continues, the less likely that happy outcome becomes. More likely, given how this bubble combines the worst of the tech and the housing bubble as I pointed out, we will see it collapse in a similar manner: the rapidity of the tech bubble collapse, and the systemic damage of the housing bubble contagion. The recriminations at that point will be wide-ranging, as society is forced to collectively regain their financial senses all at once.
Good points. More to worry about though. It almost seems the various governments, who could be intervening, are holding back, as if they want the coming crypto crash to do as much damage as possible. There was one cautious statement from Janet Yellen, but nothing since. What are they waiting for?
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Re: Crypto mania !

Post by watchnerd »

Janus887 wrote: Fri May 14, 2021 8:46 am [It seems that this crypto bubble is combining the worst elements of the tech bubble (ludicrous, unfounded hype driving insane valuations) and the housing bubble (transfering risk systemically through derivative contracts). Truly, we have learned nothing. We will be lucky if the crypto bubble is able to burst without inflicting serious damage on the broader economy. But the longer this charade continues, the less likely that happy outcome becomes. More likely, given how this bubble combines the worst of the tech and the housing bubble as I pointed out, we will see it collapse in a similar manner: the rapidity of the tech bubble collapse, and the systemic damage of the housing bubble contagion. The recriminations at that point will be wide-ranging, as society is forced to collectively regain their financial senses all at once.
I think this is entirely possible and a big crash and shake out is probably part of the maturation of the DeFi space.

And, yes, if it gets big enough, it will probably have blow back outside of crypto.

But if that's a worry for someone, what can they do about it?
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Re: Crypto mania !

Post by dt123 »

txhill wrote: Fri May 14, 2021 9:03 am
Janus887 wrote: Fri May 14, 2021 8:46 am That being the case, can you explain to me who in their right mind would prefer to borrow crypto at a rate of 8, 10 or 12% at at time when fiat interest rates have never been lower? If The USDC stablecoin is actualy backed by dollars 1 for 1, why wouldn't you just borrow in dollars in the first place? To ask the question is to answer it. Obviously no one would do this. Something fishy is afoot.
I see this argument quite a lot, which is perfectly sensible from a Boglehead perspective where all of us have solid credit ratings and access to cheap credit. This is not the case for everyone. When you're well off, life is cheaper. You are forgetting about:

- The amount of credit card balances that aren't paid off every month, so they're paying outrageous usurious rates.
- People who use payday lenders. They pay even MORE outrageous rates. You wouldn't believe it. In some states without rate caps it gets to 600% APR.
- Number of adults in the United States who do not have ANY credit score: 53 million. Worldwide? Yeah, it's probably in the billions.

These are all people who would benefit from a bankless system. They'd pay 10% to borrow compared to the options they otherwise have available to them (which may be none at all). And lenders can finally lend because there's now a programmatic system that minimizes any counterparty default risk, and doesn't require even going out and finding borrowers in the first place.

And even among the banked, how many people really want to fill out a bunch of loan docs AND sell assets incurring capital gain taxes, if they want to have immediate access to additional capital for a trade or opportunity (which does NOT have to be in crypto)? It's more than you think (because many of those people already are making use of these platforms already).

You're underestimating the addressable market here because you are failing to consider the underbanked and unbanked in the world, just because you have it good already.
So you're saying, "Crypto now has a foot in the door on predatory lending. The more the merrier."

Whether people who are already on the debt treadmill should be borrowing more money, as opposed to pursuing other debt-lessening actions, is an argument for another day. I personally want the best for all concerned, so I would never want them to take on more debt, especially at the expense of giving up control of what may be their only asset, an inflated crypto holding. But that's just me.

The bigger fear is that they're borrowing money to buy more crypto, and of course, that's no act of a sane person.

Crypto has already experienced long periods of price decline. To think it won't happen again, once governments start to crack down, is lunacy.
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Re: Crypto mania !

Post by txhill »

dt123 wrote: Fri May 14, 2021 9:19 am So you're saying, "Crypto now has a foot in the door on predatory lending. The more the merrier."

