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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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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