The lending problem

[worle1bm]

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?

There don't seems to be any possibility that bitcoin could kill the banking system of the countries in near future because they will be used as an alternate system as mode of payment and banks would still be operational.With the launch of CDBC banks are not going to disappear and local and physical branches would still be in working as they control all the fiat supply and monetary policy of the country and people trust them.With bitcoin you can have freedom of funds but you will also need fiat at some time because you can't always spend your coins from investment point of view and banks fill that position.So they will also operate the other secondary and primary functions in the economy.

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[slaman29]

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.

I pointed this out in so many defi threads. You cannot believe how many stupid "defi" projects there are out there who actually still tell everybody that they are helping poor people and unbanked people. Defi for everyone, my ass.

When at the heart of defi, you have to put up money to get more money. Borrowing money for collateral, which must be crypto.

Nobody admits to the fact that "defi" is only for rich gamblers. Banks, you can hate them, but with the government help and a salary you can borrow money for nothing up front.

[NeuroticFish]

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.

Exactly. We are on same page here.
So Bitcoin may be able to replace fiat money, it may be able to replace reserve banking, but it will probably not replace the actual banks.
But giving loans in bitcoin is such a niche product, I don't think that banks will be interested soon doing that, even if they may start seeing bitcoin in the same way they see foreign currencies and enter themselves into the exchange business.

[michellee]

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?

I do not take a loan. My father teaches me to work hard and collect the money because not many people can pay the rent every year until it is finished. You are lucky that you can finish the loan so you can say that, but others might not take that risk and try to search for the other way. You can use your income to buy a small flat with credit if you think it is hard to take a loan and repay the money but you did well by doing that.

My father uses that way to buy our house and with 20 years of playing time, he completes the mortgage payment without taking a loan. That is what I did for my home and I do not take a loan too like my father because I am not good to manage the money for the things that I need. I prefer to do it step by step and not taking a risk too big.

Crypto will not replace the banks but it will work together with the banks and give the best solution for people, I guess. DeFi is still far away from becoming like a bank. Besides that, crypto is still on the grey side, which needs more attention and approval from the government.

[Betwrong]

The only I can think about the lending is the loan rate in different countries. ~

Reading the posts before yours I was thinking the same thing. Bank Lending Rate differs significantly from country to country. Here are a few of the top rates around the world(it's clickable):




(Sorry, I have no idea why they didn't put Madagascar with its 48% in the list).

I'm sure many of you guys have those figures in the much lower range.

~ My father uses that way to buy our house and with 20 years of playing time, he completes the mortgage payment without taking a loan.~

Aren't they basically the same things, mortgages and loans?

[famososMuertos]

I think you should think about "renewing" the idea of the loan, in all its aspects, the first thing is to avoid comparisons and work on the results, these results must be compromised with a fair balance for the parties.

Formal loans in significant amounts are generally aimed at those who have money or ability to pay, and generally at very fair rates, on the other hand the vast majority (people on the ground) pay small loans at very high rates and for Usually you can not access formal loans (banks) but the classic usurious lenders.

That previous point is the weakness that must be attacked and strengthened. If an intermediary is needed, what is the problem, I think it is about renewing the intermediary, not just bringing it to the blockchain under the existing schemes.

[SquallLeonhart]

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.

Think about it this way, if the crypto lenders are protected as much as banks, then why wouldn't that happen? It would easily happen and there would not be a problem at all. Which means that we are living in a world where lending is not the problem it is the trust that is the problem and we do not trust people that we loan to and that means we are having a lot of trouble about it as well. Obviously we are going to end up with some legal stuff in the future that protects people in the crypto world as well which means that lending will become a business and in the long run we should be able to see it as a common thing, it will take a few years but it will work out eventually.

Default rates are higher now as well in most nations, but when first crypto starts it will be huge, and people will think nothing will happen to them but will go bankrupt because of laws, then slowly people will realize and it will become similar to bank default rates.

