To be very clear, fully collateralised loans are not really lending per se. They are repurchase agreements. I am not even sure what use such 'loans' have when you need to have $2 to take a loan of $1. They certainly solve some issues that Cryptocurrencies introduce for themselves but outside of that world they are useless
> To be very clear, fully collateralised loans are not really lending per se. They are repurchase agreements.
I agree with your assessment. It's an overcollateralized repo agreement. In the the "centralized finance" world, the purpose of the repo market is to provide investors with leverage at low cost. It's similar getting a mortgage from your bank to invest in a real estate property - you give the bank a down payment (let's say 20% down), and the bank lends you the remaining 80% to buy the property. In this way, your initial investment (20% down payment) is leveraged 4 times. Despite your leverage, the mortgage on the interest rate stays low because the bank has a lien on the real estate property so they can recover their loan value by selling the property if you don't pay back the loan.
> I am not even sure what use such 'loans' have when you need to have $2 to take a loan of $1. They certainly solve some issues that Cryptocurrencies introduce for themselves but outside of that world they are useless
But what issues in cryptocurrencies does it even solve? What is the business model of these DeFi businesses? They advertise to crypto investors that they can earn impossibly high rates of "interest and rewards," and there are plenty of crypto HODLs who would be happy to lock up their crypto in a DeFi to earn interest, but where is the demand side? Who needs to borrow $1 worth of crypto while posting $2 of crypto as collateral and paying impossibly high interest? Who needs to borrow cryptocurrency at all? The only purpose I can see of borrowing crypto would be to short sell it, but how many people are crazy enough to do that? I can't help but feel like DeFi is some kind of scam and a reincarnation of the ICO bubble.
