Is Crypto Collateralization the Onboarding Mechanism We’ve All Been Waiting For?
Onboarding individuals and institutions into the crypto space is a mainstream conversation for people in crypto. We all wonder aloud about how we can get “normies” and the big wall st. firms into crypto. I’ve made several posts in the past about this very topic.
Crypto collateralization is something that I personally have found very interesting. Especially in the past few months as I have taken a deep dive down the rabbit hole and spent time learning and ultimately utilizing various collateral tools across the crypto space.
MakerDAO is a “decentralized” crypto collateral system built on the Ethereum blockchain. It allows me and others to collateralize our ETH & BAT and receive a loan in the native stable-coin, DAI.
With this DAI, we can go out and trade whatever we want. We can use the DAI as we see fit and either invest in something crypto-related or even extract the value and put it into something that is crypto-hedged.
I actually used one of my MakerDAO vaults to power up HIVE in an account and curate with it for an APY, but that’s a story for another post.
Why Collateralization Matters to Main Stream Institutions:
Collateralization, loans and margin are the bread and butter of traditional finance.
"With this system, new participants come into the industry because they can take long positions in crypto and at the same time offer up collateral for loans.”
McCauley pointed to macro investor Paul Tudor Jones' recent interest in bitcoin as a sign further institutional adoption of crypto is on the way and said he expects the bitcoin price to continue to climb through 2020. - Forbes article on new collateralization offerings
The big institutions are always looking for ways to make money. When people say that these institutions won’t adopt crypto because it will destroy their business, I laugh a little.
Yes, crypto threatens certain aspects of these businesses. It may even make some institutions completely irrelevant. What many people seem to miss, however, is the fact that these institutions could shovel in MASSIVE profits if they simply invested in crypto and learned how to leverage the available tools.
That’s exactly what they will do. They are waiting for the right tools and opportunities. The right ways to leverage crypto and milk it for what it’s got.
Right or wrong, institutions care about making money at the expense of everything else. When the right tool comes along for the right institution, they will jump into the crypto mix like everyone else.
"In order for bitcoin to continue to mature as an asset class and increase demand from institutional investors, we need more platforms like Anchorage Financing to provide leverage for these investors," said Silvergate CEO Alan Lane. - Forbes
Why This Matters to Us
Institutions and collateralization tools matter to the individual as much as they matter to the institution. In fact, I could make an argument that it matters more for us individuals than it does for the institutions.
Think about this for a second:
I am able to take my ETH/BAT investment, go to a system like MakerDAO and setup a vault to collateralize that ETH/BAT and receive an instantaneous DAI loan against it. I don’t even need to enter my name.
All I need is an ETH address and some crypto for the collateral. Whether you believe in the idea of using collateral/taking loans against your investments, what we are seeing is unprecedented access to financial tools for individuals.
These tools and the tools that are on the horizon for crypto finance applications are necessary to the long-term adoption of crypto. Whether we use crypto for payments, for speculation or even for social activities like on Hive, financial tools are not just inevitable… they are absolutely necessary.
Personally, I enjoy the flexibility of being able to collateralize an investment position in order to leverage up for higher returns. Yes, there are obviously risks involved, but when you properly utilize risk for a return, great things can happen.
Financial tools are becoming massively available to the entire globe. From the individual level all the way up to the corporate level. The question remains: how do we educate the world and ourselves on how to best use these tools and position ourselves on the right side of history?
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Hive really needs to do collaterized loans. I've laid out a system that would allow us to do it without charging interest rates, which would lure just about everyone to this great platform of ours.
In the last month, I've been more poised on onboarding many persons to Hive and leofinance. Onboarding can increase adoption.
Can you put figures to this for example? Assuming I deposit a collateral of 50 USD and I want a loan of 100 USD. If my Eth(Collateral) drops in value and the worth is below 50 USD, that means I have to add more.Am I right? I am interested in this topic and De-Fi. But I have not gotten a good hold of the whole concept.
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Its a bit more complicated than that, though I grasp it but not enough to explain it fully. Read about DAI on consensys, the web has countless resources expanding on DeFi and its many applications.
Thank you @mistakili. I will have to do more search on it. Thanks for pointing me in the right direction too.
It is certainly a mechanism that will add many positive things and open more paths for cryptocurrencies around the world.
@blocktrades please say something about this, more and more members keep seeing value in this, when will it be talked about majorly?
The hive should seriously be concerning de-fi. It offers extra incentive to hodl as an investor and for those looking for liquidity a unique opportunity to get it at low-interest rates without much scrutiny.
Do we have or can we have similar setup in Leo @khaleelkazi ?. I currently have some usdt coins on compoundfinance accruing interest for me on the platform.One of the things I like about is I can withdraw my funds instantly as am sure many of of those investing in it do.It would be super if we had a similar setup here