Whether people who are already on the debt treadmill should be borrowing more money, as opposed to pursuing other debt-lessening actions, is an argument for another day. I personally want the best for all concerned, so I would never want them to take on more debt, especially at the expense of giving up control of what may be their only asset, an inflated crypto holding. But that's just me.

The bigger fear is that they're borrowing money to buy more crypto, and of course, that's no act of a sane person.

Crypto has already experienced long periods of price decline. To think it won't happen again, once governments start to crack down, is lunacy.
No, I'm saying that when someone is paying 25% to 600% to get loans today, or cannot even access loans at all, and they can get the same loans for 10% instead through DeFi, then it is a net benefit to them. It also benefits those who lend through DeFi as well but the bigger benefit goes to those who otherwise have no access to capital at all. DeFi competes with banks, payday lenders, credit card issuers, and other existing predatory lenders that you are so willing to defend simply because ... why? Why would you even defend payday lenders?
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Re: Crypto mania !

Post by Janus887 »

ohboy! wrote: Fri May 14, 2021 9:01 am Collateralized debt is bad? Hah. It’s absolutely hilarious to me to think these posts will be here when you figure it out. Will you remember we tried to show you and you yelled nonsense into the sky?
Let the readers note that neither this galaxy brained individual nor Prahasaurus has even attempted to refute the meat of my arguments against crypto. They just dismiss the arguments out of hand while throwing rotten produce from the cheap seats (well, maybe they are actually sitting front row given all the money they've apparently made in crypto).

But yes, collateralized debt IS bad, when it is transparently being produced out of debt streams that mathematically cannot be sustained. Which is exactly the case with crypto DeFi loans. No one is paying 10% interest in 2021 for an actual dollar-denominated loan. Ergo, these loans are not actually backed by dollars as the USDC claims. These loans are being used purely for speculation on crypto, with the collateral for the loans being...other crypto. When the value of crypto tanks, the loans cannot be paid back, and the CDOs become toxic. The degree to which those CDOs have been distributed through the broader financial world will determine the level of the damage caused by the contagion. Intelligent market regulators would prohibit financial institutions from having any involvement with crypto for this reason. The exact means by which AAVE is taking out insurance on its DeFi loans should be heavily scrutinized. But I doubt that information is publicly available (imagine that!).
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Re: Crypto mania !

Post by alluringreality »

txhill wrote: Fri May 14, 2021 9:23 am DeFi competes with banks, payday lenders, credit card issuers, and other existing predatory lenders
How does someone enter cryptocurrency without a connection to traditional finance at this point? The only route I can figure out are maybe the Bitcoin ATMs available locally, which appear to accept cash.
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Re: Crypto mania !

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alluringreality wrote: Fri May 14, 2021 9:34 am
txhill wrote: Fri May 14, 2021 9:23 am DeFi competes with banks, payday lenders, credit card issuers, and other existing predatory lenders
How does someone enter cryptocurrency without a connection to traditional finance at this point? The only route I can figure out are maybe the Bitcoin ATMs available locally, which appear to accept cash.
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Re: Crypto mania !

Post by Janus887 »

txhill wrote: Fri May 14, 2021 9:23 am
No, I'm saying that when someone is paying 25% to 600% to get loans today, or cannot even access loans at all, and they can get the same loans for 10% instead through DeFi, then it is a net benefit to them. It also benefits those who lend through DeFi as well but the bigger benefit goes to those who otherwise have no access to capital at all. DeFi competes with banks, payday lenders, credit card issuers, and other existing predatory lenders that you are so willing to defend simply because ... why? Why would you even defend payday lenders?
THE CRYPTO BROCHURE: "Meet Pranesh, a 28 year old father from rural India. DeFi crypto loans have allowed him to finance the construction of a farm which he works to feed his family and community. This never would have been possible within the limitations of traditional banking."

