The lending problem

[Desmong]

A simple question to the forum - I hope that people can provide sensible answers, since it would be way too easy to preach rather than to reason.

It has been mentioned many times in the forum that banks can be killed by bitcoin and that crypto is a threat for central banks, etc... One of the reasons that make me doubt about that possibility is the worldwide need of having a strong lending and borrowing system. I think that currently DeFi does not offer a realistic solution and that lending eventually has to rely on an intermediary. That, in some way or under a different name, is a bank.

How is this problem addressed currently and how could it be solved at large scale without a "bank" of shorts?

Really is somehow hard for this to happen in the blockchain platform but I believe that all these problems would be resolved as time goes on. We all know that change is constant and everything that is happening now is tend to be adjusted as more people adopt the use of Bitcoin and it blockchain interface. There is no need to panic about how Bitcoin will overcome the Fiat system of transaction of goods and services whereby making it hard for borrowing and lending to occur without it being compromised.

[slaman29]

There is no problem because human society will always operate on trust and server/client relationship. You can't turn everything into a decentralized network and doing so is often counterproductive. Bitcoin works by having every node store all transactions ever made, so its capacity is very limited. Torrenting networks suffer from the problem where rarely-accessed files can't be downloaded until someone who has them decides to seed them. Point is, decentralized is not automatically better.

The idea that everything should be decentralized is just a hype created by crypto bros who sell shitcoins and "blockchain technology".

Totally agree here, I love Bitcoin, I love torrenting, I love all kinds of P2P and when I can share, trade crypto, even music, I try to do p2p as a more decentralized form of interacting. But this doesn't mean I abandon centralized alternatives.

Bitcoin's great but it can't pay my bills.
I've got torrents waiting for months, and then I probably will give them up at a time.
P2P trading's great until you keep getting orders cancelled because people aren't online. Then you switch to an exchange for instant trade.

I really, really get annoyed with decentralized this and that... which isn't even most of the time the truth.

[boled]

In my opinion, DeFi is just a platform, where they offer financial management services, the products are the same as banks, so their position is still the same as banks.
The banking world will never be replaced just because of cryptocurrencies, and what happens is that they will make peace with crypto and make certain coins that are considered valuable as part of their products, such as savings, loans, or financing products, and loan products become one of the flagships of almost all banks in the world.

[el kaka22]

Banks do not have any power over you at all unless there are laws, laws that protect their fiat currency when they loan you. So, if you take a loan, and do not pay it, what happens? Bank seizes your stuff and come in with couple cops and take your stuff and sell them to pay off your debt right?

Well, why shouldn't that be the same for crypto? If banks are given the right to loan crypto to people, and if you do not pay your crypto loan back, then there should be laws that will allow banks to come in and seize your things and do the same thing they do with fiat. It is not about lending not being easy in crypto, if you loan to someone you do not know then you will not be able to do anything, however if there are laws and the laws back you up then you can loan to anyone you want and if they fail then you take their stuff, just like how it is in fiat world.

[Findingnemo]

How is this problem addressed currently and how could it be solved at large scale without a "bank" of shorts?

Lending, this is never going to be completely decentralized and bitcoin is not actually created to kill the central banks nor to bring the decentralized lending system it is just to eliminate the third party to send your own money to someone so concept of lending is not actually under the bitcoin.

But due to the evolution lot of projects are coming up with different ideas and one of them is DeFi which created hyped but didn't made any changes in the real world usage.

You are right, DeFi is a dead-end direction that copies the existing monetary system. But you are wrong when you say: "Lending will never be completely decentralized," it will be very soon and without a third party.

Without third party there will be a valid collateral and there should be some kind of agreement or else most loans will become default and the Market will totally collapse.

[Karartma1]

What if we don't really need lending and borrowing? What if we'd start living again on our very own basis? Why should we borrow from our future when we should focus on how to make a living and actually live in the present time?
Your discussion is just perpetuating the current rotten system, sorry to say.
I'd prefer a world where everyone would do only the things he can do..
The American dream of taking from the future's over and done.

[NeuroticFish]

What if we don't really need lending and borrowing? What if we'd start living again on our very own basis? Why should we borrow from our future when we should focus on how to make a living and actually live in the present time?

Fiat being inflationary it's a pretty good business to borrow. If there will no longer be lending in fiat and that's replaced with lending in bitcoin, the fixed supply / increasing value coin may convince people to stop borrowing this easy. But that's quite far in the future; I don't expect the current system give up easy.

[VictorProsh]

What if we don't really need lending and borrowing? What if we'd start living again on our very own basis? Why should we borrow from our future when we should focus on how to make a living and actually live in the present time?
Your discussion is just perpetuating the current rotten system, sorry to say.
I'd prefer a world where everyone would do only the things he can do..
The American dream of taking from the future's over and done.

