Quote from: Kluge on January 17, 2015, 08:39:18 AM

Counterparty or similar token backed by stable, redeemable commodity. I made a goofy comment elsewhere about this, but a Tidecoin (literally backed by jugs of Tide laundry detergent) would probably be as close to ideal as you could get. Worst case scenario, you have to actually use the overpriced shit -- but its use as a laundry detergent does give it some... "near-objective" value.

That said, "non-productive" collateral is still a bad kludge to a practically unsolved problem which needs to be fixed properly. Cars make sense for collateral because people need them, and they usually need the exact car they bought on loan, and, for that reason, a loan officer probably isn't going to issue another car loan to the same person while he still has an outstanding car loan. Same with houses and home improvement/repair loans. -But a lendee doesn't really "need" litecoin or XRP or whatever, and there's a good chance the collateral will be worth significantly less than when collateral was negotiated. Normally, in a repo event, the collateral would be sold around FMV with the proceeds used to REDUCE the loan amount - but because collections are almost impossible with crypto-loans between people separated by hundreds or thousands of miles, the lender being made whole is still extremely unlikely. On the flip-side, a malicious lender may hold collateral hostage, demanding FMV be paid for the collateral to be returned, and it's unlikely the lendee would have viable recourse.

Agreed, overall. However, Smart Contracts would at least bind the loan / collateral to the blockchaian it was issued to; whereby making it a legally-enforceable contract between the buyer and the seller (or two traders, in the case of a barter arrangement).

NXT does start to address this issue with the ability to issue a NXT-backed MS altcoin held in escrow via Smart Contract; based on the defined properties and terms (i.e. block height expiry, etc.) The SAE currently has a relatively primitive Smart Contract available, albeit the true power of Smart Contracts is rumoured to be released around v1.7 or 1.8 of the NXT wallet client.