I see that some of the points are touched in https://academy.ivanontech.com/products/defi-101/categories/2382218/posts/7961557, basically the same graph I posted before of the world’s money supply, but I think it needs a bit better deep dive into why the derivatives market has so much more money than there is in the world’s supply, seems to me like a huge bubble waiting to pop.
I do see value in descentralizing things like insurance and peer to peer loans but as @cryptologos mentions, how good is the protocol if it can’t be used to pay a mortgage or some real world asset. And as @pazzi says
even accessing to this kind of financial instrument if it’s then converted to fiat it becomes a taxable event. I guess in this case there should be some kind of adoption of the protocol, but again, a transfer of ownership of such assets would in theory incur in a taxable event, would be great to understand at this level the implications of using such protocols for these kind of asset transfers.
I am getting the feeling that technology is awesome but needs adoption for real world, otherwise the protocols will be used purely for speculation and in some ways deviate the whole purpose of reaching a trustless ecosystem that we can rely upon and in turn become a huge headache for small investors and people that don’t really get who wins and who loses in this zero sum game.
). To do undercollaterized loans in Defi exclusively on-chain probably will never work since you need to trust the borrower and you cannot punish them somehow. But I can some new projects coming along using things like KYC, oracles, 3rd party risk assessors, and collection agencies to extend loans to average people where the investors are just people like us using crypto via a smart contract that coordinates the moving pieces.
. I’ll give you real life example. I’m now holding and staking SNX with synthetix (let’s say, for example, 2,000 SNX). I think the project is great and has a lot of upside potential but sometimes the prices goes up too high too quickly and the goes back down. When I see the price go up too much (in my opinion) and I want to lock my profit in SNX but I don’t want to unstake my SNX and sell it (gas price too high, I don’t want to lose out on the nice weekly staking rewards, and other reasons). So instead I take my ETH and other tokens I’m hodling, put them in Aave to lend, borrow 2,000 SNX, and sell it for more ETH or a stablecoin like USDC. Now if price of SNX goes up, my debt goes up in value but so does my stack of SNX. If price of SNX goes down then the value of my stack goes down but value of debt is also lower and I already locked my profit when I exchanged the borrowed SNX for USDC. So you see in this case I’m long SNX and short SNX by same amount so I don’t care what happens to price of SNX (I’m market neutral) but I still get my weekly rewards from Synthetix.