[sunsilk]

With such hacks that happened through DeFi, they can't really be the one that's going to be at par with the borrowing system of the banks. I think, there's no need to solve and there's no problem to deal with.

As the crypto lending works alone and individuals can borrow and lend their assets through different platforms and that's just the same as the banks.

I would say the same thing as what others said about the co-existence with the bank.

[Shenzou]

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?

Well bitcoin can not fully replace the bank in that part but the threat to the bank is that bitcoin allows a store of value and allows you to have freedom about your own transactions, which if you are using fiat you don't have ease of access to these features, but in terms of the lending and borrowing you have a point although there are way that crypto in general can work around it but not bitcoin like smart contracts and lending sites.

[milewilda]

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?

Honestly i wont really be stressing out on something like this or this kind of topic because it would never happen for central banks for it to be replaced by crypto even though im pro-crypto but talking about this possibility is
really lit and couldnt really happen no matter how crypto market will flourish globally. It would never ever able to replace into those services and other key areas on where banking sector is much more efficient and effective
than on considering that crypto would do the job or would  overtaken. So its better not to stress that much in regards to this.

[LUCKMCFLY]

If at some point BTC can continue to emerge, I think the only way out of banks is to offer BTC-based loan facilities, of course, if they make a loan in BTC and then go up, that would become the most powerful weapon of that banks continue to live in debt, I also believe that due to the trend of BTC banks could demand special conditions that all their payments be in BTC, and in case the BTC goes down they can give payment statuses that are above their value in FIAT, a bank will never lose, at least the loans would make the banks survive in an eventual global recession of the economy. Aspi is the business model that I think banks can offer.

[wxa7115]

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?

Lending is probably the one service of banks that bitcoin has the most trouble emulating, the rest of the services provided by banks are so easily emulated that we do not even think about them.

So how to solve this? I think the solution given by the forum members of trusted escrows is good enough for the time being, I know we are relying on a centralized entity and we need trust but it is a good enough solution until a more advanced solution is tested and trusted enough by the community, however I will point out that the fiat system encourages debt and easy credit while bitcoin and its hard money policies encourage saving for the future, so this will discourage borrowing and lending by a significant margin and only those that really need a loan will apply for one, reducing the problem somewhat even if this is done indirectly.

[amishmanish]

--snip--
When at the heart of defi, you have to put up money to get more money. Borrowing money for collateral, which must be crypto.

That is the case for almost everything else in the world. You HAVE to put money to get money. There will always be people who have bigger purses and can become monopolists. In DeFi, with such proliferation of projects, there are just too many scams where people lock up funds and then farm the token to zero. This has always been the bane of crypto. Unregulated, anonymous founders and the ability to drum up a community with low effort marketing on Telegram and Discord.

Just too many third worlders are out there willing to use fake/ farmed twitter and facebook accounts to shill tokens. Its just the bounty mania becoming the DeFi mania. This definitely doesn't mean that the concept of DeFi isn't novel. It is laying the foundations for decentralized lending. How they evolve to actually fulfill the promise of making it easier to have financial access is up to the community to decide.

Its not that there is no path to such a future. Its only that majority is interested in gambles and mad gains, rather than slow, thoughtful building.

[slaman29]

--snip--
When at the heart of defi, you have to put up money to get more money. Borrowing money for collateral, which must be crypto.

That is the case for almost everything else in the world. You HAVE to put money to get money. There will always be people who have bigger purses and can become monopolists. In DeFi, with such proliferation of projects, there are just too many scams where people lock up funds and then farm the token to zero. This has always been the bane of crypto. Unregulated, anonymous founders and the ability to drum up a community with low effort marketing on Telegram and Discord.

Just too many third worlders are out there willing to use fake/ farmed twitter and facebook accounts to shill tokens. Its just the bounty mania becoming the DeFi mania. This definitely doesn't mean that the concept of DeFi isn't novel. It is laying the foundations for decentralized lending. How they evolve to actually fulfill the promise of making it easier to have financial access is up to the community to decide.