Any big business needs investments, loans, and where can I get them?
Strange people want to sit in their burrow and do nothing worthwhile.

[Wawa2013]

What if we don't really need lending and borrowing? What if we'd start living again on our very own basis? Why should we borrow from our future when we should focus on how to make a living and actually live in the present time?
Your discussion is just perpetuating the current rotten system, sorry to say.
I'd prefer a world where everyone would do only the things he can do..
The American dream of taking from the future's over and done.

It seems very difficult to expect a world without lending and borrowing, because some companies need loans to be able to expand their business.
Because finding investors nowadays is very difficult compared to finding loans, so I think borrowing is still needed. The problem is don't make
borrowing a habit, if it's not for urgent needs, it's better to avoid borrowing money. Therefore banks will be difficult to replace, so the government
does not have to worry about Bitcoin replacing banks. Due to the fact that banks are still needed, one of which is that banks can lend money to
those in need.

[michellee]

What if we don't really need lending and borrowing? What if we'd start living again on our very own basis? Why should we borrow from our future when we should focus on how to make a living and actually live in the present time?
Your discussion is just perpetuating the current rotten system, sorry to say.
I'd prefer a world where everyone would do only the things he can do..
The American dream of taking from the future's over and done.

People are hungry for something they do not have so they borrow money from others to get what they want. We can start living again without lending and borrowing but the banks will not stop people from borrowing from them.

If people realize about living without borrowing and lending is better, they will not try to borrow or lend to others. We can not do anything because people are free to do what they want and know the consequences.

[slaman29]

Banks do not have any power over you at all unless there are laws, laws that protect their fiat currency when they loan you. So, if you take a loan, and do not pay it, what happens? Bank seizes your stuff and come in with couple cops and take your stuff and sell them to pay off your debt right?

Well, why shouldn't that be the same for crypto? If banks are given the right to loan crypto to people, and if you do not pay your crypto loan back, then there should be laws that will allow banks to come in and seize your things and do the same thing they do with fiat. It is not about lending not being easy in crypto, if you loan to someone you do not know then you will not be able to do anything, however if there are laws and the laws back you up then you can loan to anyone you want and if they fail then you take their stuff, just like how it is in fiat world.

The decentralized lending protocols show how laws don't take place though.

The rules are set by smart contracts, so lenders are protected if the code is done well enough, whereby it triggers full liquidation of borrower's collateral if they don't pay back. But at the same time, if the code isn't good enough or market flash crash or spikes happen, we've also seen borrowers take advantage of flash loans and win big leaving lenders at a loss.

No laws to take them to court because it's all "decentralized".

[Frengki_cisco]

You don't need to doubt the world's need to borrow. The World Bank always controls and looks after each country/international borrower, while maintaining stability in international trade, the world bank will guarantee capital and loans in the form of international investment, for now there are 100 IMFs including world bank branches around the world.

To solve this problem the world bank will make low interest loans, credit and also the world bank will provide grants to countries in the poorest category, in other actions taken by the world bank is to support such as investment, hospitals, education, infrastructure and education etc.

[stompix]

Banks do not have any power over you at all unless there are laws, laws that protect their fiat currency when they loan you. So, if you take a loan, and do not pay it, what happens? Bank seizes your stuff and come in with couple cops and take your stuff and sell them to pay off your debt right?

Well, why shouldn't that be the same for crypto? If banks are given the right to loan crypto to people, and if you do not pay your crypto loan back, then there should be laws that will allow banks to come in and seize your things and do the same thing they do with fiat.

So, in short, crypto will not kill banks and without a bank, you won't see a crypto loan!

People are hungry for something they do not have so they borrow money from others to get what they want. We can start living again without lending and borrowing but the banks will not stop people from borrowing from them.
If people realize about living without borrowing and lending is better, they will not try to borrow or lend to others

Bulllll****! There is no problem is borrowing if you know what you're doing!
I took a loan that I was supposed to pay in 25 years (paid it way earlier) and I bought my small flat, what was I suppose to do without a loan, live with my parents till I was 50 or spend the money I was putting towards paying the loan on rent and end up with nothing?

Crypto alone will never replace banks!
I don't know a single person who has spent 20 years getting slowly money to start his own business larger than a hot-dog stand but I know tens who have done so by taking a loan from a bank! How will this work with defi and collateral? You will have to come up with $100k to take a loan worth $30k? Like it or not, a lot of small businesses were started with loans, a lot of them rely on banks to grant them loans when expanding or when in trouble, if we go the ways of collateral nobody with limited resources will ever have the opportunity to start something.