THE CRYPTO REALITY: "Meet Dan, a 22 year old Uber driver from New Jersey. He borrows crypto in order to finance the purchase of more crypto in a never-ending cycle. He does this because all his friends are doing it and because everyone knows that crypto only goes up. And because he likes the memes."
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Re: Crypto mania !

Post by txhill »

Janus887 wrote: Fri May 14, 2021 9:50 am
txhill wrote: Fri May 14, 2021 9:23 am
No, I'm saying that when someone is paying 25% to 600% to get loans today, or cannot even access loans at all, and they can get the same loans for 10% instead through DeFi, then it is a net benefit to them. It also benefits those who lend through DeFi as well but the bigger benefit goes to those who otherwise have no access to capital at all. DeFi competes with banks, payday lenders, credit card issuers, and other existing predatory lenders that you are so willing to defend simply because ... why? Why would you even defend payday lenders?
THE CRYPTO BROCHURE: "Meet Pranesh, a 28 year old father from rural India. DeFi crypto loans have allowed him to finance the construction of a farm which he works to feed his family and community. This never would have been possible within the limitations of traditional banking."

THE CRYPTO REALITY: "Meet Dan, a 22 year old Uber driver from New Jersey. He borrows crypto in order to finance the purchase of more crypto in a never-ending cycle. He does this because all his friends are doing it and because everyone knows that crypto only goes up. And because he likes the memes."
That's probably more accurate today, yes, especially for the crypto that has nothing to do with DeFi (dog money for example). But betting that there is no future for decentralized finance and that it is all a scam? I think that's a VERY bold claim to make. I hope you revisit this thread 10 years from now.
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Re: Crypto mania !

Post by txhill »

alluringreality wrote: Fri May 14, 2021 9:34 am
txhill wrote: Fri May 14, 2021 9:23 am DeFi competes with banks, payday lenders, credit card issuers, and other existing predatory lenders
How does someone enter cryptocurrency without a connection to traditional finance at this point? The only route I can figure out are maybe the Bitcoin ATMs available locally, which appear to accept cash.
At this point, you need CeFi as an on ramp, unless you're generating your income on the internet directly (probably a small portion of people who are unbanked and doing so currently). But that will change over time, especially as central banks start switching to digital dollars and people have digital wallets on their smartphones.
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Re: Crypto mania !

Post by alluringreality »

watchnerd wrote: Fri May 14, 2021 9:46 am
alluringreality wrote: Fri May 14, 2021 9:34 am
txhill wrote: Fri May 14, 2021 9:23 am DeFi competes with banks, payday lenders, credit card issuers, and other existing predatory lenders
How does someone enter cryptocurrency without a connection to traditional finance at this point? The only route I can figure out are maybe the Bitcoin ATMs available locally, which appear to accept cash.

Moneygram

https://www.cnbc.com/2021/05/12/moneygr ... ments.html
Thanks for the reply, it looks rather new.

In the coming weeks, new and existing Coinme users will be able to buy crypto with cash or withdraw it from thousands of MoneyGram’s brick-and-mortar locations in the U.S.
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Re: Crypto mania !

Post by balofagus »

Janus887 wrote: Fri May 14, 2021 9:29 am The exact means by which AAVE is taking out insurance on its DeFi loans should be heavily scrutinized. But I doubt that information is publicly available (imagine that!).
The means is part of the system (protocol?), they refer to it as the AAVE Safety Module. The introduction to this governance proposal very briefly gets in to implementation, in its intro section https://governance.aave.com/t/aave-toke ... posal/1885.

Their own documentation is here, trust of source of course to be considered, but goes deeper than the briefer summary: https://docs.aave.com/aavenomics/safety-module
Last edited by balofagus on Fri May 14, 2021 10:04 am, edited 1 time in total.
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Re: Crypto mania !