Its not that there is no path to such a future. Its only that majority is interested in gambles and mad gains, rather than slow, thoughtful building.

But you missed the entire point of my post, and the post I was responding to. At least business banks and development banks actually do give out money or capital for no collateral (they require a good business plan and an interview to determine you have a good business idea and the skills to make it work). So they are actually doing more for the working class and "unbanked" than Defi.

My problem isn't about the way the world works, needing money to make money. My problem is how Defi blatantly puts itself out as champions of unbanked and what not. Defi isn't novel. It's the same system that exists, just on blockchain. Decentralized? Did you read about Poly and BSC hacks and how the companies are working with exchanges to hold and freeze funds? It's just p2p lending, an upgrade of existing lending schemes.

[stompix]

My father uses that way to buy our house and with 20 years of playing time, he completes the mortgage payment without taking a loan.

A mortgage is a loan, you can't take a mortgage without a loan just as you can't borrow something without a lender.

That is what I did for my home and I do not take a loan too like my father because I am not good to manage the money for the things that I need.

So your home is basically your family home and you plan on staying there for 20 years at least, till you put aside enough money to buy directly a house, assuming you're at least 18 now, it will mean you're going to move out of your family house by the time you're in the early 40s?
It's your life, your choices but I would rather pay rent or only mortgage than staying half of my life with my parents.

Reading the posts before yours I was thinking the same thing. Bank Lending Rate differs significantly from country to country. Here are a few of the top rates around the world(it's clickable):
I'm sure many of you guys have those figures in the much lower range.

I think those rates are an average on all types of loans, currently checking my bank account they are offering at 1.25% one whole 1% below what that table says. Of course, there will be differences between banks but in most central and western Europe you will get away with paying something of around 30-50% interest on top of the price for a mortgage. Even less if you have some money put aside to finance at least 10-20%.

--snip--
When at the heart of defi, you have to put up money to get more money. Borrowing money for collateral, which must be crypto.

That is the case for almost everything else in the world.

No, it is not! You can get a car you can get a house with a loan, you can start a business with a loan assuming you're deemed capable of paying your debts. My parents' business has a credit line opened with our bank, we can spend something at around ~200k if I remember on things without other troubles as the value of the loan is guaranteed by the assets the farms have.
If we would have to apply for a defi loan we would need to sell the farm, come with the coin collateral get the loan...for what?
Most businesses would go bankrupt in a defi style economy.

[RealMalatesta]

you missed the entire point of my post, and the post I was responding to. At least business banks and development banks actually do give out money or capital for no collateral (they require a good business plan and an interview to determine you have a good business idea and the skills to make it work). So they are actually doing more for the working class and "unbanked" than Defi.

My problem isn't about the way the world works, needing money to make money. My problem is how Defi blatantly puts itself out as champions of unbanked and what not. Defi isn't novel. It's the same system that exists, just on blockchain. Decentralized? Did you read about Poly and BSC hacks and how the companies are working with exchanges to hold and freeze funds? It's just p2p lending, an upgrade of existing lending schemes.

Banking is not all about lending and loans, banking also involves around putting your money into some place, and yes sometimes get a loan if you need, and also there are ton of profit making parts of it as well, all of which comes down to the fact that we are in a DeFi world where you can use it just like a bank maybe with a problem at the loan part.

Unbanked people are unbanked, they are not reaching any banks at all, they do not have that chance, either bankrupted or in a town without a bank, many reasons could be causing them to be unbanked but in crypto all you have to do is have internet connection and defi could be banking you and even making you profit while you sleep. They are not the best at it, but what you get as banking in London is not what you get in Zimbabwe, so a guy in Zimbabwe using pancakeswap is much better than what they have there.

[Fortify]

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?

A lot of financial discussions go on here with people who bought into Bitcoin and think they are somehow genuises but lack any other knowledge on the overall subject of money. You're definitely right that, at least Bitcoin by itself, will never have the capacity to support all the required transactions for even a small country - let alone one of the economic powerhouses, but there may be future cryptocurrencies that are able to do so. We must always remember that there are already huge payment networks, that are well established and already handling the required billions of different transactions that take place each day - replacing that in an equally instantaneous, volume supporting and cheaper manner would be essential before even getting on to the topics of lending/borrowing.

