People hold Bitcoin and Etherum because they want to be able to make a profit on it raising in price. If someone sells their Bitcoin to buy Doge and Bitcoin doubles in price they don’t earn any profit. If they however used the Bitcoin as collateral for a loan, the will make a profit if Bitcoin rises in price.
Vitalik’s explanation of how he made $56,803 on betting on Trump losing on Augur would be one practical case of someone using this method.
Just like Vitalik made profit with using the inefficiency in the Augur prediction market other people are likely using the leveraged capital to make money with the above described yield farming.
Is there any use case for these over-collateralized loans other than getting leveraged exposure to token prices? (Or, like Vitalk did, retaining exposure to token prices while also using the money for something else?) So, for instance, if crypto prices stabilized long term, would the demand for overcollateralized loans disappear? Does anybody take out loans collateralized by stablecoins?
Even if the prices of crypto-currency stabalize long-term, not every token is about being a crypto-currency. Many tokens are like shares in a venture that you wouldn’t expect to have stable prices just like stocks on the stock-market don’t have stable prices.
If I understand right you can also use tokens that are locked in to doing staking as collateral.
People hold Bitcoin and Etherum because they want to be able to make a profit on it raising in price. If someone sells their Bitcoin to buy Doge and Bitcoin doubles in price they don’t earn any profit. If they however used the Bitcoin as collateral for a loan, the will make a profit if Bitcoin rises in price.
Vitalik’s explanation of how he made $56,803 on betting on Trump losing on Augur would be one practical case of someone using this method.
Just like Vitalik made profit with using the inefficiency in the Augur prediction market other people are likely using the leveraged capital to make money with the above described yield farming.
Ok, interesting! Thanks for the explanation.
Is there any use case for these over-collateralized loans other than getting leveraged exposure to token prices? (Or, like Vitalk did, retaining exposure to token prices while also using the money for something else?) So, for instance, if crypto prices stabilized long term, would the demand for overcollateralized loans disappear? Does anybody take out loans collateralized by stablecoins?
Even if the prices of crypto-currency stabalize long-term, not every token is about being a crypto-currency. Many tokens are like shares in a venture that you wouldn’t expect to have stable prices just like stocks on the stock-market don’t have stable prices.
If I understand right you can also use tokens that are locked in to doing staking as collateral.