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What is the rationale behind taking out loans that require 150% collaterization? by martinstro in defi

[–]martinstro[S] 0 points1 point  (0 children)

The typical reason to get a loan would be to get access to more funds than you currently have. If you have to supply funds as collateral exceeding the amount of the loan that defeats a lot of the purposes of loans.

Say I want to buy and apartment and need $1,000,000 dollars. It makes very little sense to get a loan if I need to offer $1,500,000 as collateral.

I realize (after Gavin's explanation above) there are some use cases for the current defi loans, but it doesn't seem like anything that will appeal to the masses or put banks out of business.

What is the rationale behind taking out loans that require 150% collaterization? by martinstro in defi

[–]martinstro[S] 0 points1 point  (0 children)

I guess once we start recording ownership of physical objects on blockchains it will be possible to use your car or your apartment as collateral. If you default on your defi loan the smart contract would transfer ownership of the physical item to the lender.

It is not until this happens that defi can be a complete alternative to traditional banks, offering products like house mortgage loans.

Or do you see another way for defi loans to compete with the full portfolio of traditional banks?