Post by starboi »

Janus887 wrote: Fri May 14, 2021 9:29 am
ohboy! wrote: Fri May 14, 2021 9:01 am Collateralized debt is bad? Hah. It’s absolutely hilarious to me to think these posts will be here when you figure it out. Will you remember we tried to show you and you yelled nonsense into the sky?
Let the readers note that neither this galaxy brained individual nor Prahasaurus has even attempted to refute the meat of my arguments against crypto. They just dismiss the arguments out of hand while throwing rotten produce from the cheap seats (well, maybe they are actually sitting front row given all the money they've apparently made in crypto).

But yes, collateralized debt IS bad, when it is transparently being produced out of debt streams that mathematically cannot be sustained. Which is exactly the case with crypto DeFi loans. No one is paying 10% interest in 2021 for an actual dollar-denominated loan. Ergo, these loans are not actually backed by dollars as the USDC claims. These loans are being used purely for speculation on crypto, with the collateral for the loans being...other crypto. When the value of crypto tanks, the loans cannot be paid back, and the CDOs become toxic. The degree to which those CDOs have been distributed through the broader financial world will determine the level of the damage caused by the contagion. Intelligent market regulators would prohibit financial institutions from having any involvement with crypto for this reason. The exact means by which AAVE is taking out insurance on its DeFi loans should be heavily scrutinized. But I doubt that information is publicly available (imagine that!).
Sounds like Archegos!
starboi
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Re: Crypto mania !

Post by starboi »

Janus887 wrote: Thu May 13, 2021 10:32 pm In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.
I think you would like Ray Dalio's book, Big Debt Crises.
txhill
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Re: Crypto mania !

Post by txhill »

starboi wrote: Fri May 14, 2021 10:00 am
Janus887 wrote: Thu May 13, 2021 10:32 pm In other words, it's an enormous house of cards built entirely on people lending fake money to each other, and using different forms of fake money as collateral. There is nothing behind it. It's literally just numbers on a screen, but as long as the numbers keep going up, people remain hypnotized.
I think you would like Ray Dalio's book, Big Debt Crises.
Ray Dalio's last recommendation incidentally was that a portfolio should be 20% in bitcoin because bonds are worthless.

I want to add though that there is undoubtedly speculative mania in crypto generally. I cannot explain why a lot of crypto tokens are pumping endlessly when there are no existing or even prospective use cases for them--namely dog money, anything with the word "moon" or "rocket" in their name, and even a lot of supposed ETH killers that are priced as if they've already won a large part of the DeFi/NFT market (which they have not). But ETH and DeFi tokens are in actual use today, are generating incredible revenue already, and have a bright future. There will be booms and busts ahead of us, and anyone playing with leverage is really playing with fire, but the space will continually grow over time and it will be a benefit to people around the world.
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watchnerd
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Re: Crypto mania !

Post by watchnerd »

Full disclosure:

I hold Tezos, Cosmos, and Algorand in my portfolio.

I've staked them all so am earning more crypto.

I'm probably going to regret it for tax reasons.
60% Global Market Stocks (VT,FM) | 38% Global Market Bonds | 2% crypto & securitized gold || LMP TIPS/STRIPS || RSU + ESPP
NiceUnparticularMan
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Re: Crypto mania !

Post by NiceUnparticularMan »

I can believe there are better ways to lend to high-risk borrowers that may allow those borrowers to get lower rates in the end. Of course in many cases, these truly are high-risk borrowers, who might not in fact pay back those loans. But the notion that maybe some such high-risk borrowers are nonetheless underserved, and that even maybe somewhat lower rates for such borrowers could still allow their lenders to make a reasonable aggregate return on such loans, is not inherently suspect to me.

What I am skeptical about is the notion that being the lenders to such high-risk borrowers is likely to produce a risk-adjusted financial windfall for such lenders. Indeed, the very premise here would seem to be that such lenders will do worse, not better, in risk-adjusted terms, if such borrowers are getting lower rates.

So, I guess if you are a high-risk borrower, and now you are borrowing crypto through these systems, and then you are converting that crypto to dollars and paying off higher-rate credit cards or avoiding payday loans or paying off the local loan shark--good for you!