[slaman29]

Unbanked people are unbanked, they are not reaching any banks at all, they do not have that chance, either bankrupted or in a town without a bank, many reasons could be causing them to be unbanked but in crypto all you have to do is have internet connection and defi could be banking you and even making you profit while you sleep. They are not the best at it, but what you get as banking in London is not what you get in Zimbabwe, so a guy in Zimbabwe using pancakeswap is much better than what they have there.

Why do I find like I keep having to repeat myself or that no one is actually reading what stompix or I said about the problem with defi?

1. No, internet connection is not the only thing you need to have. You also need actual crypto to put up as collateral. You all conveniently ignore this even though others and I specifically point it out.
2. How on earth can unbanked people who cannot reach banks suddenly have internet connection and knowledge of defi PLUS crypto to use Pancakeswap in Zimbabwe? Have you even taken a look at defi stats and see where their users come from and who they are? Unbanked Zimbabweans my ass.

Sorry my friend but you defi people are so, SO deluded. I don't mean to offend you but... it's quite ridiculous the things you believe for the sake of believing.

[LogitechMouse]

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?

I agree that crypto is a big threat if you will ask the banks but I disagree with the fact that many are saying that Bitcoin and crypto will kill those banks.

I don't see any reason why there are some people mentioning this thing where in fact, it isn't the main reason why crypto has been created at first place. It is in the whitepaper yes but it isn't stated there that it will kill banks.

I hate banks but they will stay for a long time and that is the truth and DeFi? There will be some projects that will stay and there will be some that will scam. These lending and borrowing projects like Compound isn't enough I think and there will be people that will still get a loan on banks rather than borrowing on them.

[amishmanish]

--snip--
When at the heart of defi, you have to put up money to get more money. Borrowing money for collateral, which must be crypto.

That is the case for almost everything else in the world. You HAVE to put money to get money. There will always be people who have bigger purses and can become monopolists. In DeFi, with such proliferation of projects, there are just too many scams where people lock up funds and then farm the token to zero. This has always been the bane of crypto. Unregulated, anonymous founders and the ability to drum up a community with low effort marketing on Telegram and Discord.

Just too many third worlders are out there willing to use fake/ farmed twitter and facebook accounts to shill tokens. Its just the bounty mania becoming the DeFi mania. This definitely doesn't mean that the concept of DeFi isn't novel. It is laying the foundations for decentralized lending. How they evolve to actually fulfill the promise of making it easier to have financial access is up to the community to decide.

Its not that there is no path to such a future. Its only that majority is interested in gambles and mad gains, rather than slow, thoughtful building.

But you missed the entire point of my post, and the post I was responding to. At least business banks and development banks actually do give out money or capital for no collateral (they require a good business plan and an interview to determine you have a good business idea and the skills to make it work). So they are actually doing more for the working class and "unbanked" than Defi.

I agree that DeFi, in current form, isn't really anything about "banking the unbanked". That job still falls to something like an LN wallet and a supporting economy. It is the "crypto VCs", their close friends and the shill influencers who are getting most of the action. Yet, the concept has just begun to be applied. It cannot be denied that certain communities, not necessarily poor or unbanked, are finding use cases that directly increase their incomes.

I keep seeing these posts by artists on twitter expressing happiness when their art sells in the form of NFTs. The NFT platform just provides an outlet, they provide the original pieces too. When it comes to DeFi, the current scenario is mostly about making mad gains by betting on the next product which will provide an alternate to banking. They are far from replacing banks that can provide loans based on assessment of businesses and property and are dependent on crypto collateral. Yet, the opportunity to just find the next Compound or Uniswap is open to everyone. Poor Zimbabweans aren't gonna cut it but a fillipino and a vietnamese with an old Axie account can.