In order to take out a loan on a Dapp you have to come with collateral. Whatever you cannot pay back on the loan, you lose that amount in collateral and the interest accrued. That being the case what is the point for the average user to borrow on Defi? It seems only suited to traders to leverage their money. Is there another use case that anyone knows of?
2 Answers
I personally have many ideas. Some people need to borrow and that's OK. If I were to lend someone money though, I'd expect interest to be paid and the principal to slowly go down and usually, one would go through a bank with lawyers so it will be fairly costly for all this so there are minimums to reach before it becomes profitable to the Everyman. This clearly is an issue if we are to have safe, inclusive and decentralised finances.
Another reason is accessibility. Have you ever asked your bank how much it costs to use their API? Ring them, try it, their only line of questioning will be to ascertain how much they can get from you. With a smart contract, you could, depending on provider, interact with you SC at low cost or you can use your own node / code for free. Bet your bank won't do that.
To summarise, average user won't have immediate benefit other than reduced fees ( which add up quite quickly). So how is it going to change the world? It won't. The old world will simply die, as it does every generation, leaving behind a new people who are more technically knowledgeable and with that, these automated systems will allow users to interact with their finances.
This is obviously my own opinion with no historical backing (as there exists, none) and not everyone will agree. Heck, not sure if I do.So many moving cogs. But as I see it, right now, to the average person, I'd see more benefit in using fiat loans until a point where usage and value of crypto stabilises and only at that point in the not far away future, will it be globally beneficial.
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Thanks for the thoughtful answer. I've been bouncing these ideas around in my own head too and I agree. These technologies are new and will eventually be adopted by the masses and provide much greater efficiencies in financial markets, disintermediating great swaths of the economy. Let's see how long it takes!! I just don't see myself taking out a crypto loan on one of these dapps. I am happy to provide liquidity and make some interest, but I have no idea what I would do with a loan. Not interested in high stakes trading.– NoahCommented Sep 25, 2021 at 13:43
I recently borrowed some funds on Defi. The reason I borrowed was so I didn't have to sell my crpto. The collateral required was 4 times the loan. The loan was at 1% interest and my interest on the Defi token paid the 1% interest. I've paid back the loan and the only advantage I see is I didn't initially have to sell my crpto. But when I paid back the loan I had to sell crypto at a lower price because I needed to withdraw some funds permanently. The only way I will take another loan is if the collateral coin is in the initial stage of a bull run. Otherwise, it's best to just sell crypto for needed funds.