But if you are the person newly LENDING to such borrowers? I mean, I guess good for you in a different sense, but not necessarily a financial sense.
csmath
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Re: Crypto mania !

Post by csmath »

txhill wrote: Fri May 14, 2021 9:03 am
Janus887 wrote: Fri May 14, 2021 8:46 am That being the case, can you explain to me who in their right mind would prefer to borrow crypto at a rate of 8, 10 or 12% at at time when fiat interest rates have never been lower? If The USDC stablecoin is actualy backed by dollars 1 for 1, why wouldn't you just borrow in dollars in the first place? To ask the question is to answer it. Obviously no one would do this. Something fishy is afoot.
I see this argument quite a lot, which is perfectly sensible from a Boglehead perspective where all of us have solid credit ratings and access to cheap credit. This is not the case for everyone. When you're well off, life is cheaper. You are forgetting about:

- The amount of credit card balances that aren't paid off every month, so they're paying outrageous usurious rates.
- People who use payday lenders. They pay even MORE outrageous rates. You wouldn't believe it. In some states without rate caps it gets to 600% APR.
- Number of adults in the United States who do not have ANY credit score: 53 million. Worldwide? Yeah, it's probably in the billions.


These are all people who would benefit from a bankless system. They'd pay 10% to borrow compared to the options they otherwise have available to them (which may be none at all). And lenders can finally lend because there's now a programmatic system that minimizes any counterparty default risk, and doesn't require even going out and finding borrowers in the first place.

And even among the banked, how many people really want to fill out a bunch of loan docs AND sell assets incurring capital gain taxes, if they want to have immediate access to additional capital for a trade or opportunity (which does NOT have to be in crypto)? It's more than you think (because many of those people already are making use of these platforms already).

You're underestimating the addressable market here because you are failing to consider the underbanked and unbanked in the world, just because you have it good already.
*color emphasis is mine*

I know things get contentious in crypto threads, so please read this as an honest question with no bad intentions.

If we are talking about people in poor financial conditions then aren't we talking about people who have a high likelihood of not actually being able to pay the debts in the first place? I know that there is such thing as predatory lending but I always rationalized some the high lending fees to the fact that not all the borrowers actually pay back the money in the first place which increases the risk for the lenders. In order to stay in business with a profit they need high enough interest rates to cover for the people that never pay up right?

So here is the logic to my question.
  • First, not all users of crypto are in it for the same reason. Let's ignore the innocent "bankless" people and include the people who are over-leveraged with debt in the first place. This is not a small group.
  • Add another group utilizing exponential leverage where crypto is borrowed to invest/speculate with.
  • What happens in cryptoland when someone borrows crypto and then never pays it back? I'm assuming bankruptcy works the same way for both crypto debt and USD debt right? Or doesn't it? This may be a whole new topic entirely because who's laws get applied in a decentralized, worldwide system?
  • If things are becoming exponentially leveraged, and someone doesn't pay back a crypto debt, doesn't that create a time bomb?
Edit to add: This was posted while I was typing and I think it relates to what I am trying to figure out.
NiceUnparticularMan wrote: Fri May 14, 2021 10:21 am What I am skeptical about is the notion that being the lenders to such high-risk borrowers is likely to produce a risk-adjusted financial windfall for such lenders. Indeed, the very premise here would seem to be that such lenders will do worse, not better, in risk-adjusted terms, if such borrowers are getting lower rates.

So, I guess if you are a high-risk borrower, and now you are borrowing crypto through these systems, and then you are converting that crypto to dollars and paying off higher-rate credit cards or avoiding payday loans or paying off the local loan shark--good for you!

But if you are the person newly LENDING to such borrowers?
I mean, I guess good for you in a different sense, but not necessarily a financial sense.
Last edited by csmath on Fri May 14, 2021 10:27 am, edited 1 time in total.
txhill
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Re: Crypto mania !

