Complexlity
@complexlity
In the web3 space, I don't understand why people `borrow`. In my experience using some of these platform. You have to provide 200% collateral on one currency to borrow another. And if you cannot repay, you risk forfeiture. In physical world, the reason you have collateral is you still own it. Imagine selling you stock or car to purchase something. You can not simply buy it back. But in crypto, isn't it better to just convert your 500k USDC to WETH and than borrow 500K WETH while locking 1M USDC as collateral. What am I missing here?
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Kiddmetro 🎩
@lorenzo-007
hmmm this is an interesting convo currently developing and studying on borrowing money in the web3 space. but i'm confused. To me everything about borrowing on web3 seems flawed to me and makes no sense. maybe you can explain with your experience like why borrow in another crypto currency why risking your money in forfeiture and also isn't the platform at loss if they ain't able to return the money and also isn't there gonna be interest rate depending of time of payment. In the physical world it different based on the fact you can put some thing you own as collateral.
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meshki.base.eth
@meshki.eth
The overall logic behind borrowing is sth like this: you are bullish on two or more different assets but you don't have enough liquidity for all of them Say you're bullish on both ETH and SOL but you only have some ETH and you don't have any more liquidity for SOL, in this case you supply the ETH, then you borrow some USDC and convert it to SOL and simply hodl it (or do staking with some more interest to earn) after a while you end up with more profit than just holding ETH Supply 0.2 ETH = 1000 USDC Borrow 500 USDC Buy 3 SOL imagine this: after the end of bull market ETH is up 50% and SOL is up 100%, you sell your 3 SOL for 1000 USDC, replay your 500 USDC debt (500 USDC profit here), withdraw your 0.2 ETH and sell for 1500 USDC, you end up with 2000 USDC instead of 1500 USDC which you would have if just hodled the ETH I ignored the interests in both scenarios for the ease of calculations, even though it's not a lot, you probably end up with some 2-3% negative rate which I think we can agree that's not a lot
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meshki.base.eth
@meshki.eth
The example you used is what people do in a bearish market, you supply a stablecoin, then borrow some other coin which you're bearish on and sell it, at last they rebuy the sold asset for a less dollar value and repay their debt, I think it's better to explain with an example: say you supply 1000 USDC, then borrow like 50% of it as ETH which is approximately 0.2 and sell it for 500 USDC, after a while that the market has been bearish you need to buy and repay the 0.2 ETH which is worth less than the initial 500 USDC (let's say it's down like 30% and you need to pay 340 USDC for 0.2 ETH), after repaying and withdrawing you end up with 1160 USDC (16% profit) in a bearish market
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