Comment on Seeing how cheap it is to send Bitcoin over lightening
bloodydamnfool@exploding-heads.com 9 months agoThese loans:
- are permissionless - there is no approval process. You just say you want one
- you do not need to pledge security i.e. give a second mortgage on your house.
- they are under collateralized
I was curious so I went and read the whitepaper, and it’s not at all clear to me how this is supposed to work.
“Borrower’s Liquidity Tokens
Liqudity Tokens are sent to the borrower’s specified address and remain in full control by the borrower. The borrower is free to lock the liquidity in any service they wish, transfer or hold them. Liquidity Tokens are not able to re be redeemed for the liquidity while a loan is active.
Default
In the case of a default through any of the terms violated specified on the Initial Liqudiity Loan, the Loan becomes eligible for liquidation.”
So there are no consequences for defaulting on the loan, but you aren’t actually receiving the loan in the form of ETH, but of monopoly money (liquidity tokens) that can only be converted to ETH once the loan is repaid? Why on Earth would anyone accept liquidity tokens as payment for any service?
admin@exploding-heads.com 9 months ago
When you launch a token on a decentralized exchange like Uniswap, Sushiswap, etc. you need to deposit an equal amount of ETH and the token you are launching.
The initial value of the token is the amount of ETH divided by the number of tokens you are launching divided.
A successful token launch requires money to be spent on development, marketing, community building, as well as the ETH to deposit into the decentralized exchange to launch the token.
Like most startups in any business, people launching tokens often do not have all the capital they need to do all the things they want to do to make their token launch successful.
So X7 has a Decentralized exchange called Xchange which allows them to lend you ETH by depositing it against the tokens you are launching so you do not have to. But the trick is, only X7 can withdraw the ETH so if you default they can easily get their ETH back.
Most of the tokens being launched have a transaction tax that builds up reserves over time to allow the X7 loan to be repaid.
It is a very specific lending case meeting a very specific need for people launching tokens, but if successful will I can see it expanding to meet other needs.
bloodydamnfool@exploding-heads.com 9 months ago
Very good explanation, thank you.
And yes, it doesn’t map to physical businesses or assets very well, but for that one can hypothetically run a traditional bank using crypto money, it’s just going to be inefficient.