Post by txhill »

NiceUnparticularMan wrote: Fri May 14, 2021 10:21 am I can believe there are better ways to lend to high-risk borrowers that may allow those borrowers to get lower rates in the end. Of course in many cases, these truly are high-risk borrowers, who might not in fact pay back those loans. But the notion that maybe some such high-risk borrowers are nonetheless underserved, and that even maybe somewhat lower rates for such borrowers could still allow their lenders to make a reasonable aggregate return on such loans, is not inherently suspect to me.

What I am skeptical about is the notion that being the lenders to such high-risk borrowers is likely to produce a risk-adjusted financial windfall for such lenders. Indeed, the very premise here would seem to be that such lenders will do worse, not better, in risk-adjusted terms, if such borrowers are getting lower rates.

So, I guess if you are a high-risk borrower, and now you are borrowing crypto through these systems, and then you are converting that crypto to dollars and paying off higher-rate credit cards or avoiding payday loans or paying off the local loan shark--good for you!

But if you are the person newly LENDING to such borrowers? I mean, I guess good for you in a different sense, but not necessarily a financial sense.
I think what will happen over time as DeFi becomes more widespread and established, the rates will decrease to closer to a risk-free rate of return (still above that but certainly less than what's achievable now). Much better for borrowers and still better for lenders than a traditional savings account. That's just my uneducated guess because lower risk implies lower returns. It's just that right now there is a huge demand for DeFi that is not even close to satisfied yet, and also DeFi is still risky as it is not fully established and fully tested (high risk). A program glitch could wipe out lenders. But give it time...
runninginvestor
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Re: Crypto mania !

Post by runninginvestor »

dt123 wrote: Fri May 14, 2021 9:04 am [Good points. More to worry about though. It almost seems the various governments, who could be intervening, are holding back, as if they want the coming crypto crash to do as much damage as possible. There was one cautious statement from Janet Yellen, but nothing since. What are they waiting for?
My guess is they are deferring action deliberately. I think of the following scenarios:

1. Do nothing and Crypto collapse is on its own, further solidifying Central Bank currency.

2. Do nothing and allow the space to develop, then cherry pick the best parts to move forward and put the rest out of the picture by the legislation. Again, solidifying the central bank's power over the currency. Added bonus, by delaying the government has to spend less on on ramping the citizen base into the technology. There's a time decay where the older generation that is typically resistant to technology will become less and less the longer they delay and be replaced by generations and other more favorable towards technology.

2.5: while I'm delaying, treat cryptocurrency as investment so that people need to redeem back into the Central Bank currency to pay taxes.

3. Admit that cryptocurrency is a threat, which would immediately devalue and cause less faith in the Central Bank currency.

Based on 2, I see that as the strongest case for why they would delay. Governments kind of benefit in the hands off approach, or at the very least, as long as they keep the space separate from traditional assets and banking, they can contain a potential fallout. But they definitely don't want to go route 3, at least any major developed country like the US. There's a strong incentive to keep transactions in the global economy based in the US dollar.

Edit: Wikipedia has a table that updates from time to time of how various governments are treating crypto:
https://en.m.wikipedia.org/wiki/Legalit ... _territory
Last edited by runninginvestor on Fri May 14, 2021 10:31 am, edited 1 time in total.
txhill
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Re: Crypto mania !

Post by txhill »

csmath wrote: Fri May 14, 2021 10:24 am *color emphasis is mine*

I know things get contentious in crypto threads, so please read this as an honest question with no bad intentions.

If we are talking about people in poor financial conditions then aren't we talking about people who have a high likelihood of not actually being able to pay the debts in the first place? I know that there is such thing as predatory lending but I always rationalized some the high lending fees to the fact that not all the borrowers actually pay back the money in the first place which increases the risk for the lenders. In order to stay in business with a profit they need high enough interest rates to cover for the people that never pay up right?

