Re: Wall Observer BTC/USD - Bitcoin price movement tracking & discussion
Aha, now I see. Lender makes a btc transaction to the borrower. So, no longer the lender's keys. This checks out.
If the btc are not back by the given time, the collateral is released (to the lender, I suppose). So the risk would be an insolvent borrower AND the collateral not covering the "new" value of btc at loan expiry. This also checks out.
What does not check out is the following. Imagine being the borrower. Imagine being asked for, say, 200% collateral. Maybe in USDC/USDT? OK. So at expiry, if the btc you borrowed is worth more than the collateral, why give the loan back? Let the lender just have the collateral. On the contrary, if the btc you borrowed is worth less than half the collateral, give it back of course, and keep your relatively precious collateral. In other words: a shorter's paradise. (EDIT - No: it's more like an arbitrage, since it's impossible to lose if this is all there is to it.) Am I missing something? It's obvious I am, but I don't know exactly what - or I wouldn't be missing it
Another thing that escapes me: if you can post, say, 100k usd collateral, why would you borrow a bitcoin rather than buying one - or two? For simplicity, I'm assuming 1btc = 50k$.
Biodom, have you been able to figure this one out?
Just sounds like market forces then. Gotta predict what's going to happen and hope for the best. Either side could win or lose.
Yeah, market forces - but would you lend your btc in such a scenario? I sure wouldn't. Or I would ask for maybe 500% collateral, so I'm covered if she makes less than a 5x. No borrower in their right mind would put up that much collateral if they have it in a blockchainable form, that is, in some crypto token as opposed to, say, real estate.
Imagine that on top of this, there's interest to be paid(borrower)/gained(lender) too - which means even more incentive (statistically) for the borrower to stay insolvent and let you have the collateral if number go up enough.
That's why I think I've missed something.