Banks under different forms have given loans for 4 millennia, they don't need fiat money for it, silver or gold worked perfectly, for a bitcoin loan you need a third party, guess who?

[NeuroticFish]

they don't need fiat money for it, silver or gold worked perfectly, for a bitcoin loan you need a third party, guess who?

Actually they might fiat for it. Just think: would you have (ever) paid that loan back if it were in bitcoin?
Right now inflationary fiat is a great tool for lending, helping you pay back easy and also helping banks because they can work with fractional reserve.

[shield132]

The only I can think about the lending is the loan rate in different countries. Otherwise what's the problem? The bank acts like a middleman and offers guaranteed profit to the depositor and the loan to the borrower.

I don't know much about the DeFi but this is how traditional lending works:
1. Person A has surplus of money and wants to profit by giving it away to other person(s) but at the same time he is afrad that he may not receive the money that he lent.
2. This is where the banks shine. They connect the depositor and borrower to each other. Person A sends money to the bank and the bank send money to the borrower (person B). Person A feels secure and gets guaranteed profit, bank risks and gives loans in high percentage to the borrower.
3. Depositor gets profit and feels happy, borrower gets the loan, banks get the huge profit. Because the bank is a major player in lending and it's almost the only institute people use to lend/borrow money, they feel safe when giving loans cause the possibility of defaulting is very low, otherwise person gets blacklisted and won't be able to take a loan in his life.

[Kelvinid]

Banks just really it grow because of a number of lenders also growing, this has pratically become a big business nowadays and this seems not be going to happen in crypto. Banks will still exist even there is a huge crypto adoption happen and it was because the majority will still make use of their services that could help them to survive.

Could someone can provide us with a big loan in crypto? That is really hard to find and I think no one will be able to take that but banks can do it. This is a big difference and lenders will be preferred to stay using fiat than crypto.

[oHnK]

Indeed, this is not as simple as it is said, but I see that in the loan transaction process the most crucial is not a third party in this case it can be called a bank. But a guarantee. There are no loans that pass at the bank except for a strict administrative selection with collateral requirements. Actually, anyone can do this loan transaction without any problems if there is a clear guarantee. In crypto or in banks, it's all the same. Still going on with the guarantee.

[amishmanish]

More than pure lending against collateral, it is the function of investing for which banks will continue to remain relevant. An investment banks "creates" capital by funding projects that are judged to be credit-worthy. There is no equivalent function in crypto. It has proven a very crude and scam-filled method of judging the credit worthiness of projects and teams.

Purely lending against collateral can have a path towards crypto-transformation once there are sufficient technology integration to tokenize property.

This by itself cannot pose a threat to banks. Then again, when people talk about bitcoin posing threat to banks, its not really the banking service providers per se, it is generally the central banks, particularly the US federal reserve which has an unlimited capacity to print the world' reserve currency. This gives it power over deciding who fails and who gets to survive in case of crashes like 2008. It also concentrates power and perpetuates the kind of decision making that leads to such crisis.

Bitcoins monetary policy is a threat to powerful central banks. This has gradually been generalized to be seen as "crypto is a threat to banks". Its more like a competitor.

[iv4n]

Bitcoins monetary policy is a threat to powerful central banks. This has gradually been generalized to be seen as "crypto is a threat to banks". Its more like a competitor.

It's a competitor, but crypto to grow needs to take from fiat space! And crypto is taking more and more space! In one moment banks and institutions will try to stop that (and I can bet they are doing that already), but I doubt they can do much!

Simply, traditional monetary systems are corrupted and nobody can fix that! Most of the things that happen in this system are secret, we don't even know what happens... So we come to one of the things I like about crypto, and that is transparency, open ledger... that can help all of us, that can make many things less vulnerable on corruption!

True power comes from the people, masses! In the end, the group of people that is bigger and stronger will win... I hope that people will recognize the crypto as something better, and if that happens bank institutions will fail in one moment!

[stompix]

Actually they might fiat for it. Just think: would you have (ever) paid that loan back if it were in bitcoin?

At the time I bought the flat there was no bitcoin and even if it were a 120k euro loan in pizza day conversion rate would have been 31 million coins, not really possible, right? 

But that aside, that's why no company in the lending sector, even if they entitle themselves as crypto loans don't actually give loans in crypto, they give you $25 000 for which you have to give coins of $50 000 in value and every time that value drops you will be forced to deposit more coins if you don't want your loan liquidated. Probably in a decade, the price will reach an area where it will be impossible for it to double overnight, so the fear of such swings will go away, but even so, it will still be banks that will give out those loans.