So here is the logic to my question.
  • First, not all users of crypto are in it for the same reason. Let's ignore the innocent "bankless" people and include the people who are over-leveraged with debt in the first place. This is not a small group.
  • Add another group utilizing exponential leverage where crypto is borrowed to invest/speculate with.
  • What happens in cryptoland when someone borrows crypto and then never pays it back? I'm assuming bankruptcy works the same way for both crypto debt and USD debt right? Or doesn't it? This may be a whole new topic entirely because who's laws get applied in a decentralized, worldwide system?
  • If things are becoming exponentially leveraged, and someone doesn't pay back a crypto debt, doesn't that create a time bomb?
Many DeFi systems require overcollateralization. Meaning that the borrower has to put up more collateral than they borrow, and the DeFi platform automatically liquidates that collateral in favor of lenders if the borrowed amount is not repaid / collateral drops in value. In theory, at least if markets remain sufficiently liquid, the lender faces no or very low borrower default risk.

In that sense, DeFi will NOT completely displace CeFi (at least not the way we think of DeFi today)--there will still be credit risk assessment and lending through that for instances where someone cannot post collateral. But there will be a lot of use cases where someone will need immediate liquidity but don't want to pay the 600% payday loan rate.
decapod10
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Re: Crypto mania !

Post by decapod10 »

watchnerd wrote: Fri May 14, 2021 10:14 am Full disclosure:

I hold Tezos, Cosmos, and Algorand in my portfolio.

I've staked them all so am earning more crypto.

I'm probably going to regret it for tax reasons.
ETH staking is a particular issue for taxes because your ETH and rewards are locked for the foreseeable future, which means you can't sell the ETH to pay the taxes. So if ETH moons to like $10000 or something, 1 node is generating like $20k in gains per year, but you have to come up with the tax money somehow without selling the ETH
EnjoyIt
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Re: Crypto mania !

Post by EnjoyIt »

txhill wrote: Fri May 14, 2021 9:23 am
dt123 wrote: Fri May 14, 2021 9:19 am So you're saying, "Crypto now has a foot in the door on predatory lending. The more the merrier."

Whether people who are already on the debt treadmill should be borrowing more money, as opposed to pursuing other debt-lessening actions, is an argument for another day. I personally want the best for all concerned, so I would never want them to take on more debt, especially at the expense of giving up control of what may be their only asset, an inflated crypto holding. But that's just me.

The bigger fear is that they're borrowing money to buy more crypto, and of course, that's no act of a sane person.

Crypto has already experienced long periods of price decline. To think it won't happen again, once governments start to crack down, is lunacy.
No, I'm saying that when someone is paying 25% to 600% to get loans today, or cannot even access loans at all, and they can get the same loans for 10% instead through DeFi, then it is a net benefit to them. It also benefits those who lend through DeFi as well but the bigger benefit goes to those who otherwise have no access to capital at all. DeFi competes with banks, payday lenders, credit card issuers, and other existing predatory lenders that you are so willing to defend simply because ... why? Why would you even defend payday lenders?
So your saying someone with horrible personal financial skills with a bunch of credit card debt somehow was able to amass thousands of dollars to buy cryptocurrency and then use it as collateral to take out more debt.

I think that is a delusional narrative.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
NiceUnparticularMan
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Re: Crypto mania !

Post by NiceUnparticularMan »

txhill wrote: Fri May 14, 2021 10:24 am
NiceUnparticularMan wrote: Fri May 14, 2021 10:21 am I can believe there are better ways to lend to high-risk borrowers that may allow those borrowers to get lower rates in the end. Of course in many cases, these truly are high-risk borrowers, who might not in fact pay back those loans. But the notion that maybe some such high-risk borrowers are nonetheless underserved, and that even maybe somewhat lower rates for such borrowers could still allow their lenders to make a reasonable aggregate return on such loans, is not inherently suspect to me.

What I am skeptical about is the notion that being the lenders to such high-risk borrowers is likely to produce a risk-adjusted financial windfall for such lenders. Indeed, the very premise here would seem to be that such lenders will do worse, not better, in risk-adjusted terms, if such borrowers are getting lower rates.

So, I guess if you are a high-risk borrower, and now you are borrowing crypto through these systems, and then you are converting that crypto to dollars and paying off higher-rate credit cards or avoiding payday loans or paying off the local loan shark--good for you!

But if you are the person newly LENDING to such borrowers? I mean, I guess good for you in a different sense, but not necessarily a financial sense.
I think what will happen over time as DeFi becomes more widespread and established, the rates will decrease to closer to a risk-free rate of return (still above that but certainly less than what's achievable now). Much better for borrowers and still better for lenders than a traditional savings account. That's just my uneducated guess because lower risk implies lower returns. It's just that right now there is a huge demand for DeFi that is not even close to satisfied yet, and also DeFi is still risky as it is not fully established and fully tested (high risk). A program glitch could wipe out lenders. But give it time...
But fundamentally, that prediction makes no economic sense.

There are in fact borrowers who are a risk to not fully pay back their lenders, and some have a pretty high risk of that.

Why would they be able to borrow at risk-free or near-risk-free rates? That makes no sense, because in the aggregate their lenders will predictably lose money on those loans.

You seem to only be talking about risk in the form of a program glitch or something like that. But a major risk to lending is just that some person or company takes your money based on the promise of paying it back on certain terms, and then they don't actually do that.

As we are discussing in multiple places now, traditional FDIC savings accounts have extremely favorable terms for those lenders--the principal is guaranteed (up to the FDIC limit), and the money is fully callable on demand. It makes sense with terms so favorable, the rates would be so low.

In contrast, if you loan that same money to someone offering you a lot higher rates, it is almost surely the case that they are not actually able to guarantee the principal, nor that the money will be fully callable on demand. Even if they say all that, they are probably not telling you the truth. Because if they could credibly promise all that, they could get much cheaper loans.

So I am really puzzled by this logic. Completely independent of issues about intermediaries, loaning people money is generally a pretty risky thing to do, and sometimes it is a VERY risky thing to do. And if you are loaning to people at a risk-free rate, or near risk-free rate, and then too many of those people don't pay you back, you will lose money. Hence why in fact many borrowing rates are a lot higher than the risk-free rate--they are not risk-free loans!
NiceUnparticularMan
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Re: Crypto mania !

Post by NiceUnparticularMan »

txhill wrote: Fri May 14, 2021 10:30 am
csmath wrote: Fri May 14, 2021 10:24 am *color emphasis is mine*

I know things get contentious in crypto threads, so please read this as an honest question with no bad intentions.

If we are talking about people in poor financial conditions then aren't we talking about people who have a high likelihood of not actually being able to pay the debts in the first place? I know that there is such thing as predatory lending but I always rationalized some the high lending fees to the fact that not all the borrowers actually pay back the money in the first place which increases the risk for the lenders. In order to stay in business with a profit they need high enough interest rates to cover for the people that never pay up right?

So here is the logic to my question.
  • First, not all users of crypto are in it for the same reason. Let's ignore the innocent "bankless" people and include the people who are over-leveraged with debt in the first place. This is not a small group.
  • Add another group utilizing exponential leverage where crypto is borrowed to invest/speculate with.
  • What happens in cryptoland when someone borrows crypto and then never pays it back? I'm assuming bankruptcy works the same way for both crypto debt and USD debt right? Or doesn't it? This may be a whole new topic entirely because who's laws get applied in a decentralized, worldwide system?
  • If things are becoming exponentially leveraged, and someone doesn't pay back a crypto debt, doesn't that create a time bomb?
Many DeFi systems require overcollateralization. Meaning that the borrower has to put up more collateral than they borrow, and the DeFi platform automatically liquidates that collateral in favor of lenders if the borrowed amount is not repaid / collateral drops in value.
What sort of collateral?

Edit: Oh, and how is this consistent with your narrative about replacing payday lenders, loan sharks, high-rate credit cards, and such? Those folks typically don't have collateral that can actually be liquidated to cover those loans.
Last edited by NiceUnparticularMan on Fri May 14, 2021 10:45 am, edited 1 time in total.
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